CPMD 10-K
Cannapharmarx, Inc. (CPMD)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the fiscal year ended
or
For the transition period from ___________to ___________
Commission File Number:
(Exact name of small business issuer as specified in its charter) |
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(Address of principal executive offices)
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Securities registered pursuant to Section 12(b) of the Act:
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Securities registered pursuant to Section 12(g) of the Act:
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: Yes ☐
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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. ☐
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State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter on June 30, 2025 was $
The number of shares of the registrant’s common shares issued and outstanding as of March 31, 2026, was
CANNAPHARMARX, INC. |
DECEMBER 31, 2025 |
TABLE OF CONTENTS |
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report contains "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 concerning our anticipated results and developments of our operations in future periods, plans related to our business, and other matters that may occur in the future. These statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management.
Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as "expects", "anticipates", "plans", "estimates" or "intends", the negatives thereof, variations thereon and similar expressions, or stating that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved) are not statements of historical fact and may be forward-looking statements.
Forward-looking statements are subject to a variety of known and unknown risks, uncertainties and other factors which could cause actual events or results to differ from those expressed or implied by the forward-looking statements, including, without limitation:
| · | risks associated with the Company's history of losses and need for additional financing, |
| · | risks associated with increased costs affecting its financial condition, |
| · | risks associated with uninsured risks, |
| · | risks associated with governmental and environmental regulations, |
| · | risks associated with future legislation regarding the cannabis industry and climate change, |
| · | risks associated with cybersecurity and cyber-attacks, |
| · | risks related to economic conditions, |
| · | risks related to our ability to manage growth, |
| · | risks related to our dependence on key personnel, |
| · | risks related to our SEC filing history, and |
| · | risks related to our securities. |
This list is not exhaustive of the factors that may affect the Company's forward-looking statements. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those described in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, estimated or expected. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Except as required by law, the Company disclaims any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
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PART I
ITEM 1 - BUSINESS
Description of current business
CannaPharmaRx, Inc. (“CPMD”, “we”, “our”, or the “Company”) specializes in the acquisition, development, and operation of cannabis cultivation facilities in Canada. Originally incorporated in the state of Colorado in August 1998 as Network Acquisitions, Inc., we evolved to focus on producing high-quality medical cannabis and craft products. Our principal executive office is located at 4439 Township Rd 304, Mountain View County, Alberta, Canada T0M 0R0 and our Internet website address is www.cannapharmarx.com. The information on our website is not incorporated by reference into this annual report.
On January 6, 2022, we entered into a 20-year operating lease for the use of a 55,000 square foot facility located in Cremona, Alberta, Canada (the “Facility”). During 2022, we recommissioned the Facility into an indoor cannabis farm with 10 growing rooms and one drying and packing room. The Facility currently operates six of these growing rooms and one drying and packing room and plans to increase capacity over the next one to two years to open a second drying and packing room and to operate all 10 growing rooms. We received an operating license from Health Canada on December 9, 2022, and a cannabis license from the Canada Revenue Agency (“CRA”) on December 22, 2022, and commenced cannabis production during the year ended December 31, 2023.
We plan to grow by increasing our production capacity at the Facility to support sales of cannabis to the European markets, with a focus on Germany and Israel. To support this initiative, we intend to increase the number of growing rooms from six to 10 rooms over the next one to two years and to open a second drying and packing room, building and developing a sales network in Germany and Israel, and applying for European Union Good Manufacturing Practices (“EU-GMP”) certification. Currently, we are required to send our cannabis to a third-party European intermediary for packaging in compliance with EU-GMP standards. Once we receive the EU-GMP certification we will be able to remove this step from our delivery process and ship directly to countries within the European Union (“EU”), reducing overall costs and shipping timelines.
To facilitate our growth strategy, on November 22, 2023, we entered into an agreement with LTB Management, LLC (“LTB”) in support of building and developing a sales network in the EU and obtaining access to LTB’s e-commerce technology related to online sales of cannabis in the EU for a total purchase consideration of $4,518,127. Under this agreement, we obtained 100 Class B units of LTB in exchange for 27,224,962 share purchase warrants, each entitling the holders to purchase one share of our common shares at $0.02 per share until November 22, 2028; $3,000,000 in promissory notes payable to the LTB; and 100,000 Series C preferred shares of our company. Contingent consideration included a quarterly true up of LTB’s preferred share proportional ownership to 33% of the outstanding shares of our common shares, and an earn out whereby LTB can earn up to an additional 12% pro-rata preferred share proportional ownership (which, if earned, will result in the true up increasing by the pro-rata preferred share proportional ownership earned) based on our reaching an annual revenue threshold of $2,500,000 at any time within 24 months of the agreement date. As at December 31, 2025, the earn out period ended and we have a final obligation to issue 333,336 Series C preferred shares to LTB under the true up, valued at $2,166,681.
As of December 31, 2025, management evaluated the investment’s fair value using a discounted cash flow analysis of LTB and concluded that projected cash flows available to Class B unitholders were negative in all periods. Management concluded that a full impairment was appropriate. Accordingly, management determined the fair value of the investment to be negligible and fully impaired the carrying amount of $4,518,127, recognizing an impairment loss of the same amount for the year ended December 31, 2025.
On March 17, 2025, the Company and its subsidiary, 2323414 Alberta Ltd. (“Alberta Ltd.”), which operates the Company’s principal business activities, including the cultivation, processing, and distribution of cannabis, entered into a security and royalty agreement with Koze Investments LLC (“Koze”), a California-based limited liability company engaged in providing financing and investment services. Koze has been considered a related party since March 11, 2025, the date on which its manager, Elliot Zemel, was appointed as a director of the Company. Pursuant to the agreement, the Company is required to pay a royalty on cannabis product sales from the prior month as an additional consideration for the lease with Formosa. If royalty payments are not made on time, the applicable rate increases. The agreement stipulates that a default occurs if Alberta Ltd. fails to make royalty or lease payments for three consecutive months, or for any four months within a rolling six-month period. As collateral, the Company granted Koze a security interest in its entire ownership interest in Alberta Ltd., which will remain in place until all obligations are fully satisfied. As of December 31, 2025, Alberta Ltd. was in default of its payment obligations, and Koze agreed to forbear from exercising its rights over the ownership interest until May 31, 2026. The Company also incurred royalty expense under the agreement and recorded a related royalty payable liability as of December 31, 2025.
OUR PRODUCTS
Cannabis Products
We produce and sell dried cannabis flower, which is packaged for sale as dried flower and trim shake. Dried flower continues to be the core of all cannabis markets globally and accordingly our focus is to achieve consistent high-quality cultivation.
A summary of the Company’s average selling prices by market is as follows:
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| Average Price per Gram (CAD)* |
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Market |
| Premium Batches |
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| Medium Batches |
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Germany |
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| 2.05 |
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| 1.6 |
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Israel |
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| 2.0 |
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| 1.6-1.8 |
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Canada |
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| 2.0 |
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| 1.1-1.5 |
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Portugal |
| 1.8-2.0 |
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| 0.8-1.5 |
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* Batches with THC concentrations below 20% are generally sold at lower average prices compared to higher-THC batches.
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GOVERNMENT REGULATION
Canadian regulations
Summary of the Cannabis Act
On October 17, 2018, the Cannabis Act came into force as law with the effect of legalizing adult recreational use of cannabis across Canada. The Cannabis Act replaced the Access to Cannabis for Medical Purposes Regulations (“ACMPR”) and the old Industrial Hemp Regulations, both of which came into force under the Controlled Drugs and Substances Act (Canada) (the “CDSA”), which previously permitted access to cannabis for medical purposes for only those Canadians who had been authorized to use cannabis by their health care practitioner. The ACMPR replaced the Marihuana for Medical Purposes Regulations (Canada), which was implemented in June 2013.
The Cannabis Act permits the recreational adult use of cannabis and regulates the production, distribution and sale of cannabis and related oil extracts in Canada, for both recreational and medical purposes. Under the Cannabis Act, Canadians who are authorized by their health care practitioner to use medical and recreational cannabis have the option of purchasing cannabis from one of the producers licensed by Health Canada and are also able to register with Health Canada to produce a limited amount of cannabis for their own medical purposes or to designate an individual who is registered with Health Canada to produce cannabis on their behalf for personal medical purposes.
Pursuant to the Cannabis Act, subject to provincial regulations, individuals over the age of 18 are able to purchase fresh cannabis, dried cannabis, cannabis oil, and cannabis plants or seeds and are able to legally possess up to 30 grams of dried cannabis, or the equivalent amount in fresh cannabis or cannabis oil. The Cannabis Act also permits households to grow a maximum of four cannabis plants. This limit applies regardless of the number of adults that reside in the household. In addition, the Cannabis Act provides provincial and municipal governments the authority to prescribe regulations regarding retail and distribution, as well as the ability to alter some of the existing baseline requirements of the Cannabis Act, such as increasing the minimum age for purchase and consumption.
With respect to retail sales of cannabis, other than online sales, the provincial and territorial regulations in Prince Edward Island, Nova Scotia and Quebec allow only for government-run cannabis stores, while the provincial and territorial regulations in Ontario, Alberta, Newfoundland and Labrador, Nunavut, Yukon, Saskatchewan and Manitoba leave the retail sale of cannabis, other than online sales, to the private sector. In New Brunswick, British Columbia and Northwest Territories, provincial and territorial regulations allow for a hybrid model in which both public and private stores can operate. In addition, in Ontario, British Columbia, Newfoundland and Labrador, Northwest Territories, New Brunswick, Nova Scotia, Prince Edward Island, Quebec and Yukon, the provincial body is solely responsible for online sales.
In connection with the framework for regulating cannabis in Canada, the Federal Government introduced corresponding penalties under the Criminal Code (Canada), including penalties for the illegal sale of cannabis, possession of cannabis over the prescribed limit, production of cannabis beyond personal cultivation limits, taking cannabis across the Canadian border, giving or selling cannabis to a youth and involving a youth to commit a cannabis-related offence.
On June 26, 2019, the Federal Government published regulations in the Canada Gazette to support the Cannabis Act, including the Cannabis Regulations and Industrial Hemp Regulations. The new Industrial Hemp Regulations and the Cannabis Regulations, among other things, outline the rules for the legal cultivation, processing, research, analytical testing, distribution, sale, importation and exportation of cannabis and hemp in Canada, including the various classes of licenses that can be granted, and set standards for cannabis and hemp products. The Industrial Hemp Regulations and the Cannabis Regulations include strict specifications for the plain packaging and labeling and analytical testing of all cannabis products as well as stringent physical and personnel security requirements for all federally licensed production sites. The Industrial Hemp Regulations and the Cannabis Regulations also maintain a distinct system for access to cannabis.
In December 2023, Health Canada released guidance on cannabis products deliberately made with intoxicating cannabinoids other than delta-9-tetrahydrocannabinol (“delta-9-THC”). Health Canada defines “intoxicating cannabinoids” as cannabinoids that bind to and activate the cannabinoid receptor type 1 (“CB1 receptor”) and the guidance includes a list of 9 cannabinoids which can be revised as new evidence becomes available. This guidance recommends that license holders apply the regulatory controls (including limits on the amount of cannabinoids in certain products) currently applicable to delta-9-THC to all other cannabinoids that Health Canada considers to be “intoxicating cannabinoids” in order to minimize the risks of accidental consumption, overconsumption and adverse effects. This guidance comes at a time when various provincial regulators (such as those in Ontario, British Columbia and Alberta) are actively evaluating whether to permit the sale of or how to evaluate limits on the levels of certain cannabinoids (such as tetrahydrocannabivarin and cannabinol).
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Finally, on March 21, 2024, the final report of the Expert Panel on the Legislative Review of the Cannabis Act (the “Cannabis Report”), was issued. The Cannabis Report was intended to assess the full impact of legalization of cannabis in Canada and considered whether the Cannabis Act, had since its coming into force, accomplished its stated objectives of the protection of public health and public safety. The Cannabis Report provided 54 recommendations for the improvement on the federal regulation of Cannabis and noted the following:
· | There has been significant progress made on: (i) the establishment of a licensing framework supporting a legal industry that is providing adult consumers with a quality-controlled supply of a variety of cannabis products; (ii) steady progress in shifting adult consumers to the legal cannabis market (iii) for the most part, adherence to rules on promotion, packaging and labelling, including prohibitions about making claims about health or lifestyle benefits (iv) a significant reduction (95% between 2017 and 2022) in the number of charges for the possession of cannabis and minimizing the negative impact on some individuals from interactions with the criminal justice system. |
· | Shift in younger populations consuming cannabis with a trend towards the consumption of higher potency cannabis products. |
· | The illicit cannabis market remains entrenched, and too many illicit retailers continue to operate both online and physical stores. |
· | Industry representatives expressed concerns about the cost burden that the excise tax imposes on them originally intended to represent about 10% of the total cost of product to consumers but effectively resulting in nearly a 30% tax on products sold to consumers. In addition to the excise tax on cannabis products, additional costs also include regulatory fees and regulatory requirements that are imposed at both the federal and provincial and territorial levels. |
· | There is a lack of diversity in the sector, and that communities that were disproportionately harmed prior to when cannabis was decriminalized continue to face barriers to participation in the legal market. |
· | A greater commitment to enforcement is needed to avoid undermining the integrity of the regime. Inadequate enforcement emboldens criminal actors and may be interpreted by some that illicit cannabis activity does not pose health or safety concerns. |
· | The current lack of high-quality scientific evidence is creating difficulties for health care professionals and insurance providers faced with patient requests about the use of cannabis for medical purposes. |
Licenses
The Cannabis Regulations established six classes of licenses under the Cannabis Act: cultivation; processing; analytical testing; sale to individual clients for medical purposes; research; and cannabis drug production. It also provides for subclasses of cultivation (standard cultivation, micro-cultivation and nursery) and processing (standard processing and micro-processing). The Company currently holds the Health Canada Standard Cultivation and Processing license, Control Union Medical Cannabis Standard - Good Agricultural Practice license and Good Agricultural Collection Practice certificate.
Key personnel and security clearances
The Cannabis Regulations require that license holders retain certain key personnel, depending on the class of license. Holders of a license for cultivation, processing and sale must retain a responsible person (who serves as the main point of contact with Health Canada) and head of security. Holders of a license for cultivation must also retain a master grower, and holders of a license for processing must retain a quality assurance person. We hold licenses for the cultivation, processing and sale of cannabis and employ a master grower and a quality assurance person.
The Cannabis Regulations require a valid security clearance issued by the Minister of Health (Minister as defined in the Cannabis Act) for certain people associated with cannabis licensees. Security clearances must be held by directors, officers, individuals who exercise, or are in a position to exercise, direct control over a corporate licensee, directors and officers of any corporation that exercises, or is in a position to exercise, direct control over a corporate licensee and the key personnel noted above (responsible person, head of security, master grower and quality assurance person) and any other individuals identified by the Minister. The Minister may refuse to grant security clearances at its discretion to individuals or associations, such as those involved in organized crime or individuals with prior convictions for, or an association with, drug trafficking, corruption or violent offences (individuals with histories of non-violent, lower-risk criminal activity, for example, simple possession of cannabis, or small-scale cultivation of cannabis plants are not precluded from participating in the legal cannabis industry).
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Good production practices and cannabis products
Part 5 of the Cannabis Regulations establishes the good production practices which must be met prior to the sale, distribution or export of cannabis, and Part 6 of the Cannabis Regulations establishes rules for cannabis products, including permitted/prohibited ingredients and amounts of Tetrahydrocannabinol (“THC”). These require that cannabis and anything that will be used as an ingredient must be produced, packaged, labelled, distributed, stored, sampled and tested in accordance with standard operating procedures that are designed to ensure that those activities are conducted in accordance with the applicable requirements of Parts 5 (Good Production Practices) and Part 6 (Cannabis Products). The good production practices requirements relate to storage, distribution, the design and construction of buildings, filtration and ventilation systems, water supply, lighting, equipment, sanitation programs and testing.
The Cannabis Regulations also set out the requirements for the sale of cannabis products at the retail level permit the sale of dried cannabis, cannabis oil, fresh cannabis, cannabis plants, and cannabis seeds, including in such forms as “pre-rolled” and in capsules. The THC content and serving size of cannabis products is limited by the Cannabis Regulations. The sale of edibles containing cannabis and cannabis concentrates was legalized in the fall of 2019. The Cannabis Regulations also sets standards for the safe consumption of cannabis products, in respect of being free from biological and chemical contaminants and limits the amounts of THC in cannabis products.
Cannabis tracking system
Under the Cannabis Act, the Minister established and maintains a national cannabis tracking system, which is called The Cannabis Tracking and Licensing System (the “CTLS”). The CTLS provides an online secure platform for filing applications for licenses and security clearances under the Cannabis Regulations. Through the cannabis supply chain, the CTLS also tracks cannabis from federal cannabis license holders to individual medical clients, or from federal cannabis license holders to recreational market channels. The tracking function of the CTLS serves to limit the diversion of cannabis into, and out of, the regulated medical and recreational markets.
Promotion, packaging and labelling
The Cannabis Act establishes strict prohibitions on the promotion of cannabis, and the Cannabis Regulations establish rules around plain packaging and labelling. Among other things, it is prohibited to promote cannabis in a way that could be appealing to young people, by way of a testimonial or endorsement or through depiction of a person, character or animal, whether real or fictional; or in a manner associated with a “lifestyle”. The Cannabis Regulations establish rules around packaging and labelling to promote informed consumer choice, allow for the safe handling and transportation of cannabis products, ensure childproofing on containers and reducing the appeal of cannabis to youth. The size and color of packaging, logos, names and other brand elements is restricted. Cannabis package labels must include specific information, such as: (i) product source information, including the class of cannabis and the name, phone number and email of the processor; (ii) a mandatory health warning, rotating between Heath Canada’s list of standard health warnings; (iii) the Health Canada standardized cannabis symbol; and (iv) information specifying THC and Cannabidiol content.
Cannabis for medical purposes
The medical and recreational cannabis regulatory framework shifted from the ACMPR made under the CDSA to the Cannabis Act and the Cannabis Regulations. Under the Cannabis Regulations, there are three options available to an individual who has received authorization from his/her healthcare practitioner to use cannabis for medical purposes: (i) by registering with a holder of a license to sell for medical purposes; (ii) by registering with Health Canada for the production of a limited amount of cannabis for their own medical purposes; or (iii) by designating a third party to produce cannabis for them. With respect to (ii) and (iii), the starting materials for the production of cannabis, such as cannabis plants or seeds, must be obtained from medical sales license holders.
Provincial and territorial regulatory framework
The governments of every Canadian province and territory have implemented regulatory regimes for the use, distribution and sale of cannabis products for recreational purposes within their jurisdiction. The only provinces with restrictions on classes of cannabis that may be sold in the recreational markets are Québec and Manitoba, where plants and seeds are not sold because personal cultivation for recreational purposes is prohibited in those two provinces. In addition, as of the date of this Prospectus, some provinces are considering whether or not to allow cannabis vape products to be sold, including Newfoundland and Labrador.
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Regardless of the specific provincial retail framework, all cannabis products for the recreational cannabis market must be supplied by federally licensed cultivators (plants and seeds only) and processors (all other allowable classes of cannabis - currently dried cannabis, cannabis oil, cannabis edibles, cannabis extracts and cannabis topicals). In most provinces and territories, a liquor or cannabis authority operated by the province serves as a wholesaler, with retailers purchasing cannabis products from the liquor or cannabis authority or from provincially licensed distributors. The wholesalers, in turn, acquire the cannabis products from federally licensed cultivators and processors.
Description of Canadian licenses and licensing requirements
Laws and regulations affecting the medical and recreational marijuana industry are constantly changing, which could detrimentally affect our operations. Local, state and federal medical and recreational marijuana laws and regulations are broad in scope and subject to evolving interpretations, which could require us to incur substantial costs associated with compliance or alter our business plan. In addition, violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our operations. It is also possible that regulations may be enacted in the future that will be directly applicable to our business. These ever-changing regulations could even affect federal tax policies that may make it difficult to claim tax deductions on our returns. We cannot predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our business.
European Union Regulatory Framework
While each country in the EU has its own laws and regulations, many common practices are being adopted relative to the developing and growing medical cannabis market. For example, to ensure quality and safe products for patients, many EU countries only permit the import and sale of medical cannabis from EU-GMP certified manufacturers.
The EU requires adherence to EU-GMP standards for the manufacture of active substances and medicinal products, including cannabis products. The EU system for certification of GMP allows a Competent Authority of any EU member state to conduct inspections of manufacturing sites and, if the strict EU-GMP standards are met, to issue a certificate of EU-GMP compliance that is also accepted in other EU member countries.
As of April 1, 2024, legislative change in Germany works in unison with existing laws and regulations in Europe. For example, the enactment of the law permitting the use of recreational cannabis in Germany to a limited extent still requires that all cannabis for medicinal purposes be EU-GMP certified, sold by EU-GMP certified manufacturers, for medical cannabis patient consumption, as prescribed by a physician. Although cannabis as of April 1, 2024 is no longer classified as a narcotic, regardless of whether for medicinal or recreational purposes, cannabis remains a licensed and controlled use product.
Israeli Regulatory Framework
The competent regulatory authority in Israel in all matters concerning the oversight, control and regulation of cannabis for medical production, use and research is the Medical Cannabis Unit (“IMCA”). The IMCA was established by the Israeli government under Resolution No. 3609, which also established an inter-ministerial safety committee, composed of representatives of government ministries, government authorities and other government bodies, for intergovernmental cooperation regarding the regulation of cannabis. The IMCA examines medical recommendations for the use of cannabis for medical purposes and in accordance with established procedures. The IMCA is also authorized to examine applications, and issue permits to hold, use and research cannabis.
Regulations Governing the Use of Cannabis for Medical Purposes
Under the Israeli Dangerous Drugs Ordinance (“Israeli DDO”), cannabis is defined as a “dangerous drug”, and the use of cannabis is prohibited unless a license is duly issued by the IMCA or a competent government agency. Pursuant to the Israeli DDO, the use of cannabis was allowed for patients and for medical purposes, in respect of certain medical conditions, under a special approval of the Ministry of Health (“MOH”). In June 2016, the Israeli government published Resolution No. 1587, which established a new regulatory framework for the “medicalization” of cannabis. Pursuant to Resolution No. 1587, the IMCA adopted regulations expanding the number of qualifying medical conditions for treatment with medical-use cannabis to include such conditions as cancer, pain, nausea, seizures, muscle spasms, epilepsy, Tourette syndrome, multiple sclerosis, amyotrophic lateral sclerosis, post-traumatic stress disorder, autism, migraines, arthritis, Parkinson’s disease, residual limb pain, spinal cord injuries, Human immunodeficiency viruses/Acquired Immunodeficiency Syndrome, Crohn’s disease, colitis, inflammatory bowel disease and terminal illnesses.
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Regulations Governing the Production, Manufacturing and Distribution of Cannabis for Medical Purposes
In March 2016, the IMCA published regulations that introduced strict pharmaceutical-grade standards for the production, manufacturing and distribution of cannabis for medical use pursuant to Israel Medical Cannabis-certified procedures: Israel Medical Cannabis-Good Agriculture Practices (“IMC-GAP standards”): Israel Medical Cannabis-Good Manufacturing Practice (“IMC-GMP standards”); Israel Medical Cannabis-Good Distribution Practice (“IMC-GDP standards”); Israel Medical Cannabis-Good Clinical Practice (“IMC-GCP standards”); and Israel Medical Cannabis-Good Security Practices (“IMC-GSP standards”). The goal of the March 2016 regulations was to achieve the standardization, reproducibility and uniformity in product quality that is similar to those standards for existing conventional drugs.
Under the March 2016 regulations, market participants are required to apply for various licenses for the production, manufacturing and distribution of medical cannabis-based products. Each license establishes that the licensee adheres to certain protocols and standards regarding the quality and standardization of practices for (1) propagation and breeding, (2) cultivation, (3) extraction, formulation and packaging, (4) storage and delivery and (5) pharmacies. In addition, the March 2016 regulations requires that the whole operation be secured under appropriate conditions, in accordance with the IMC-GSP standard.
Licenses are initially granted on a provisional basis, subject to the development and completion of a facility with adequate protocols and systems to meet the standards required by the license. Applicants are not officially permitted to breed, cultivate, manufacture or distribute cannabis or cannabis products until the nursery, cultivation and manufacturing facilities are constructed and pass inspection by the IMCA. After the facilities pass inspection, the IMCA will issue the final cannabis licenses for each operation. The license is renewable subject to the limitations, terms and conditions of the IMCA, and licenses are subject to annual reviews of the licensees conduct and compliance with applicable laws and standards.
The production processes of cannabis plants used for the production of raw materials, the manufacturing and packaging processes and the procedures of distribution thereof, must all be carried out under the strict control and supervision and in accordance with the IMCA standards. Therefore, throughout the entire process, including the breeding phase, the production of the finished product and the distribution of the finished product through a pharmacy, each link in the chain is obliged to strictly maintain optimal and homogenous environmental conditions, and to strictly maintain defined and homogenous working procedures that are based on these standards. Regular and periodic analytical examinations shall be conducted throughout the entire chain of production, pursuant to the requirements, in order to ensure and to document that the plant complies with the analytical standards and the level of quality required during each of the phase of the chain of production.
Pharmacy Regulations
As part of the March 2016 regulations, pharmacy owners who wish to sell medical cannabis are required to apply for a dedicated license granted by the IMCA to sell, and store cannabis. Pharmacies are also subjected to regulations of several other governmental bodies including the MOH, the local municipality, and the district pharmacists. Pharmacies must also obtain a business license. Granted by the MOH and the local municipality, business license to operate a pharmacy in Israel requires approval from several authorities including, the fire department, the police, and several other departments in the local municipality. The pharmacy is also required to comply with the MOH and district pharmacists’ requirements, which includes different security measures, certain safety protocols, and compliance with the requirements for storage of narcotics (including cannabis). In addition, pharmacies require a Good Distribution Practice (“GDP”) license to sell medical cannabis. Granted by the IMCA after obtaining the final business licenses, the license to sell medical cannabis is subjected to compliance with GDP and Good Security Practice (“GSP”) standards of the IMCA, which include, but not limited to, full compliance with the GSP protocols, which are dedicated security measures for storage (which is subject to certain capacity limitations). Under the GDP, only certified cannabis pharmacists are allowed to sell cannabis and advise patients.
Medical Cannabis Transportation Regulations
The transportation of medical cannabis is also subject to the GDP and GSP standards and requires a transport license from the IMCA. Certain security measures are applied to the transportation of medical cannabis which vary in accordance with the quantities shipped and where the product is shipped to. For example, shipping cannabis from manufacturers to wholesalers requires armed vehicles and with security personnel while home deliveries require lighter security measures as long as the quantity is less than one kilogram.
Export & Import of Pharmaceutical-Grade Cannabis
The State of Israel is bound by the Narcotics Convention, which governs the import and export of cannabis between countries that are a party to the Narcotics Convention. The Narcotics Convention is an international treaty to prohibit the production and supply of specific drugs (nominally narcotic drugs and drugs with similar effects) except under license for specific purposes, such as medical treatment and research. The Commission on Narcotic Drugs and the World Health Organization were empowered to add, remove, and transfer drugs among the Narcotics Convention’s four schedules of controlled substances. The International Narcotics Control Board was authorized to administer controls on drug production, international trade, and dispensation. The United Nations Office on Drugs and Crime was delegated the Board’s day-to-day work of monitoring compliance in each country and working with national authorities to ensure compliance with the Narcotics Convention. The Narcotics Convention has 186 state parties, including all the countries in which we operate and plan to operate.
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From an import perspective, in January 2020, due to a shortage in the Israeli market of pharmaceutical-grade cannabis, the Israeli MOH and the IMCA expedited the process of approving import licenses of such cannabis, and for the first time ever, pharmaceutical-grade cannabis and cannabis-based products were imported into Israel. In October 2020, the IMCA published a directive that included updated qualifications for a licensee to receive an import license and the guidelines under which such import may take place. From time to time, the MOH revises the guidelines for imports, and the Company has consistently followed all the updates, ensuring a steady flow of imports.
Intellectual Property
We do not hold any patents or patent applications.
Employees
We currently employ twenty-six full-time employees and a fluctuating number of casual staff on an as-needed basis depending on the volume of work during production. We anticipate that we will retain additional full-time employees as we continue to increase production capacity in the Facility. We believe that there are a sufficient number of potentially qualified employees available to meet our future needs. No employee is a member of any union. We believe our relationship with our employees is satisfactory.
Competition
Because the cannabis market is very saturated, we have significant competition from a number of other companies. These competitors consist of both public and private companies, who are also seeking to market their products in the EU. Many of our competitors have greater resources, both financial and otherwise, than the resources presently available to us. This fact is a significant obstacle to our growth plans. As a result, it will require our management team to identify areas we can best compete in to maximize our operating performance.
ITEM 1A - RISK FACTORS
An investment in our common shares is highly speculative, involves a high degree of risk and should be made only by investors who can afford a complete loss. You should carefully consider the following risk factors, together with the other information in this report, including our financial statements and the related notes, before you decide to buy our common shares. If any of the following risks actually occurs, then our business, financial condition or results of operations could be materially adversely affected, the trading volume and value of our common shares could decline, and you may lose all or part of your investment therein.
Substantial doubt about the Company’s ability to continue as a going concern.
Our ability to continue as a going concern is dependent upon our ability in the future to grow our revenue and achieve profitable operations and, in the meantime, to obtain the necessary financing to meet our obligations and repay our liabilities when they become due. External financing, predominantly by the issuance of equity and debt, will be sought to finance the operations of the Company; however, there can be no certainty that such funds will be available at terms acceptable to us, or at all. These conditions indicate the existence of material uncertainties that may cast significant doubt about our ability to continue as a going concern.
During the years ended December 31, 2025 and 2024, we incurred net losses of $11,131,448 and $9,905,789, respectively. As at December 31, 2025, we had cash of $1,804 and a working capital deficit of $30,278,570 and had negative operating cash flow of $789,102 for the year ended December 31, 2025. We expect that our operating expenses will increase over the next twelve months in order to continue our development activities. Based on our average monthly expenses, we estimate that our cash on hand and from operations will not be sufficient to support our operations through the balance of 2026. Should this amount not be sufficient to support our continuing operations, we do not expect to be able to raise any additional capital through debt financing from traditional lending sources since we are not currently generating a profit from operations. Therefore, we only expect to raise money through equity financing via the sale of our common shares or equity-linked securities such as convertible debt. Our operations are currently funded through advances and support from related parties. If we cannot raise the funding that we need in order to continue to operate our business, we will be forced to delay, scale back or eliminate some or all of our proposed operations. If any of these were to occur, there is a substantial risk that our business will fail. If we are unsuccessful in raising additional financing, we will need to curtail, discontinue, or cease operations.
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We have a history of losses and will require financing, which may not be available.
As of December 31, 2025, we had an accumulated deficit of $112.3 million and incurred a net loss of approximately $11.1 million on revenues of $1.4 million in the year ended December 31, 2025.We have limited assets, which increases our vulnerability to general adverse economic and industry conditions, limits our flexibility in planning for and reacting to changes in our business and industry, and may place us at a competitive disadvantage to competitors with sufficient capitalization. If we are unable to obtain sufficient financing on satisfactory terms and conditions, we will be forced to curtail or abandon our plans or operations. Our ability to obtain financing will depend upon a number of factors, many of which are beyond our control.
We have had a limited operating history in the cannabis industry and our ability to grow sales and achieve profitability is questionable.
We have had a limited operating history in the cannabis industry and our ability to increase our revenues and achieve our plans for growth and profitability depends on many factors, which include:
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| successfully implementing our business strategy;
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| increasing revenues; and
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There can be no assurance that we will be able to successfully implement our business plan, meet our challenges and become profitable in the future.
We will need to raise additional funds in the future that may not be available on acceptable terms or available at all.
Until we are able to generate sufficient cash flow from our existing operations, we will need to issue additional debt or equity securities to fund our business and business plan. If we issue equity or convertible debt securities to raise additional funds, our existing shareholders will likely experience dilution, and the new equity or debt securities may have rights, preferences, and privileges senior to those of our existing shareholders. If we incur additional debt, it may increase our leverage, requiring us to pay additional interest expenses. We may not be able to obtain financing on favorable terms, or at all, in which case, we may not be able to develop or enhance our products, execute our business plan, take advantage of future opportunities, or respond to competitive pressures.
Convertible notes in default and related penalty provisions may adversely affect our financial condition
As of December 31, 2025, all of our outstanding convertible notes were past their stated maturity dates and remained unpaid. Although the notes continue to be subject to their original contractual terms, failure to repay the notes at maturity exposes us to increased financial risk, including the potential for penalties and unfavorable settlement terms.
Due to the late filing of prior annual reports and the loss of our active listing on the OTC market, the penalty provisions associated with all outstanding convertible notes became effective. We estimate that the maximum penalties could equal up to one times the face value of the outstanding convertible notes, resulting in an accrued penalty liability of $735,002 as of December 31, 2025. These accrued penalties and the continued default status of the notes may materially and adversely affect our liquidity, financial condition, and ability to obtain additional financing. We may be required to satisfy these obligations through cash payments, the issuance of equity securities, or a combination thereof, which could result in significant dilution to existing shareholders.
Our actual financial position and results of operations may differ materially from management’s expectations.
We expect to incur significant ongoing costs and obligations related to its investment in infrastructure and growth and for regulatory compliance, which could have a material adverse impact on the Company’s results of operations, financial condition and cash flows. In addition, future changes in regulations, more vigorous enforcement thereof or other unanticipated events could require extensive changes to our operations, increased compliance costs or give rise to material liabilities, which could have a material adverse effect on the business, results of operations and our financial condition. Our efforts to grow our business may be costlier than we expect, and we may not be able to increase our revenue enough to offset our higher operating expenses. We may incur significant losses in the future for a number of reasons, including the other risks described in this report, and unforeseen expenses, difficulties, complications and delays, and other unknown events. If we are unable to achieve and sustain profitability, the market price of our common shares may decrease.
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The Company is reliant on the retention of licenses to produce medical and recreational cannabis products in Canada.
Our ability to grow, store and sell medical and recreational marijuana and cannabis oil in Canada is dependent on retaining the appropriate licenses with Health Canada. Failure to comply with the requirements of any license inspection or failure to retain the appropriate licenses with Health Canada would have a material adverse impact on the future business, financial condition and operating results of the Company.
Although we believe that we meet the requirements of the Cannabis at present, there can be no guarantee that Health Canada will renew the Licenses or, if renewed, that they will be renewed on the same or similar terms or that Health Canada will not revoke the Licenses. Should we fail to comply with the requirements of the Licenses or should Health Canada not renew the Licenses when required or renew the Licenses on different terms or revoke the Licenses, there would be a material adverse effect on our business, financial condition and results of operations.
Government licenses are currently, and in the future may be, required in connection with the Company’s operations, in addition to other unknown permits and approvals which may be required. To the extent such permits and approvals are required and not obtained, the Company may be prevented from operating and/or expanding its business, which could have a material adverse effect on the Company’s business, financial condition and results of operations.
We are subject to changes in Canadian laws, regulations and guidelines which could adversely affect our future business, financial condition and results of operations.
Our operations are subject to various laws, regulations and guidelines relating to the manufacture, management, packaging/labeling, advertising, sale, transportation, storage and disposal of medical and recreational cannabis but also including laws and regulations relating to drugs, controlled substances, health and safety, the conduct of operations and the protection of the environment. Changes to such laws, regulations and guidelines due to matters beyond our control may cause material adverse effects to our business, financial condition and results of operations.
To date, fresh cannabis, dried cannabis, cannabis oil products, primarily edibles and beverages infused with cannabis are permitted under the Cannabis Act. However, there is uncertainty regarding how and when certain regulatory changes will be implemented. Further, the general legislation framework pertaining to the Canadian recreational cannabis market is subject to significant provincial and territorial regulation, which varies across provinces and territories. Unfavorable regulatory changes, delays or both may therefore materially and adversely affect the future business, financial condition and results of operations of the Company.
We may not be able to develop our products which could prevent us from ever becoming profitable.
If we cannot successfully develop, manufacture and distribute our products, or if we experience difficulties in the development process, such as capacity constraints, quality control problems or other disruptions, we may not be able to develop market-ready commercial products at acceptable costs, which would adversely affect our ability to effectively enter the European and Asian cannabis market. A failure by the Company to achieve a low-cost structure through economies of scale or improvements in cultivation and manufacturing processes would have a material adverse effect on our commercialization plans and our business, prospects, results of operations and financial condition.
No assurance of sustainable revenues.
There can be no assurance that we will generate sufficient and sustainable revenues to enable us to operate at profitable levels or to generate positive cash flow. As a result of our limited operating history in the cannabis market and the nature of the markets in which we compete, we may not be able to accurately predict our revenues. Any failure by us to accurately make such predictions could have a material adverse effect on our business, results of operations, and financial condition. Further, our current and future expense levels are based largely on our investment plans and estimates of future revenues. We expect operating results to fluctuate significantly in the future as a result of a variety of factors, many of which are outside of our control. Factors that may adversely affect our operating results include, among others, demand for our products and services, the budgeting cycles of potential customers, lack of enforcement of or changes in governmental regulations or laws, the amount and timing of capital expenditures and other costs relating to the expansion of our operations, the introduction of new or enhanced products and services by us or our competitors, the timing and number of new hires, changes in our pricing policy or those of our competitors, the mix of our products, increases in the cost of raw materials, technical difficulties with the products, incurrence of costs relating to future acquisitions, general economic conditions, and market acceptance of our products. As a strategic response to changes in the competitive environment, we may, from time to time, make certain decisions regarding pricing, service, marketing or business combinations that could have a material adverse effect on our business, results of operations, and financial condition. Any seasonality is likely to cause quarterly fluctuations in our operating results, and there can be no assurance that such patterns will not have a material adverse effect on our business, results of operations, and financial condition. We may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall.
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We may not be able to effectively manage our growth and operations, which could materially and adversely affect our business.
We plan to grow through development of sales into the EU and Israel. If we are successful in implementing our plans, we may in the future experience rapid growth, which will require, among other things, continued development of our financial and management controls and management information systems, stringent control of costs, the ability to attract and retain qualified management personnel and the training of new personnel. We intend to utilize outsourced resources, and hire additional personnel, to manage our expected growth and expansion. Failure to successfully manage such growth and development could have a material adverse effect on our business and operations.
We face competition from companies that have significantly greater resources.
The cannabis market is very saturated and we have significant competition from a number of other companies. These competitors consist of both public and private companies, who are also seeking to market their products in the EU. Many of our competitors have greater resources, both financial and otherwise, than the resources presently available to us. This fact is a significant obstacle to our being able to achieve our growth plans and will require our management team to identify areas we can best compete in to maximize our profitability.
If we are unable to attract and retain key personnel, we may not be able to compete effectively in the cannabis market.
Our future success will depend upon our ability to attract and retain key management, including our President/Chief Executive Officer, technical experts and sales personnel. We intend to enhance our management and technical expertise by recruiting qualified individuals who possess desired skills and experience in certain targeted areas. Our inability to retain employees and attract and retain sufficient additional employees or engineering and technical support resources could have a material adverse effect on our business, results of operations and financial condition. Shortages in qualified personnel or the loss of key personnel limit our ability to develop and market our cannabis-related products. The loss of any of our senior management or key employees could materially adversely affect our ability to execute our business plan and strategy, and we may not be able to find adequate replacements on a timely basis, or at all.
If we are unable to keep up with technological developments, our business could be negatively affected.
The markets for our products are expected to be characterized by rapid technological change and be highly competitive with respect to timely innovations. Accordingly, we believe that our ability to succeed in the sale of our products will depend significantly upon the technological quality of our products and services relative to those of our competitors, and upon our ability to continue to develop and introduce new and enhanced products and services at competitive prices and in a timely and cost-effective manner. To develop such new products, we will depend upon close relationships with existing customers by leveraging upon their feedback on the quality of our products, our ability to continue to develop and introduce new and enhanced products at competitive prices and in a timely and cost-effective manner and grow the markets that we offer these products. There can be no assurance that we will be able to develop and market our products successfully or respond effectively to the technological changes or new product offerings of our potential competitors. We may not be able to develop the required technologies or products on a cost-effective and timely basis, and any inability to do so could have a material adverse effect on our business, results of operations and financial condition, and.
We may be exposed to significant currency exchange fluctuations.
Our revenues and expenses are expected to be primarily denominated in Canadian dollars (“CAD”) and Euros (“EUR”) and therefore may be exposed to significant currency exchange fluctuations due to translation to the Company’s reporting currency in United States dollars (“USD”). Recent events in the global financial markets have been coupled with increased volatility in the currency markets. Fluctuations in the exchange rate between the USD and the CAD may have a material adverse effect on the Company’s business, financial condition and operating results. The Company may, in the future, establish a program to hedge a portion of its foreign currency exposure with the objective of minimizing the impact of adverse foreign currency exchange movements. However, even if the Company develops a hedging program, there can be no assurance that it will effectively mitigate currency risks.
We may be subject to product recalls self-imposed or imposed by regulators for product defects.
Manufacturers and distributors of products are sometimes subject to the recall or return of their products for a variety of reasons, including product defects, such as contamination, unintended harmful side effects or interactions with other substances, packaging safety and inadequate or inaccurate labeling disclosure. If any of our products are recalled due to an alleged product defect or for any other reason, we could be required to incur the unexpected expense of the recall and any legal proceedings that might arise in connection with the recall. We may lose a significant amount of sales and may not be able to replace those sales at an acceptable margin or at all. In addition, a product recall may require significant management attention. Although we have detailed procedures in place for testing our products, there can be no assurance that any quality, potency or contamination problems will be detected in time to avoid unforeseen product recalls, regulatory action or lawsuits. A recall for any of the foregoing reasons would likely lead to decreased demand for our products and could have a material adverse effect on the results of our operations and our financial condition. Additionally, product recalls may lead to increased scrutiny of our operations by Health Canada or other regulatory agencies, requiring further management attention and potential legal fees and other expenses.
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Changes in product specifications and regulatory standards could have a material adverse effect on our costs and operating results.
Our business is subject to evolving product specifications and regulatory standards applicable to cannabis products, including requirements related to THC levels. Changes in these standards have affected the recoverability of certain products and increased cost of goods sold due to product rework or inventory write‑offs. Any future changes in regulatory requirements or product specifications may further reduce inventory recoverability and materially impact the Company’s financial condition and operating results.
We are reliant on key inputs, such as water and utilities, and any interruption of these services could have a material adverse effect on our finances and operating results.
Our business is dependent on several key inputs and their related costs including raw materials and supplies related to its growing operations, as well as electricity, water and other local utilities. Any significant interruption or negative change in the availability or economics of the supply chain for these key inputs could materially impact our business, financial condition and operating results.
We may be subject to liability claims for damages and other expenses not covered by insurance.
Our business, profitability, and growth prospects could be adversely affected if we are required to pay damages or defense costs in connection with a liability claim that falls outside the scope of our insurance coverage. While we have historically maintained insurance coverage with respect to builder’s risk, general liability, and property, we have not paid any insurance premiums since early 2024. As a result, our current insurance coverage may have lapsed or may not be sufficient to cover potential claims. There is no assurance that we will be able to reinstate or obtain insurance in the future in amounts, or at a cost, that would enable us to be adequately protected. Additionally, if our insurance costs or claim-related expenses increase, our operating cash flows may be negatively impacted. Further, market rates for insurance premiums and deductibles have been steadily increasing, which may further limit our ability to secure adequate insurance coverage going forward.
We operate within the cannabis industry, which might result in additional difficulties and complexities associated with obtaining adequate insurance coverage.
At the date of this report, we have not yet secured insurance coverage with respect to workers’ compensation, directors’ and officers’ insurance, fire and other similar policies customarily obtained for businesses to the extent commercially appropriate; and, because we are engaged in and operate within the cannabis industry, there might be exclusions and additional difficulties and complexities associated with obtaining such insurance coverage that could cause us to suffer uninsured losses, which could adversely affect our business, results of operations, and profitability. There is no assurance that we will be able to obtain and utilize such insurance coverage, if necessary.
The cultivation of cannabis includes risks inherent in an agricultural business including the risk of crop loss, sudden changes in environmental conditions, equipment failure, product recalls and others.
Our business involves the growing of medical and recreational marijuana. Such business is subject to the risks inherent in the agricultural business, such as insects, plant diseases and similar agricultural risks. Although we expect that any such growing will be completed indoors under climate-controlled conditions, there can be no assurance that natural elements will not have a material adverse effect on future production. The Company depends on a single facility for cannabis production, and any disruption to operations at this location cannot be offset by an alternative production site. As a result, any loss in production could materially impact the Company’s ability to meet demand and fulfill its business objectives.
The cultivation of cannabis involves a reliance on third party distribution services which could result in supply delays, reliability of delivery and other related risks.
For our customers to receive their product, we rely on third party distribution services. This can cause logistical problems with and delays in patients obtaining their orders and cannot be directly controlled by the Company. Any delay by third party distribution services may adversely affect the Company’s financial performance. Moreover, security of the product during transportation to and from the Company’s facilities is critical due to the nature of the product. A breach of security during transport could have material adverse effects on the Company’s business, financials and prospects. Any such breach could impact the Company’s future ability to continue operating under its licenses or the prospect of renewing its licenses.
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We are reliant on information technology systems and may be damaged by cyber attacks.
We have entered into agreements with third parties for hardware, software, telecommunications and other information technology (“IT”) services in connection with our operations. Our operations depend, in part, on how our suppliers protect networks, equipment, IT systems and software against damage from a number of threats, including, but not limited to, cyber-attacks, cable cuts, damage to physical plants, natural disasters, intentional damage and destruction, fire, power loss, hacking, computer viruses, vandalism and theft. The Company’s operations also depend on the timely maintenance, upgrade and replacement of networks, equipment, IT systems and software, as well as pre-emptive expenses to mitigate the risks of failures. Any of these and other events could result in information system failures, delays and/or increase in capital expenditures. The failure of information systems or a component of information systems could, depending on the nature of any such failure, adversely impact our reputation and results of operations.
We have not experienced any material losses to date relating to cyber-attacks or other information security breaches, but there can be no assurance that we will not incur such losses in the future. Our risk and exposure to these matters cannot be fully mitigated because of, among other things, the evolving nature of these threats. As a result, cyber security and the continued development and enhancement of controls, processes and practices designed to protect systems, computers, software, data and networks from attack, damage or unauthorized access is a priority. As cyber threats continue to evolve, we may be required to expend additional resources to continue to modify or enhance protective measures or to investigate and remediate any security vulnerabilities.
We may be subject to breaches of security at our Canadian facility, or in respect of electronic documents and data storage and may face risks related to breaches of applicable privacy laws.
Given the nature of the Company’s product and its lack of legal availability outside of channels approved by the Government of Canada, as well as the concentration of inventory in our facilities, despite meeting or exceeding Health Canada’s security requirements, there remains a risk of shrinkage as well as theft. A security breach at our facilities could expose us to additional liability and to potentially costly litigation, increased expenses relating to the resolution and future prevention of these breaches and may deter potential customers from choosing the Company’s products.
A privacy breach may occur through procedural or process failure, information technology malfunction, or deliberate unauthorized intrusions. Theft of data for competitive purposes is an ongoing risk whether perpetrated via employee collusion or negligence or through deliberate cyber-attack. Any such theft or privacy breach would have a material adverse effect on our business, financial condition and results of operations.
We may in the future be subject to legal proceedings, regulatory disputes, and governmental inquiries that could cause us to incur significant expenses, divert our management’s attention, and materially harm our business, results of operations, cash flows, and financial condition.
From time to time, we may be subject to claims, lawsuits, government investigations, and other proceedings involving product liability, consumer protection, competition and antitrust, intellectual property, privacy, securities, tax, labor and employment, health and safety, our direct distribution model, environmental claims, commercial disputes, corporate, and other matters that could adversely affect our business, results of operations, cash flows, and financial condition. In the ordinary course of business, we have been the subject of complaints or litigation, including claims.
Litigation and regulatory proceedings may be protracted and expensive, and the results are difficult to predict. Additionally, our litigation costs could be significant, even if we achieve favorable outcomes. As of the date of this report, we have outstanding lawsuits against us. Adverse outcomes with respect to litigation or any of these legal proceedings may result in significant settlement costs or judgments, penalties and fines, or require us to modify, make temporarily unavailable, or stop manufacturing or selling our vehicles in some or all markets, all of which could negatively affect our sales and revenue growth and adversely affect our business, prospects, results of operations, cash flows, and financial condition.
The results of litigation, investigations, claims, and regulatory proceedings cannot be predicted with certainty, and determining reserves for pending litigation and other legal and regulatory matters requires significant judgment. There can be no assurances that our expectations will prove correct, and even if these matters are resolved in our favor or without significant cash settlements, these matters, and the time and resources necessary to litigate or resolve them, could harm our business, results of operations, cash flows, and financial condition. In addition, the threat or announcement of litigation or investigations by governmental authorities or other parties, irrespective of the merits of the underlying claims, may itself have an adverse impact on the trading price of our securities.
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Risks Related to the Regulatory System and Business Environment for Cannabis
The expansion of the medical and recreational cannabis industry may require new clinical research into effective medical therapies.
Research in Canada, the U.S. and internationally regarding the medical benefits, viability, safety, efficacy, dosing and social acceptance of cannabis or isolated cannabinoids remains in early stages. There have been relatively few clinical trials on the benefits of cannabis or isolated cannabinoids. Although the Company believes that the articles, reports and studies support its beliefs regarding the medical benefits, viability, safety, efficacy, dosing and social acceptance of cannabis, future research and clinical trials may prove such statements to be incorrect, or could raise concerns regarding, and perceptions relating to, cannabis. Given these risks, uncertainties and assumptions, investors should not place undue reliance on such articles and reports. Future research studies and clinical trials may draw opposing conclusions to those stated in this Prospectus or reach negative conclusions regarding the medical benefits, viability, safety, efficacy, dosing, social acceptance or other facts and perceptions related to medical and recreational cannabis, which could have a material adverse effect on the demand for the Company’s products with the potential to lead to a material adverse effect on the Company’s business, financial condition and results of operations.
Regulatory restrictions on the marketing and sale of cannabis products in our target markets could materially impact our operating results.
The development of our business and operating results may be adversely affected by restrictions on sales, marketing, product specifications, and distribution imposed by regulatory authorities in the jurisdictions in which we seek to operate, including in the European Union and Asia. Cannabis-related regulations in these markets impose limitations on advertising, labeling, product form, THC content, and distribution channels, which may restrict the Company’s ability to effectively market its products and compete for market share. If we are unable to comply with evolving regulatory requirements or if the costs associated with compliance cannot be offset through pricing or operational efficiencies, our financial condition and operating results could be materially adversely affected.
Publicity or consumer perception may influence our business.
We believe the recreational and medical cannabis industries are highly dependent upon consumer perception regarding the safety, efficacy and quality of the cannabis produced. Consumer perception of our products can be significantly influenced by scientific research or findings, regulatory investigations, litigation, media attention and other publicity regarding the consumption of cannabis products.
There can be no assurance that future scientific research, findings, regulatory proceedings, litigation, media attention or other research findings or publicity will be favorable to the cannabis market generally, any particular product or consistent with earlier publicity. Future research reports, findings, regulatory proceedings, litigation, media attention or other publicity that are perceived as less favorable than, or that question, earlier research reports, findings or publicity could have a material adverse effect on the demand for our products and our business, results of operations and financial condition. Adverse publicity reports or other media attention regarding the safety, efficacy and quality of medical and recreational cannabis in general, or the Company’s products specifically, or associating the consumption of cannabis with illness or other negative effects or events, could have such a material adverse effect. Such adverse publicity reports or other media attention could arise even if the adverse effects associated with such products resulted from consumers’ failure to consume such products appropriately or as directed.
Regulatory scrutiny of our industry may negatively impact our ability to raise additional capital.
Our business activities rely on newly established and/or developing laws and regulations in Canada and other jurisdictions in which we intend to operate. These laws and regulations are rapidly evolving and subject to change with minimal notice. Regulatory changes may adversely affect our profitability or cause us to cease operations entirely. The cannabis industry may come under the scrutiny or further scrutiny by Health Canada and other regulatory bodies. It is impossible to determine the extent of the impact of any new laws, regulations or initiatives that may be proposed, or whether any proposals will become law. The regulatory uncertainty surrounding our industry may adversely affect our business and operations, including without limitation, the costs to remain compliant with applicable laws and the impairment of its ability to raise additional capital, which could reduce, delay or eliminate any return on investment in our company.
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Risks related to our common shares and their market value:
A limited public trading market exists for our common shares, which makes it difficult for our shareholders to sell their common shares. Any trading in our shares may have a significant effect on our share price.
Historically our common shares have traded on the OTC Markets under the symbol “CPMD.” However, as of the filing of this report, our common shares have been relegated to being only traded on the “expert market”. We expect with our filing of this annual report, our common shares will resume trading on the OTC Markets. Until that time, however, our shareholders will experience difficulty trading our common shares. Even when we were current in our reports, the trading activity of our common shares was volatile and a market may not develop or be sustained. As a result, any trading price of our common shares may not be an accurate indicator of the valuation of our common shares. If a more liquid public market for our common shares does not develop, investors may not be able to resell the shares of our common shares that they have purchased and may lose all of their investment. No assurance can be given that an active market will develop or that a shareholder will ever be able to liquidate their shares without considerable delay, if at all. Many brokerage firms may not be willing to affect transactions in our common shares. Even if an investor finds a broker willing to affect a transaction in our common shares, the combination of brokerage commissions, state transfer taxes, if any, and any other selling costs may exceed the selling price. Furthermore, our share price may be impacted by factors that are unrelated or disproportionate to our operating performance. These market fluctuations, as well as general economic, political, and market conditions, such as recessions, interest rates, and international currency fluctuations, may adversely affect the market price and liquidity of our common shares.
We may be subject to heightened scrutiny by United States and Canadian authorities, which could ultimately lead to the market for our common shares becoming highly illiquid and our shareholders having no ability to effect trades
Currently, our common shares are traded on OTC Pink Sheets in the United States. Our investments in the United States, may become the subject of heightened scrutiny by regulators, shares exchanges and other authorities in Canada and the United States. As a result, we may be subject to significant direct and indirect interaction with public officials. There can be no assurance that this heightened scrutiny will not in turn lead to the imposition of certain restrictions on our ability to operate or invest in the United States or any other jurisdiction, in addition to those described herein.
Existing shareholders may be diluted to the extent we raise additional funds through future equity financings
We continue to sell shares and issue notes convertible into shares for cash to fund our operations that will dilute the current shareholders. There is no guarantee that the Company will be able to achieve its business objectives. The continued development of our company will require additional financing. The failure to raise such capital could result in the delay or indefinite postponement of current business objectives or our going out of business. There can be no assurance that additional capital or other types of financing will be available if needed or that, if available, the terms of such financing will be favorable to us.
If additional funds are raised through issuances of equity or convertible debt securities, existing shareholders will suffer dilution, which in some cases may be significant, and any new equity securities issued could have rights, preferences and privileges superior to those of holders of our common shares. Our articles of incorporation permit the issuance of 5,000,000,000 common shares, and shareholders have no pre-emptive rights in connection with further issuances. The directors of the Company have discretion to determine the price and the terms of further issuances. In addition, from time to time, we may enter into transactions to acquire assets or the shares of other companies. These transactions may be financed wholly or partially with debt, which may temporarily increase our debt levels. Any debt financing secured in the future could involve restrictive covenants relating to capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. We will require additional financing to fund our operations to the point where we generate positive cash flow. Negative cash flow may restrict our ability to pursue our business objectives.
Our share price has undergone a great deal of volatility, including a significant decrease over the past few years.
From January 1, 2025 through the date of this annual report, the price per share of our common shares has ranged from a high of $0.008 to a low of $0.002. The price of our common shares has been, and may continue to be, highly volatile and subject to wide fluctuations. The market value of our common shares has declined in the past, due in part to our operating performance and to conversions of dilutive debt instruments that we have issued to fund operations. In the future, broad market and industry factors may decrease the market price of our common shares, regardless of our actual operating performance. Recent declines in the market price of our common shares have and could continue to affect our access to capital, and may, if they continue, impact our ability to continue operations at the current level. In addition, any continuation of the recent declines in the price of our common shares may curtail investment opportunities presented to us and negatively impact other aspects of our business, including our ability to fund our operations. As a result of any such declines, many shareholders have been become unable to resell their shares.
The market price of our common shares could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:
| · | our common shares being held by a small number of persons whose sales (or lack of sales) could result in positive or negative pricing pressure on the market price for our common shares; |
| · | actual or anticipated variations in our quarterly operating results; |
| · | changes in our earnings estimates; |
| · | our ability to obtain adequate working capital financing; |
| · | changes in market valuations of similar companies; |
| · | publication (or lack of publication) of research reports about us; |
| · | changes in applicable laws or regulations, court rulings, enforcement, and legal actions; |
| · | loss of any strategic relationships; |
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| · | additions or departures of key management personnel; |
| · | actions by our Shareholders (including transactions in our shares); |
| · | speculation in the press or investment community; |
| · | increases in market interest rates, which may increase our cost of capital; |
| · | changes in our industry; |
| · | competitive pricing pressures; |
| · | our ability to execute our business plan; and |
| · | economic and other external factors. In addition, the securities markets have from time-to-time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. |
These market fluctuations may also materially and adversely affect the market price of our common shares.
Our common shares are categorized as penny shares. Trading of our shares are restricted by the SEC’s penny shares regulations which may limit a shareholder’s ability to buy and sell our shares
Our common shares are categorized as “penny shares” as that term is defined in SEC Rule 3a51-1, which generally provides that a “penny share”, is any equity security that has a market price (as defined) less than U.S. $5.00 per share, subject to certain exceptions. Our securities are subject to the penny shares rules, including Rule 15g-9, which imposes additional sales practice requirements on broker-dealers who sell to persons other than established customers and accredited investors. The penny shares rules require a broker-dealer, prior to a transaction in a penny shares not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny shares and the nature and level of risks in the penny shares market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny shares, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny shares held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny shares rules require that prior to a transaction in a penny shares not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny shares are a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the shares that are subject to these penny shares rules. Consequently, these penny shares rules may affect the ability of broker-dealers to trade our securities and reduce the number of potential investors. We believe that the penny shares rules discourage investor interest in and limit the marketability of our common shares.
Financial Industry Regulatory Authority (“FINRA”) sales practice requirements may also limit a shareholder’s ability to buy and sell our shares
In addition to the “penny shares” rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives, and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculatively low-priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common shares, which may limit your ability to buy and sell our shares and have an adverse effect on the market for our shares.
We have not voluntarily implemented various corporate governance measures, in the absence of which, shareholders may have more limited protections against interested director transactions, conflicts of interest and similar matters
Federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in the adoption of various corporate governance measures designed to promote the integrity of corporate management and the securities markets. Some of these measures have been adopted in response to legal requirements. Others have been adopted by companies in response to the requirements of national securities exchanges, on which their securities are listed. Among the corporate governance measures that are required under the rules of national securities exchanges and National Association of Securities Dealers Automated Quotations (“NASDAQ”) are those that address board of directors’ independence, audit committee oversight and the adoption of a code of ethics. While our board of directors has adopted a Code of Ethics and an Audit Committee Charter, we have not yet adopted any of the other corporate governance measures, and, since our securities are not currently listed on a national securities exchange or NASDAQ, we are not currently required to do so. If our common shares become listed, we will be required to adopt these other corporate governance measures, and we intend to do so. It is possible that if we were to adopt some or all of these corporate governance measures, shareholders would benefit from somewhat greater assurances that internal corporate decisions were being made by disinterested directors and that policies had been implemented to define responsible conduct. For example, in the absence of audit, nominating and compensation committees comprised of at least a majority of independent directors, decisions concerning matters such as compensation packages to our senior officers and recommendations for director nominees may be made by a majority of directors who have an interest in the outcome of the matters being decided. Prospective investors should bear in mind our current lack of corporate governance measures in formulating their investment decisions.
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To date, we have not paid any cash dividends, and no cash dividends will be paid in the foreseeable future
We have not paid any cash dividends to date and do not anticipate paying cash dividends in the foreseeable future. Further, other classes of our preferred shares have priority to dividends meaning that even if we had sufficient funds to pay a dividend, there may not be sufficient funds to pay common shareholders any dividend, after fulfilling our obligations to holders of preferred shares. We currently intend to retain all earnings for our operations.
If we fail to develop or maintain an effective system of internal controls, we may not be able to accurately to report our financial results or prevent financial fraud. As a result, current and potential shareholders could lose confidence in our financial reporting
We are subject to the risk that sometime in the future our independent registered public accounting firm could communicate to the board of directors that we have deficiencies in our internal control structure that they consider to be “significant deficiencies.” A “significant deficiency” is defined as a deficiency, or a combination of deficiencies, in internal controls over financial reporting such that there is more than a remote likelihood that a material misstatement of the entity’s financial statements will not be prevented or detected by the entity’s internal controls.
Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we could be subject to regulatory action or other litigation and our operating results could be harmed. We are required to document and test our internal control procedures to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act,” or “SOX”), which requires our management to annually assess the effectiveness of our internal control over financial reporting.
We currently are not an “accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended. Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”) requires us to include an internal control report with our Annual Report on Form 10-K. That report must include management’s assessment of the effectiveness of our internal control over financial reporting as of the end of the fiscal year. This report must also include disclosure of any material weaknesses in internal control over financial reporting that we have identified. As of December 31, 2025, the management of our company assessed the effectiveness of the Company’s internal control over financial reporting based on SEC guidance on conducting such assessments and on the criteria for effective internal control over financial reporting established in Internal Control and Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management concluded, during the year ended December 31, 2025, that the Company’s internal controls and procedures were effective to detect the inappropriate application of U.S. Generally Accepted Accounting Principles (“US GAAP”). A material weakness in the effectiveness of our internal controls over financial reporting may increase the chance of fraud and the loss of customers, reduce our ability to obtain financing, and require additional expenditures to comply with these requirements. Any of these consequences could have a material adverse effect on our business, results of operations and financial condition. For additional information, see Item 9A - Controls and Procedures.
It will be time-consuming, difficult, and costly for us to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal controls, and other finance personnel in order to develop and implement appropriate internal controls and reporting procedures. If we are unable to comply with the internal controls requirements of the Sarbanes-Oxley Act, then we may not be able to obtain the independent accountant certifications required by such act, which may preclude us from keeping our filings with the SEC current.
If we are unable to maintain the adequacy of our internal controls, as those standards are modified, supplemented, or amended from time to time, we may not be able to ensure that we may conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. Failure to achieve and maintain an effective internal control environment could cause us to face regulatory action and cause investors to lose confidence in our reported financial information, either of which could adversely affect the value of our common shares.
Because our current directors, executive officers, and preferred shareholders beneficially own or control 30.7% of our common shares on a fully diluted basis, they can exert significant control over our business and affairs and have actual or potential interests that may depart from those of our other shareholders.
Our current directors and our executive officers beneficially own or control approximately 30.7% of our common shares on a fully diluted basis as of December 31, 2025. Additionally, the holdings of our directors, and executive officers, and preferred Shareholders may increase in the future upon vesting or other maturation of exercise rights under any of the restricted shares grants, share options, or share purchase warrants they may hold or in the future be granted, or if they otherwise acquire additional common shares. The interests of such persons may differ from the interests of our other shareholders. As a result, in addition to their board seats and offices, such persons may have significant influence over and may control corporate actions requiring shareholder approval, including the following actions:
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· | electing or defeating the election our directors; |
· | to amending or preventing the amendment of our Articles of Incorporation or By-laws; |
· | effecting or preventing a transaction, sale of assets, or other corporate transaction; and |
· | controlling the outcome of any other matter submitted to our Shareholders for vote. |
Such ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company, which in turn could reduce our share price or prevent our shareholders from realizing a profit on their investments.
Our articles of incorporation allow our board to create new series of preferred shares without approval by our shareholders, which could adversely affect the rights of the holders of our common shares
Our board of directors has the authority to fix and determine the relative rights and preferences of preferred shares. Our board of directors also has the authority to issue preferred shares without Shareholder approval. As a result, our board of directors could authorize the issuance of a series of preferred shares granting holders a preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common shares, and the right to redemption of the shares, together with a premium prior to the redemption of our common shares. In addition, our board of directors could authorize the issuance of a series of preferred shares that has greater voting power than our common shares or that is convertible into our common shares, which could decrease the relative voting power of our common shares or result in dilution to our existing Shareholders.
ITEM 1B - UNRESOLVED STAFF COMMENTS
None.
ITEM 1C - CYBERSECURITY
Risk management and strategy
Data integrity, privacy, availability, and security are critical to the corporate information technology, communication networks, accounting and financial reporting platforms, and related systems which are necessary for the operation of our business. These systems are used to manage our vendor relationships, for internal communications, for accounting and record-keeping functions, and for many other key aspects of our business including site security. Our business operations rely on the data privacy and security necessary to safeguard and protect secure collection, storage, transmission, and other processing of proprietary, confidential, and sensitive data.
We are continually assessing the need to implement and maintain various information security processes designed to identify, assess, and manage material risks from cybersecurity threats to our critical computer networks, third-party hosted services, communications systems, hardware and software, and our critical data, including confidential information that is proprietary, strategic or competitive in nature.
We engage a
Various technical, physical, and organizational measures, processes, standards, and policies designed to manage and mitigate material risks from cybersecurity threats to our systems and data have been implemented and are maintained. These include risk assessments, incident detection and response, vulnerability management, disaster recovery and business continuity plans, internal controls within our accounting and financial reporting functions, encryption of data, network security controls, access controls, physical security, systems monitoring, employee training, and penetration testing.
We engage certain third-party service providers to perform a variety of functions within our business and seek to ensure that we work with reliable, reputable service providers that maintain cybersecurity programs. Depending on the nature of the services provided, the sensitivity and quantity of information processed, and the identity of the service provider, our vendor management process may include reviewing provider cybersecurity practices, conducting provider security assessments, and conducting periodic provider reassessments during their engagement.
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We are not aware of any risks from cybersecurity threats or cybersecurity incidents which have
Governance
Our board of directors is
Our management, led by our Chief Executive Officer, Constantine Nkafu, leads our cybersecurity risk assessment and management processes and oversees their implementation and maintenance, including integration of cybersecurity risk considerations into our overall risk management strategy and communication of key priorities to relevant personnel. Management is responsible for cybersecurity-related matters including approval of processes; review of assessments and other matters; evaluation of potential impact of incidents to determine materiality based on the nature and scope of the incident and any impact to operations, assets, or reputation; and response to incidents, including reporting certain incidents to the board of directors. Our board of directors receives periodic reports from management concerning any cybersecurity threats and risks considered to be significant and the processes we have implemented to address them.
ITEM 2 - PROPERTIES
Our executive offices are located at 4439 Township Road 304, Mountain View County, Alberta, Canada T0M 0R0. Our growing facility which is located in Cremona, Alberta is subject to a 20-year operating lease with Formosa Mountain, which became a related party upon the appointment of its manager, Elliot Zemel, as a director of the Company on March 11, 2025 and will expire in 2042. We utilize this 55,000 square foot facility for growing, drying and packaging of our cannabis products. Lease payments for the growing facility are subject to annual increases. Our rent for the Facility in 2025 was $125,000 CAD per month. We believe that our facilities are sufficient for our current business purposes.
ITEM 3 - LEGAL PROCEEDINGS
Steven Barber
As part of our acquisition of Alternative Medical Solutions Inc. (“AMS”) in 2018, we are currently reviewing with our legal counsel 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. 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 have reviewed whether Mr. Barber has performed pursuant to the terms of the Consulting Agreement and noticed concerns.
No decision on whether to proceed on either of these situations has been reached as at the date of this report, but we do not believe that these situations present a probability of material risk and therefore a loss contingency is not reflected in our consolidated financial statements. As of December 31, 2025, we have an outstanding payable of $549,780 (December 31, 2024 - $549,780).
Deloitte LLP
On July 18, 2024, Deloitte LLP (“Deloitte”) filed a civil claim in the Alberta Court of Justice, alleging a breach of contract. Deloitte was engaged by us to pursuant to an engagement letter dated August 29, 2022, Deloitte alleged that it has discharged its responsibilities.us. We acknowledged the satisfactory completion of services and the debts rendered but made no further payment as agreed other than an instalment payment on April 18, 2024. Deloitte is seeking recovery of the amount owed. As of December 31, 2025, the amount payable to Deloitte included in accounts payable and accrued liabilities was $34,530 (December 31, 2024 - $32,891).
Former Executives
Former executives John Cassels and Andrew Steedman filed a lawsuit against us alleging wrongful termination, related misconduct, and unpaid compensation (Alberta Court of King’s Bench Action No. 2401-16218: John Cassels and Andrew Steedman v. CannaPharmaRX Canada Corp., CannaPharmaRX, Inc., et al.). The plaintiffs seek $3 million in compensatory damages and an additional $3 million in punitive damages. As of December 31, 2025, we have maintained an accrual of approximately $931,571 for unpaid salaries owed to the plaintiffs for services rendered from April 2019 through June 2023. No additional loss contingency has been recorded, as the lawsuit remains in its early stages and the ultimate outcome is uncertain.
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Astor Street LLC
We issued two promissory notes to Astor Street LLC in January 2021 and granted a security interest in all present and after acquired assets of our company. Astor Street LLC commenced a claim to recover the amounts owing for CAD $312,303 in April 2022, obtained default judgment in the amount of CAD $314,273 in March 2023 (Alberta Court of King’s Bench Action No. 2203-05892: Astor street LLC v. CannaPharmaRX, Inc.). On December 31, 2025, Astor Street LLC took steps to seize assets belonging to us. We are currently assessing the validity of the claim and default judgment, and whether it is necessary to come to a negotiated resolution. As of December 31, 2025, the amount payable on the promissory notes was $218,882 (CAD $300,000).
Cease Trade Order (“CTO”)
In 2023, the British Columbia Securities Commission (“BCSC”) issued a Cease Trade Order (“CTO”) against us due to our failure to file certain continuous disclosure documents under Canadian securities laws. The CTO restricted the trading in our securities in Canada, including share issuances and conversions of convertible instruments. We filed an application to the BCSC to revoke the CTO, and on December 12, 2025, the BCSC rescinded the CTO in full.
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 4 - MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5 - MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market information
Our common shares are only traded on the OTC Pink Sheets under the trading symbol “CPMD.”
Holders
As of the date of this report, there were 678,501,405 shares of our common shares outstanding, which were held by 322 shareholders of record, not including those persons holding shares in “street name.”
Transfer agent
The transfer agent for our securities is Mountain Share Transfer, Inc., 2030 Powers Ferry Road SE, Suite 212, Atlanta, GA 30339. Their telephone number is (404) 474-3110.
Dividends
We have never declared or paid any cash dividends on our common shares. We currently intend to retain future earnings, if any, to finance the expansion of our business. As a result, we do not anticipate paying any cash dividends in the foreseeable future.
Securities authorized for issuance under equity compensation plans
We did not have any equity compensation plans as of December 31, 2025.
Recent sales of unregistered securities
Subsequent to year-end, on February 20, 2026, we issued 16,000,000 common shares to a company as consideration for $142,800 of investor relation services. As at December 31, 2025, the shares were recognized as shares to be issued at the par value of $0.0001 per share for a total value of $1,600 and the remaining $141,200 was recognized as additional paid in capital.
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During the year ended December 31, 2024, we issued the following restricted common shares:
· | 204,353,254 common shares valued at $1,570,354 were issued to three persons upon the conversion of convertible notes. |
· | 10,000 shares of Series A Preferred Shares were converted to 12,500,000 common shares by one person. |
· | 4,895,849 shares of common shares were issued upon the exercise of 5,000,000 share purchase warrants. |
· | Issued $294,000 in new convertible notes to accredited investors with interest rates from 12% to 24% and converted $134,910 of the outstanding convertible notes into 204,353,254 shares of common shares. |
· | Entered into two additional notes payable agreements for $50,000 and $70,000, respectively, with a second private individual, each bearing interest at 10% per annum, the $50,000 note payable maturing on May 10, 2024 and the $70,000 note payable on May 31, 2024. |
· | Entered into an additional note payable agreement for $50,000 with a third private individual, bearing interest at 15% per annum, maturing on April 14, 2025. |
Issuer purchases of equity securities
We did not purchase any of our securities during the year ended December 31, 2025.
ITEM 6 - [RESERVED]
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company’s financial condition and results of operations for the period as at and for the years ended December 31, 2025 and 2024 should be read together with the Company’s financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K.
Overview
We were originally incorporated in the state of Colorado in August 1998 as Network Acquisitions, Inc. Since then, we underwent several name changes over the years and, in October 2014, changed our legal name to CannaPharmaRx, Inc.We focus our business efforts on the operation of cannabis cultivation facilities in Canada.
On January 6, 2022, we entered into a 20-year operating lease for the use of a facility located in Cremona, Alberta, Canada. We recommissioned the 55,000 square foot facility (the “Facility”) into an indoor cannabis farm with 10 growing rooms and one drying and packing room during 2022. During 2025, we added one additional growing room to our operations. The Facility now has six growing rooms and one drying and packing room in operation and plans to increase capacity over the next one to two years to open a second drying and packing room and to operate all 10 growing rooms.
We received an operating license from Health Canada on December 9, 2022, and a cannabis license from the CRA on December 22, 2022 and commenced cannabis production during the year ended December 31, 2023 and began to make sales in 2024.
Going concern
Substantial doubt exists as to our ability to continue as a going concern based on the fact that we do not have adequate working capital to finance our day-to-day operations. For the year ended December 31, 2025, we reported $1,362,163 (2024 - $820,137) in revenue. As at December 31, 2025, we had cash of $1,804, a working capital deficiency of $30,278,570 and an accumulated deficit of $112,315,590. Additionally, for the year ended December 31, 2025, we used $789,102 of cash in our operating activities.
These financial metrics and the Company’s accumulated deficit of $112,315,590 as of December 31, 2025 indicate material uncertainty over the Company’s ability to continue as a going concern. Management’s plans to mitigate this uncertainty involve securing additional capital in the short term primarily through sales of common shares or other instruments. Given the Company's classification as a penny stock traded on the OTC Markets, its constrained liquidity and solvency position, and the limited availability of third-party financing, management expects that any significant additional funding will most likely need to be sourced from related parties. There can be no assurance that we will be successful in completing additional financing or collaboration transactions or, if financing is available, that it can be obtained on commercially reasonable terms or in amounts sufficient to meet its obligations as they become due and support execution of its business plan. If we are not able to obtain the additional financing on a timely basis, we may be required to scale down or perhaps even cease the operations of our business. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current shareholders. Obtaining commercial or related party loans, assuming those loans would be available, will increase our liabilities and future cash commitments. We are subject to pending litigation and legal proceedings, the outcomes of which are uncertain and could result in significant costs, settlements, or judgments. While management does not currently believe these matters will have a material adverse effect, unfavorable outcomes could adversely impact the Company’s liquidity, results of operations, and ability to continue as a going concern. Our financial statements include certain accruals and adjustments based on management’s best estimates regarding this uncertainty; however, the ultimate resolution of these matters could differ materially from these estimates and result in additional adjustments.
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Results of operations
Revenue
During the years ended December 31, 2025 and 2024, the Company reported revenue of $1,362,163 and $820,137, respectively. The increase in 2025 was primarily driven by the continued expansion of the Company’s medical cannabis product line, improved distribution capabilities, increased market penetration, and the onboarding of new retail partners since late 2024.
Cost of goods sold
During the years ended December 31, 2025 and 2024, the Company reported cost of goods sold of $3,447,071 and $3,755,064, respectively. The decrease in cost of goods sold was primarily attributable to improved operating efficiencies and economies of scale in our cultivation and processing operations, which more than offset the additional expenditures on raw materials, labor, and variable overhead associated with the increased production levels. Included in cost of goods sold for the years ended December 31, 2025 and 2024 are losses on the impairment of inventory of $1,984,359 and $1,884,864, respectively, primarily due to downward pricing pressures in the market and changes in product specifications and regulatory standards that affected the recoverability of select products. Furthermore, a portion of the inventory was identified as having THC potency levels below the Company’s established thresholds, diminishing its appeal in the marketplace and adversely impacting its expected selling price and commercial feasibility.
Gross loss
During the years ended December 31, 2025 and 2024, the Company reported a gross loss of $2,084,908 and $2,934,927, respectively. The decrease in gross loss in 2025 was primarily due to higher sales volumes, which drove stronger revenue growth that outpaced the rise in cost of goods sold.
Operating expenses
The summary of the Company’s operating expenses for the years ended December 31, 2025 and 2024 is as follows:
|
| 2025 |
|
| 2024 |
| ||
|
|
|
|
|
|
| ||
General and administrative |
| $ | 489,641 |
|
| $ | 145,713 |
|
Payroll and consulting fees |
|
| - |
|
|
| 114,798 |
|
Professional fees |
|
| 469,690 |
|
|
| 435,511 |
|
Royalty expense |
|
| 303,525 |
|
|
| - |
|
|
| $ | 1,262,856 |
|
| $ | 696,022 |
|
During the years ended December 31, 2025 and 2024, the Company’s operating expenses consisted primarily of general and administrative expenses, payroll and consulting fees, professional fees associated with the costs for services or employees in finance, accounting, sales and administrative activities, and royalty expense. Overall operating expenses for the year ended December 31, 2025 was $1,262,856 compared to $696,022 in 2024, an increase of $566,834. The increase is primarily attributable to the following:
· | A $343,928 increase in general and administrative expenses primarily due to an increase in investor relations and advertising and promotion expenditures. |
|
|
· | A $303,525 increase in royalty expense primarily due to a royalty agreement entered into by the Company with Koze on March 17, 2025. No similar royalty arrangement existed in 2024. |
|
|
The increase was partly offset by decreases in the following expenses: | |
|
|
· | A $114,798 reduction in payroll and consulting fees primarily due to consulting fees payable of the same amount to the former CEO, Dean Medwid which was recorded in 2024. All other payroll and consulting expenses were reclassified to inventory in 2025 and 2024 to align more closely with the production of goods. |
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Other income (expenses)
The summary of the Company’s other income (expenses) for the years ended December 31, 2025 and 2024 is as follows:
|
| 2025 |
|
| 2024 |
| ||
|
|
|
|
|
|
| ||
Change in the fair value of derivative conversion feature |
| $ | (850,152 | ) |
| $ | 105,064 |
|
Change in the fair value of obligation to issue shares |
|
| 1,487,328 |
|
|
| (3,449,789 | ) |
Foreign exchange gain |
|
| 66,252 |
|
|
| 24,692 |
|
Interest expense |
|
| (1,958,785 | ) |
|
| (2,264,095 | ) |
Imputed interest expense |
|
| (490,630 | ) |
|
| - |
|
Loss on the extinguishment of debt |
|
| - |
|
|
| (690,712 | ) |
Loss on impairment of investment |
|
| (4,518,127 | ) |
|
| - |
|
Gain on write-off of accounts payable and accrued liabilities |
|
| 410,430 |
|
|
| - |
|
Other expense |
|
| (1,930,000 | ) |
|
| - |
|
|
| $ | (7,783,684 | ) |
| $ | (6,274,840 | ) |
Total other expenses were $7,783,684 for the year ended December 31, 2025 compared to $6,274,840 in the prior year, resulting in an increase in total expense of $1,508,844. The increase is primarily attributable to the following:
· | The fair value of the derivative conversion feature liability related to convertible notes increased from $1,159,324 at December 31, 2024 to $2,009,476 at December 31, 2025, resulting in a loss of $850,152. In 2024, the fair value declined from $1,264,388 at December 31, 2023 to $1,159,324 at December 31, 2024, resulting in a gain of $105,064. The primary drivers of these fair value changes were fluctuations in the common shares of the Company’s peers as the Company’s common shares trade infrequently on the OTC Markets, the remaining term to expiration of the convertible notes and the conversion feature's exercise price. |
|
|
· | A $490,630 increase in imputed interest expense due to a debt modification of certain promissory and convertible notes to related parties, which resulted in a remeasurement of the liabilities and recognition of additional imputed interest expense. |
|
|
· | A loss on impairment of investment of $4,518,127 was recognized in 2025 due to the full impairment of the LTB investment. No impairment was recognized in 2024. |
|
|
· | During the year ended December 31, 2025, a one-time adjustment of $1,930,000 was made to lease-related rent expense due to a clarification in the interpretation of the lease terms between management and Formosa. |
The increase in other expenses was partially offset by the following decreases:
· | The fair value of the obligation to issue shares liability decreased from $3,654,009 as at December 31, 2024 to $2,166,681 as at December 31, 2025, resulting in a gain of $1,487,328 from the change in the fair value of the obligation to issue shares In 2024, the fair value of the obligation to issue shares liability changed from $204,220 as at December 31, 2023 to $3,654,009 as at December 31, 2024, resulting in a loss of $3,449,789 from the change in the fair value of the obligation to issue shares recognized during the year ended December 31, 2024. Key factors influencing the measurement of the obligation to issue shares include fluctuations in the Company's common shares price and term to expiration. |
|
|
· | A $41,560 increase in the foreign exchange gain primarily due to currency fluctuations between the USD, CAD and EUR. |
|
|
· | A $305,310 decrease in interest expense is primarily attributable to a reduction in the interest rate for certain loans from related parties, pursuant to a debt modification agreement entered into by the Company with those related parties. |
|
|
· | A $690,712 decrease in loss on extinguishment of debt was incurred in 2024 related to extinguishment of certain convertible notes. |
|
|
· | A $410,430 gain due to write-off of historical accounts payable and accrued liabilities that occurred during 2025. No such write-off was recorded during 2024. |
Net income (loss)
As a result of the foregoing, during the year ended December 31, 2025, we incurred a net loss of $11,131,448 or $0.02 per share compared to a loss of $9,905,789 or $0.02 per share in the prior year.
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Liquidity and capital resources
As of December 31, 2025, the Company had $1,804 in cash as compared to $2,156, and working capital deficiency of $30,278,570 compared to $24,733,636 as of December 31, 2024. During the year ended December 31, 2025, the Company’s funding was primarily attributable to advances from Koze, a related party. Total amounts advanced during the year amounted to $2,100,510. This promissory note represents an ongoing funding arrangement under which additional amounts are funded by Koze based on the Company’s operational needs from time to time.
The summary of the Company’s cash flows for the years ended December 31, 2025 and 2024 is as follows:
|
| 2025 |
|
| 2024 |
| ||
Cash used in operating activities |
| $ | (789,102 | ) |
| $ | (1,697,232 | ) |
Cash used in investing activities |
|
| (5,519 | ) |
|
| - |
|
Cash provided by financing activities |
|
| 794,269 |
|
|
| 1,698,738 |
|
|
| $ | (352 | ) |
| $ | 1,506 |
|
Cash used in operating activities
Cash used in operating activities for the year ended December 31, 2025 decreased by $908,130 compared to the prior year, primarily due to more efficient working capital management, including better inventory turnover and stronger management of accounts payable and accrued liabilities.
Cash flows used in investing activities
Cash used in investing activities was $5,519 for the year ended December 31, 2025 compared to $nil in 2024, due to the purchase of new equipment in 2025.
Cash provided by financing activities
Cash provided by financing activities for the year ended December 31, 2025 were $794,269 compared to $1,698,738 in 2024, representing a decrease of $904,469. This decrease was primarily attributable to the absence of financing inflows in 2025 from notes payable of $1,548,738 and convertible notes of $150,000 that occurred in 2024. The decrease was partially offset by the proceeds from related party loans of $794,269 in 2025 with no such proceeds in 2024.
Related party transactions
a) Key related party transactions
A summary of the Company’s related party transactions is as follows:
|
| 2025 |
|
| 2024 |
| ||
Revenue |
| $ | 394,633 |
|
| $ | 770,265 |
|
Lease expense payable to Formosa included in cost of goods sold |
|
| 1,073,328 |
|
|
| - |
|
Rent expense included in general and administrative expense |
|
| 2,124 |
|
|
| 4,381 |
|
Marketing expense included in general and administrative expense |
|
| 71,287 |
|
|
| - |
|
Professional fees |
|
| 259,834 |
|
|
| 225,794 |
|
Royalty expense |
|
| 303,525 |
|
|
| - |
|
Interest expense |
|
| 1,850,868 |
|
|
| 110,795 |
|
Imputed interest expense |
|
| 490,630 |
|
|
| - |
|
Other expense |
|
| 1,930,000 |
|
|
| - |
|
Total related party transactions |
| $ | 6,376,229 |
|
| $ | 1,111,235 |
|
Revenue
During the year ended December 31, 2025, the Company recognized revenue of $394,633 (2024 - $770,265) from D.N.S. CANTEK 2019 LTD (“Cantek”), an Israeli limited corporation owned by Koze, and for which Mr. Tal serves as a financial advisor.
These related party relationships did not influence our business decisions or pricing, as sales are determined primarily based on market demand and the ability to achieve the highest possible selling price.
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| Table of Contents |
A summary of the Company’s average selling prices by market is as follows:
|
| Average Price per Gram (CAD)* |
| |||||
Market |
| Premium Batches |
|
| Medium Batches |
| ||
Germany |
|
| 2.05 |
|
|
| 1.6 |
|
Israel |
|
| 2.0 |
|
| 1.6-1.8 |
| |
Canada |
|
| 2.0 |
|
| 1.1-1.5 |
| |
Portugal |
| 1.8-2.0 |
|
| 0.8-1.5 |
| ||
* Batches with THC concentrations below 20% are generally sold at lower average prices compared to higher-THC batches.
Lease expense
The Company has a lease with Formosa, which became a related party upon the appointment of its manager, Elliot Zemel, as a director of the Company on March 11, 2025. During the year ended December 31, 2025, the Company incurred lease expense of $1,073,328 associated with the Formosa lease, which is included in cost of goods sold.
Rent
Effective February 1, 2023, the Company entered into a rental agreement granting it the right to use office space located at Suite 3600, 888 5th Avenue SW, Calgary, Alberta, Canada, T2P 3R7 for a monthly rent of CAD $500 per month. This space was provided by a company affiliated with Richard Orman (“Mr. Orman”), chairman of the Company’s board of directors. The Company ceased using the office space and accordingly stopped accruing rent expense after June 30, 2025. During the year ended December 31, 2025, the Company incurred rent expense of $2,124 (2024 - $4,381) for this space which is recorded as a general and administrative expense.
Marketing expense
During the year ended December 31, 2025, the Company incurred marketing expense of $71,287 (2024 - $nil) with Sky Home Services LLC, a company managed by Mr. Tal, which is recorded as a general and administrative expense.
Professional fees
| · | During the year ended December 31, 2025, the Company incurred professional expenses of $203,727 (2024 - $180,899) related to accounting fees payable to Invictus Accounting Group LLP (“Invictus”), a company which provides part-time CFO, financial reporting, and bookkeeping services to the Company. Mr. Oliver Foeste is the Managing Partner of Invictus. |
| · | During the year ended December 31, 2025, the Company incurred professional expenses of $56,107 payable to Fabian Vancott (2024 - $44,895) related to legal fees. Anthony Panek who is a partner in Fabian Vancott, is also a director of the Company. |
Royalty expense
On March 17, 2025, the Company and Alberta Ltd., entered into a security and royalty agreement with Koze (the “Royalty Agreement”), pursuant to which the Company is required to pay a monthly royalty of CAD $0.20 per gram on cannabis product sales, payable at the beginning of the month for the previous month, as additional consideration related to the lease with Formosa. Immediately upon failure to pay the royalty when due, the royalty rate increases to CAD $0.40 per gram sold for the applicable month. As of December 31, 2025, Alberta Ltd. was in default of its payment obligations, and Koze agreed to forbear from exercising its rights over the ownership interest until May 31, 2026. During the year ended December 31, 2025, the Company sold 1,046,769 grams of cannabis products and incurred a royalty expense of $303,525 (2024 - $nil).
Interest expense
| · | During the year ended December 31, 2025, the Company incurred interest expense on promissory and convertible notes with Mr. Tal of $82,602 (2024 - $110,795). |
| · | During the year ended December 31, 2025, the Company incurred interest expense on promissory and convertible notes with Koze of $1,264,887. |
| · | During the year ended December 31, 2025, the Company incurred interest expense on promissory note with Formosa of $102,648. |
| · | During the year ended December 31, 2025, the Company incurred interest expense on rent in default with Formosa of $400,731. |
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| Table of Contents |
Imputed interest expense
| · | During the year ended December 31, 2025, the Company incurred imputed interest expense on promissory and convertible notes with Mr. Tal of $29,675 (2024 - $nil). |
| · | During the year ended December 31, 2025, the Company incurred imputed interest expense on promissory and convertible notes with Koze of $386,231. |
| · | During the year ended December 31, 2025, the Company incurred imputed interest expense on promissory note with Formosa of $74,724. |
Other expense
During the year ended December 31, 2025, the Company made a one-time adjustment of $1,930,000 to lease-related rent expense due to a clarification in the interpretation of the lease terms for the Facility, which is recorded as other expense.
b) Amounts due to related parties
A summary of the Company’s related party liabilities as at December 31, 2025 and 2024, is as follows:
|
| 2025 |
|
| 2024 |
| ||
Accounts payable and accrued liabilities |
| $ | 5,416,889 |
|
| $ | 1,038,963 |
|
Accrued interest |
|
| 1,352,899 |
|
|
| 56,298 |
|
Convertible notes |
|
| - |
|
|
| 212,555 |
|
Loans payable to related parties |
|
| 13,116,485 |
|
|
| 462,818 |
|
Royalty payable |
|
| 305,492 |
|
|
| - |
|
Obligation to issue shares |
|
| 2,166,681 |
|
|
| 1,827,005 |
|
Total related party liabilities |
| $ | 22,358,446 |
|
| $ | 3,597,639 |
|
Accounts payable and accrued liabilities
As at December 31, 2025, accounts payable and accrued liabilities include balances owing to related parties as follows:
| · | As at December 31, 2025, $4,283,706 was payable to Formosa for outstanding lease payments. As at December 31, 2025, accrued interest on unpaid lease payments on the Formosa lease was $1,037,180. |
| · | As at December 31, 2025, $146,306 (December 31, 2024 - $89,392) was payable to Invictus for part-time CFO, financial reporting, and bookkeeping services provided to the Company. |
| · | As at December 31, 2025, $319,279 (December 31, 2024 - $319,279) was payable to Mr. Orman for unpaid directors’ fees for 2021 through 2023. |
| · | As at December 31, 2025, $551,953 (December 31, 2024 - $525,754) was payable to Dominic Colvin, a director of the Company, for unpaid salary and expense reimbursement amounts during Mr. Colvin’s employment with the Company as its CEO during the years 2019 through 2022. Mr. Colvin has disputed this amount and is asserting a claim for $1,679,060. As of December 31, 2025, the Company is in the process of reviewing the claim and remains in ongoing discussions with Mr. Colvin. No resolution has been reached with respect to this matter. |
| · | As at December 31, 2025, $115,645 (December 31, 2024 - $104,538) was payable to Fabian Vancott in respect of unpaid legal fees. |
Loans payable to related parties
As at December 31, 2025, the loans payable to related parties consists of the following:
PLC International Investments Inc. (“PLC”)
| · | A $13,430 interest-free loan from PLC, a company owned by Dominic Colvin, a director of the Company; |
Loans payable to Koze
On March 11, 2025, Koze became a related party upon the appointment of its manager as a director of the Company. As a result, the balance owing on promissory notes was reclassified from notes payable to loans payable to related parties during the three months ended March 31, 2025.
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| Table of Contents |
On August 7, 2025, the Company entered into the Debt Modification agreement with Koze to amend the annual interest rates on all outstanding promissory and convertible notes held by Koze to 6%, compounding annually.
| · | Koze LTB: |
On November 22, 2023, the Company entered into promissory notes of $2,550,000 with Koze, as part of the LTB transaction, bearing interest at 13% per annum. Originally due on November 22, 2024, the maturity date for this note was extended to December 31, 2025, by agreement with Koze. On March 18, 2026, Mr. Tal and Koze agreed to extend the maturity date of the promissory notes to December 31, 2026.
As a result of the Debt Modification, principal and accrued interest outstanding related to the note as of August 7, 2025 of $2,550,000 and $555,406, respectively, were extinguished. A new note (“Koze LTB”) of $2,978,661 bearing 6% interest, compounding annually, was recognized resulting in a gain of $126,745 from extinguishment, recorded directly to additional paid-in capital.
During the year ended December 31, 2025, the Company recognized interest expense of $268,604 and imputed interest expense of $114,817 related to the note. As at December 31, 2025, the outstanding principal balance on the note was $3,093,478 and accrued interest payable on the note was $76,062.
| · | Koze A: |
On May 25, 2023, the Company entered into a promissory note with Koze, bearing interest at 24% compounded monthly, to fund for certain documented expenses.
As a result of the Debt Modification, principal and accrued interest outstanding related to the note as of August 7, 2025 of $849,278 and $443,339, respectively, were extinguished. A new note (“Koze A”) of $1,134,669 bearing 6% interest, compounding annually, was recognized resulting in a gain of $157,949 from extinguishment, recorded directly to additional paid-in capital.
During the year ended December 31, 2025, the Company received additional funding of $216,924 under the note. During the year ended December 31, 2025, the Company recognized interest expense of $173,181 and imputed interest expense of $48,650 related to the note. As at December 31, 2025, the outstanding principal balance on the note was $1,400,243 and accrued interest payable on the note was $31,070.
| · | Koze B: |
On May 25, 2023, the Company entered into another promissory note with Koze, bearing interest at 24% compounded monthly, to fund certain documented expenses.
As a result of the Debt Modification, principal and accrued interest outstanding related to the note as of August 7, 2025 of $4,040,474 and $1,366,780, respectively, were extinguished. A new note (“Koze B”) of $4,767,106 bearing 6% interest, compounding annually, was recognized resulting in a gain of $640,148 from extinguishment, recorded directly to additional paid-in capital.
During the year ended December 31, 2025, the Company received additional funding of $498,630 under the note. During the year ended December 31, 2025, the Company recognized interest expense of $763,630 and imputed interest expense of $204,591 related to the note. As at December 31, 2025, the outstanding principal balance on the note was $5,529,686 and accrued interest payable on the note was $132,215.
| · | Koze C: |
On February 8, 2024, the Company entered into another promissory note with Koze, bearing interest at 24% compounded monthly.
As a result of the Debt Modification, principal and accrued interest outstanding related to the note as of August 7, 2025 of $275,000 and $97,403, respectively, were extinguished. A new note (“Koze C”) of $330,551 bearing 6% interest, compounding annually, was recognized resulting in a gain of $41,852 from extinguishment, recorded directly to additional paid-in capital.
During the year ended December 31, 2025, the Company recognized interest expense of $46,668 and imputed interest expense of $13,150 related to the note. As at December 31, 2025, the outstanding principal balance on the note was $343,701 and accrued interest payable on the note was $8,394.
| 29 |
| Table of Contents |
| · | Koze convertible note (“Koze CN”): |
The Company has a convertible note with Koze, bearing interest at 24%.
As a result of the Debt Modification, principal and accrued interest outstanding related to the note as of August 7, 2025 of $68,555 and $75,714, respectively, were extinguished. A new note, Koze CN, of $126,275 bearing 6% interest, compounding annually, was recognized resulting in a gain of $17,995 from extinguishment, recorded directly to additional paid-in capital.
During the year ended December 31, 2025, the Company recognized interest expense of $12,804 and imputed interest expense of $5,023 related to the note. As at December 31, 2025, the outstanding principal balance on the note was $131,298 and accrued interest payable on the note was $3,207.
During the year ended December 31, 2025, Koze made payments of $2,086,675 directly to the Company’s suppliers. In addition, $819,867 was received directly by Koze, as collections from customers.
Loans payable to Mr. Tal
On August 7, 2025, the Company entered into the Debt Modification agreement with Mr. Tal to amend the annual interest rates on all outstanding promissory and convertible notes held by him to 6%, compounding annually.
| · | Mr. Tal LTB: |
On November 22, 2023, the Company entered into a promissory note of $450,000 with Mr. Tal as part of the LTB transaction, bearing interest at 13% per annum. Originally due on November 22, 2024, the maturity date for this note was extended to December 31, 2025, by agreement with Mr. Tal. On March 18, 2026, Mr. Tal and Koze agreed to extend the maturity date of the promissory notes to December 31, 2026.
As a result of the Debt Modification, principal and accrued interest outstanding related to the note as of August 7, 2025 of $438,296 and $89,768, respectively, were extinguished. A new note (“Mr. Tal LTB”) of $507,422 bearing 6% interest, compounding annually, was recognized resulting in a gain of $20,641 from extinguishment, recorded directly to additional paid-in capital.
During the year ended December 31, 2025, the Company recorded payments to the note of $77,729 (2024 - $nil). During the year ended December 31, 2025, the Company recognized interest expense of $45,357 (2024 - $58,660) and imputed interest expense of $17,954 related to the note. As at December 31, 2025, the outstanding balance on the note was $447,647 (December 31, 2024 - $450,000) and accrued interest payable on the note was $11,887 (December 31, 2024 - $56,298).
| · | Mr. Tal convertible note (“Mr. Tal CN”): |
The Company has a convertible note with Mr. Tal, bearing interest at 24%.
As a result of the Debt Modification, principal and accrued interest outstanding related to the note as of August 7, 2025 of $212,555 and $121,427, respectively, were extinguished. A new note, Mr. Tal CN, of $294,850 bearing 6% interest, compounding annually, was recognized resulting in a gain of $39,132 from extinguishment, recorded directly to additional paid-in capital.
During the year ended December 31, 2025, the Company recognized interest expense of $37,245 (2024 - $52,135) and imputed interest expense of $11,721 related to the note. As at December 31, 2025, the outstanding principal balance on the note was $306,571 (December 31, 2024 - $212,555) and accrued interest payable on the note was $7,488 (December 31, 2024 - $91,669).
Promissory note with Formosa
On January 1, 2025, the Company entered into a promissory note with Formosa in the amount of $1,930,000, bearing interest at 5% per annum, with respect to a one-time adjustment made to lease-related rent expense due to a clarification in the interpretation of the lease terms for the Facility.
As a result of the Debt Modification, principal and accrued interest outstanding related to the note as of August 7, 2025 of $1,930,000 and $58,098, respectively, were extinguished. A new note of $1,775,707 bearing 6% interest, compounding annually, was recognized resulting in a gain of $212,391 from extinguishment, recorded directly to additional paid-in capital.
During the year ended December 31, 2025, the Company recognized interest expense of $102,648 and imputed interest expense of $74,724 related to the note. As at December 31, 2025, the outstanding principal balance on the note was $1,850,431 (December 31, 2024 - $nil) and accrued interest payable on the note was $45,396 (December 31, 2024 - $nil).
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| Table of Contents |
A summary of the Company’s loans payable to related parties as at December 31, 2025 and 2024 is as follows:
|
| 2025 |
|
| 2024 |
| ||
PLC |
| $ | 13,430 |
|
| $ | 23,510 |
|
Koze LTB |
|
| 3,093,478 |
|
|
| - |
|
Koze A |
|
| 1,400,243 |
|
|
| - |
|
Koze B |
|
| 5,529,686 |
|
|
| - |
|
Koze C |
|
| 343,701 |
|
|
| - |
|
Koze CN |
|
| 131,298 |
|
|
| - |
|
Mr. Tal LTB |
|
| 447,647 |
|
|
| 439,308 |
|
Mr. Tal CN |
|
| 306,571 |
|
|
| - |
|
Promissory note with Formosa |
|
| 1,850,431 |
|
|
| - |
|
|
| $ | 13,116,485 |
|
| $ | 462,818 |
|
A summary of the accrued interest of the Company’s loans payable to related parties as at December 31, 2025 and 2024 is as follows:
|
| 2025 |
|
| 2024 |
| ||
Koze LTB |
| $ | 76,062 |
|
| $ | - |
|
Koze A |
|
| 31,070 |
|
|
| - |
|
Koze B |
|
| 132,215 |
|
|
| - |
|
Koze C |
|
| 8,394 |
|
|
| - |
|
Koze CN |
|
| 3,207 |
|
|
| - |
|
Mr. Tal LTB |
|
| 11,887 |
|
|
| 56,298 |
|
Mr. Tal CN |
|
| 7,488 |
|
|
| - |
|
Promissory note with Formosa |
|
| 45,396 |
|
|
| - |
|
|
| $ | 315,719 |
|
| $ | 56,298 |
|
Royalty payable
Pursuant to the Royalty Agreement, as of December 31, 2025, the royalty amount payable to Koze was $305,492 (CAD $418,707) (2024 - $nil).
Obligation to issue shares
As at December 31, 2025, the Company has an obligation to issue an additional 166,668 preferred shares Series C to each of Mr. Tal and Koze (December 31, 2024 - 150,799 each) as part of the LTB transaction, valued at $1,083,341 for each party (December 31, 2024 - $1,827,005 each).
Subsequent events
On January 8, 2026, Richard Orman resigned from the Board of Directors of the Company.
Pursuant to an investor relations agreement with another company, the Company agreed to issue 16,000,000 common shares in exchange for services provided. The shares were issued subsequent to December 31, 2025, but prior to the issuance of these financial statements.
Critical accounting estimates
The Company’s financial statements and accompanying notes have been prepared in accordance with US GAAP. The preparation of these financial statements requires management to make estimates, judgments, and assumptions that affect reported amounts of assets, liabilities, revenues and expenses. We continually evaluate the accounting policies and estimates used to prepare the financial statements. The estimates are based on historical experience and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management. Our significant accounting policies are described in Note 1 in this Annual Report.
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| Table of Contents |
Recently issued accounting pronouncements
New accounting standards adopted
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. We adopted ASU 2023-09 beginning January 1, 2025. The adoption did not have any significant impact on our financial statement disclosures.
New accounting standards not yet adopted
In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This ASU requires an entity to disclose the amounts of inventory purchases, employee compensation, depreciation, and intangible asset amortization included in each relevant expense caption. It also requires an entity to include certain amounts that are already required to be disclosed under current GAAP in the same disclosure. Additionally, it requires an entity to disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively, and to disclose the total amount of selling expenses. The ASU is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027, with early adoption permitted.
In September 2025, the FASB issued ASU 2025-06: Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) Targeted Improvements to the Accounting for Internal-Use Software. This standard modernizes the accounting for costs related to internal-use software by removing references to project stages and by clarifying the thresholds entities apply to begin capitalizing costs. The amendments in this update are effective for interim and annual periods beginning after December 15, 2027, and early adoption is permitted.
We are currently evaluating how the adoption of these standards may impact our consolidated financial statements.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting Company, we are not required to provide this information.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary financial information required by this Item are set forth immediately following the signature page and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A - CONTROLS AND PROCEDURES
Disclosure controls and procedures
Controls and procedures
Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), 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.
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| Table of Contents |
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 SEC, and that such information is accumulated and communicated to our management, including our CEO/CFO to allow timely decisions regarding required disclosure.
Based on this evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were effective as of December 31, 2025, at reasonable assurance levels.
We believe that our financial statements presented in this Annual Report on Form 10-K 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 CEO and CFO, does not expect that our disclosure controls and procedures will prevent all errors and all fraudulent actions. 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 breakdowns 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 our fiscal year ended December 31, 2025, 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.
This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this Annual Report.
Management Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) or 15d15(f) promulgated under the Exchange Act. Those rules define internal control over financial reporting as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
· | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
· | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and the receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and |
· | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2025. In making this assessment, our management used the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO 2013).
Based on its assessment, management has concluded that as of December 31, 2025, our disclosure controls and procedures and internal control over financial reporting were not effective and that a material weakness existed in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Management has identified deficiencies in operating effectiveness that, in combination, represent a material weakness in internal control over financial reporting. Due to management and staff turnover in the prior years, accurate information and records were not consistently maintained within our records and there were instances where documentation to support certain transactions was difficult to obtain or unobtainable. These deficiencies represent a material weakness in our internal control over financial reporting.
Because of the material weakness identified, management has concluded that its internal control over financial reporting was not effective as of December 31, 2025. We are in the process of developing and implementing remediation plans to address the material weakness described above.
ITEM 9B - OTHER INFORMATION
During the quarter and year ended December 31, 2025, no
ITEM 9C - DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
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| Table of Contents |
PART III
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Set forth below are the directors and executive officers of the Company. Except as set forth below, there are no other persons who have been nominated or chosen to become directors, nor are there any other persons who have been chosen to become executive officers. Other than as set forth below, there are no arrangements or understandings between any of the directors, officers and other persons pursuant to which such person was selected as a director or an officer.
Name | Position Held with the Company | Age | Date First Elected or Appointed | |||
Dominic Colvin |
| Director, Former CEO |
| 58 |
| April 2018 |
Anthony Panek |
| Director |
| 40 |
| August 2023 |
Oliver Foeste |
| CFO |
| 50 |
| September 2023 |
Elliot Zemel |
| Director |
| 41 |
| March 11, 2025 |
Constantine Nkafu |
| CEO and Director |
| 50 |
| September 2024 |
On January 8, 2026, Mr. Richard Orman resigned from the Board of Directors of the Company.
Our Board of Directors believe that its members of the Board and the executive officers of our company have a range of talent, skill, and experience sufficient to provide sound and prudent guidance with respect to our operations and interests.
Biographies
Dominic Colvin
Mr. Colvin was appointed as the Company’s CEO, President and a Director in April 2018. He resigned from his position as CEO and President on May 30, 2023. Mr. Colvin has also been the President at PLC Investments, Inc (an investment advisory firm) since 2007. Additionally, he held the position of Director & Vice President-Operations at Cobalt Coal Ltd. from 2009 to 2010. He also worked as the Senior Vice President-Business Development at Renewable Power & Light Plc.
Constantine Nkafu
Mr. Nkafu was appointed CEO on September 7, 2024 and appointed as a Director on March 11, 2025. Mr. Nkafu holds a Master of Science degree in Pharmaceutical Sciences from the London Metropolitan University, London, United Kingdom and has extensive experience in the pharmaceutical, cannabis, and medical device industries. Since 2020, Mr. Nkafu has held the position of Principal Consultant of NEC Consulting and has successfully led operations from start-up to becoming fully operational. He has supported submissions to the Food and Drug Administration, Health Canada and other jurisdictions. Mr. Nkafu’s roles in Quality and Regulatory affairs have given him insight into how to set up and run complex operations and meet both customer and regulatory requirements for a given jurisdiction. As CEO, Mr. Nkafu ensures the operations are meeting all the requirements by fostering healthy relationships between employees and providing the necessary guidance to make sure the company is meeting corporate objectives.
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Oliver W. Foeste
Mr. Foeste, CPA, CA was appointed as the Company’s CFO on October 13, 2023He founded Invictus Accounting Group LLP (“Invictus”) in 2012, a professional accounting firm in Vancouver, British Columbia, Canada and has been the Managing Partner of the firm since then. Invictus specializes in providing business advisory, financial and technical advisory, and practice management. He has assisted with CFO services, IFRS conversions, US GAAP reporting, outsourced controllership, income tax provisions, multi-jurisdiction consolidations, and financial and accounting solutions for large and small clients. Previously, Mr. Foeste held senior management and executive positions with multinational and small-cap companies listed on exchanges in Canada and the United States, including positions at Deloitte, where he led audit and assurance engagements for private and public companies, and at Walsh King Chartered Accountants where he prepared tax returns and financial statements for private clients.
Anthony Panek
Mr. Panek, age 40, was appointed as a Director in August 2023. He is a corporate mergers and acquisitions attorney and venture capital investor with expertise in capital raising and the formation and growing of businesses. He has worked with private equity and venture capital funds to allocate capital to emerging growth companies and works with emerging growth companies, both public and private, to raise capital and acquire assets and corporate talent. He has been an investor in many emerging growth companies and private funds investing in similar companies. He works with companies from a business and legal perspective to navigate and manage growth challenges facing emerging growth companies and helping companies complying with their SEC reporting obligations. He completed the Venture Capital Certificate Program at Startup@Berkeley Law and received an LLM in Securities and Financial Regulation. Mr. Panek is the partner at Fabian Vancott, a full-service business law firm based in Salt Lake City, Utah since April 2019. Mr. Panek was selected to serve on the Company’s Board based upon his experience as an attorney and venture capital and private equity investor helping emerging companies raise capital, comply with SEC reporting and governance requirements, and his work with other cannabis companies.
Elliot Zemel
Mr. Zemel, age 41, was appointed as a Director on March 11, 2025. Mr. Zemel has operated multiple businesses including healthcare, e-commerce, and real estate management for over 13 years. He has been investing in both real property and venture capital as a Limited Partner and General Partner for over 20 years and has a penchant for identifying breakthrough companies. Mr. Zemel has networks and international distribution channels in the cannabis industry.
Family relationships
There are no family relationships between and among any of our directors or executive officers.
Involvement in certain legal proceedings
To the best of our knowledge, during the past five years, none of the following occurred with respect to a present or former director or executive officer of the Company: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of any competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the SEC or the commodities futures trading commission to have violated a Federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
Insider Trading Policy
Our insider trading policy as part of our code of ethics governs the purchase, sale, and/or any other dispositions of our securities by directors, officers, employees and other covered persons and is designed to promote compliance with insider trading laws, rules and regulations, and listing standards applicable to us. To the extent we engage in transactions in our securities, we do so in accordance with applicable laws.
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Committees of the Board
During the year ended December 31, 2025, our Board of Directors held two formal meetings to approve the quarterly 10-Q financial reports. Each meeting was attended by all directors then in office. All proceedings of the Board of Directors were conducted by resolutions consented to in writing by all of the directors and filed with the minutes of the meetings.
The Board of Directors has not established any standing committees.
Board nominations and appointments
In evaluating nominees for election to the Board of Directors, we consider a variety of factors, including, among others, integrity, business judgment, industry knowledge, relevant experience, diligence, potential conflicts of interest, and the ability to act in the best interests of our shareholders. The Board of Directors intends to review biographical information and conduct interviews of selected candidates during the next fiscal year and will also consider whether any nominee satisfies applicable NASDAQ independence requirements and the SEC’s definition of an “audit committee financial expert.” The Board does not assign specific weights to these criteria, and no single factor is determinative or required for nomination.
Although we do not maintain a formal policy regarding the consideration of director candidates recommended by shareholders, the Board will consider such recommendations if properly submitted in accordance with the procedures described below under the heading “Communicating with the Board of Directors.”
Communicating with the Board of Directors
Shareholders who wish to send communications to the Board of Directors may do so by writing to 4439 Township Rd 304, Mountain View County, Alberta, Canada T0M 0R0. The mailing envelope must contain a clear notation indicating that the enclosed letter is a “Shareholder-Board Communication.” All such letters must identify the author as a Shareholder and must include the Shareholder’s full name, address and a valid telephone number. The name of any specific intended recipient should be noted in the communication. We will forward any such correspondence to the intended recipients; however, prior to forwarding any such correspondence, and we will review such correspondence, and in our discretion, may not forward communications that relate to ordinary business affairs, communications that are primarily commercial in nature, personal grievances or communications that relate to an improper or irrelevant topic or are otherwise inappropriate for the Board of Director’s consideration.
Compensation of directors
In January 2019, the Board authorized and approved a monthly director fee of $10,000 (CAD) for each director. Fees were accrued up to December 31, 2022, at which time the Board determined that monthly director fees would no longer be paid to directors. As of December 31, 2025, the Company owed $1,687,585 in unpaid director fees, which includes $1,135,632 owed to former directors. Directors are not paid for meetings attended. However, we intend to review and consider future proposals regarding board compensation. All travel and lodging expenses associated with corporate matters are reimbursed by us, if and when incurred.
Compensation committee interlocks and insider participation
No interlocking relationship exists between our Board of Directors and the board of directors or compensation committee of any other Company, nor has any interlocking relationship existed in the past.
Code of ethics
As part of our system of corporate governance, our Board of Directors has adopted a Code of Business Conduct and Ethics (the “Code”) for directors and executive officers of the Company. This Code is intended to focus each director and executive officer on areas of ethical risk, provide guidance to directors and executive officer to help them recognize and deal with ethical issues, provide mechanisms to report unethical conduct, and help foster a culture of honesty and accountability. Each director and executive officer must comply with the letter and spirit of this Code. We have also adopted a Code of Ethics for Financial Executives applicable to our Chief Executive Officer and senior financial officers to promote honest and ethical conduct; full, fair, accurate, timely and understandable disclosure; and compliance with applicable laws, rules and regulations. We intend to disclose any changes in or waivers from our Code of Business Conduct and Ethics and our Code of Ethics for Financial Executives by filing a Form 8-K or by posting such information on our website.
Board of Directors
Our board of directors currently consists of five members. Our bylaws permit our board of directors to establish by resolution the authorized number of directors, and five directors are currently authorized.
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Director independence
Our board of directors had previously determined Richard Orman as an “independent director” as defined in the NASDAQ listing standards and applicable SEC rules. On January 8, 2026, Mr. Orman resigned from the Board of Directors of the Company.
Indemnification of directors and officers
Our articles of incorporation provide that we shall, to the fullest extent permitted by the laws of the State of Delaware, indemnify our directors, officers and certain other persons. Our bylaws provides that our directors, officers and certain other persons shall be indemnified and held harmless by us to the fullest extent permitted by the laws of the State of Delaware.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act requires our executive officers and directors, and persons who own more than 10% of our common shares, to file reports regarding ownership of, and transactions in, our securities with the SEC and to provide us with copies of those filings.
Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that during the year ended December 31, 2025, none of our directors, executive officers or greater than 10% percent beneficial owners failed to comply on a timely basis with all applicable filing requirements under Section 16(a) of the Exchange Act.
ITEM 11 - EXECUTIVE COMPENSATION
General philosophy
Our Board of Directors is responsible for establishing and administering the Company’s executive and director compensation.
Executive compensation
The following summary compensation table indicates the cash compensation earned from the Company during the years ended December 31, 2025 and 2024 for our named executive officers:
SUMMARY COMPENSATION TABLE | ||||||||||||||||||||||||||||||||||
Name and Principal Position |
| Fiscal Year |
| Salary ($) |
|
| Bonus ($) |
|
| Shares Awards ($) |
|
| Option Awards ($) |
|
| Non-Equity Incentive Plan Compensation ($) |
|
| Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) |
|
| All Other Compensation (4) ($) |
|
| Total ($) |
| ||||||||
Dean Medwid, Former CEO (1) |
| 2025 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2024 |
|
| 76,145 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 76,145 |
|
Constantine Nkafu, CEO (2) |
| 2025 |
|
| 122,464 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 122,464 |
|
|
| 2024 |
|
| 29,292 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 29,292 |
|
Oliver Foeste, CFO (3) |
| 2025 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 203,727 |
|
|
| 203,727 |
|
|
| 2024 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 99,837 |
|
|
| 99,837 |
|
(1) | Mr. Medwid resigned from the position on September 1, 2024. |
|
|
(2) | Mr. Nkafu was appointed as Chief Executive Officer on September 7, 2024. |
|
|
(3) | Mr. Foeste was appointed as Chief Financial Officer of the Company on October 13, 2023. |
|
|
(4) | Professional fees paid to Invictus, an accounting firm to which Oliver Foeste is Managing Partner. Invictus provides part-time CFO, controllership, accounting, and tax services for the Company. |
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Key employee agreements
The Company has a services agreement with Invictus, an accounting firm to which Oliver Foeste is Managing Partner, to provide part-time CFO, financial reporting, and bookkeeping services. The agreement is dated July 25, 2023 and provides for fees subject to time and materials based on expanding or contracting requirements of the Company.
The Company entered into an employment agreement with Constantine Nkafu to serve as CEO, effective September 7, 2024 for oversight of the Company’s day-to-day operations.
Options granted to named executives
None
Outstanding equity awards at fiscal year end
None
Pension benefits
None of our named executive officers is covered by a pension plan or other similar benefit plan that provides for payments or other benefits at, following, or in connection with retirement.
Nonqualified deferred compensation
None of our named executive officers is covered by a defined contribution or other plan that provides for the deferral of compensation on a basis that is not tax qualified.
Equity incentive plan
As of the date of this report, we do not have any equity compensation plan but may adopt one or more in the future.
Changes in control
There are currently no arrangements which may result in a change of control of our Company.
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ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
Except as otherwise stated, the table below sets forth information concerning the beneficial ownership of our common shares as of March 31, 2026 for: (1) each director currently serving on our Board of Directors; (2) each of our named executive officers; (3) our directors and executive officers as a group; and (4) each person known to the Company to beneficially own more than 5% of the outstanding shares of Common Shares. As of December 31, 2025, there were 662,501,405 shares of common shares outstanding, 74,416 shares of Preferred Shares Series A convertible into 93,020,000 shares of common shares, 455,000 shares of Preferred Shares Series B convertible into 455,000 shares of common shares, and 100,000 Preferred Shares Series C convertible into 125,000,000 shares of common shares, for a total of 880,976,405 fully diluted shares of common shares. Except as otherwise noted, each Shareholder has sole voting and investment power with respect to the shares beneficially owned.
Name and Address of Beneficial Owner |
| Common Shares |
|
| Preferred Shares Series A |
|
| Preferred Shares Series C |
|
| Combined Voting Power(2) |
| ||||||||||||||||
|
| # |
|
| % of class |
|
| # |
|
| % of class |
|
| # |
|
| % of class |
|
| % |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Directors and Executive Officers: |
| |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Dominic Colvin via PLC International Investments, Inc. Suite 206, 1180 Sunset Drive Kelowna, BC V1Y 9W6 |
|
| 1,004,454 |
|
| * |
|
|
| 8,715,000 |
|
|
| 9.37 |
|
|
| - |
|
|
| - |
|
|
| 1.09 |
| |
Elliot Zemel Koze Investments, LLC(1) 327 N. Formosa Ave, Los Angeles, CA, 55402 |
|
| 21,464,986 |
|
|
| 3.17 |
|
|
| - |
|
|
| - |
|
|
| 62,500,000 |
|
|
| 50.00 |
|
|
| 4.99 |
|
All directors and executive officers as a group (3 individuals) |
|
| 22,469,440 |
|
|
| 3.32 |
|
|
| 8,715,000 |
|
|
| 9.37 |
|
|
| 62,500,000 |
|
|
| 50.00 |
|
|
| 6.08 |
|
5% or Greater Shareholders of CannaPharmaRX Inc.:
None
* Denotes less than 1%
(1) Under the terms of the LTB transaction, Koze Investments, LLC (“Koze”) and Mr. Amir Tal each were issued (i)13,612,481 share purchase warrants each entitling the holder to purchase one common share of the Company at $0.02 per share until November 22, 2028; (ii) a $1,500,000 promissory note payable to Koze and Mr. Tal; (iii) a $1,500,000 promissory note payable to Koze; (iv) 50,000 Series C Preferred Shares, each convertible into 1,250 common shares, to each of Koze and Mr. Tal. Neither Koze nor Mr. Tal are permitted to, at any time, to own more than 4.99% of the outstanding common shares of the Company. As such, at any given time, the combined voting power of Koze Investments, LLC and Mr. Tal are each 4.99%.
(2) Percentage of total voting power represents voting power with respect to all shares as a single class. Shares of our common shares subject to shares options that are currently exercisable or exercisable within 60 days of December 31, 2025 that are expected to vest and settle within 60 days of March 31, 2026 are deemed to be outstanding and to be beneficially owned by the person holding such shares options for purposes of computing the percentage ownership of that person but are not treated as outstanding for purposes of computing the percentage ownership of any other person.
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ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Transactions with related persons
A summary of the Company’s related party transactions is as follows:
|
| 2025 |
|
| 2024 |
| ||
Revenue |
| $ | 394,633 |
|
| $ | 770,265 |
|
Lease expense payable to Formosa included in cost of goods sold |
|
| 1,073,328 |
|
|
| - |
|
Rent expense included in general and administrative expense |
|
| 2,124 |
|
|
| 4,381 |
|
Marketing expense included in general and administrative expense |
|
| 71,287 |
|
|
| - |
|
Professional fees |
|
| 259,834 |
|
|
| 225,794 |
|
Royalty expense |
|
| 303,525 |
|
|
| - |
|
Interest expense |
|
| 1,850,868 |
|
|
| 110,795 |
|
Imputed interest expense |
|
| 490,630 |
|
|
| - |
|
Other expense |
|
| 1,930,000 |
|
|
| - |
|
Total related party transactions |
| $ | 6,376,229 |
|
| $ | 1,111,235 |
|
Named executive officers and current directors
For information regarding compensation for our named executive officers and current directors, see “Executive Compensation”.
Definition of Related Party Transactions
For purposes of Item 404 of Regulation S‑K, a related party transaction includes any transaction, arrangement, or relationship (or series of similar transactions) in which the Company was or is to be a participant, where the amount involved exceeds the applicable disclosure threshold, and in which any related party had or will have a direct or indirect material interest. Related parties include the Company’s directors, executive officers, significant shareholders, beneficial owners of more than 5% of any class of voting securities, immediate family members of the foregoing, and entities in which such persons have a significant ownership, management role, or ability to exercise influence.
Identified related parties and their relationships to the Company
The following individuals and entities were identified as related parties during the fiscal year, based solely on the transactions and relationships disclosed in this Report.
Koze Investments LLC (“Koze”) and Formosa Mountain Ltd. (“Formosa”)
Koze is a significant financing counterparty to the Company and holder of multiple promissory and convertible notes. Koze is also the owner of D.N.S. Cantek 2019 Ltd., a major customer of the Company, and is the royalty recipient under a royalty and security agreement entered into on March 17, 2025.
Formosa provides the leased facility in which the Company operates and also holds financing arrangements and accrued lease‑related balances with the Company.
Koze and Formosa became related parties on March 11, 2025, when their manager, Elliot Zemel, was appointed as a director of the Company.
Mr. Amir Tal
Mr. Tal is identified as a control person and financial advisor to Koze. He holds promissory and convertible notes issued by the Company and is considered a related party by virtue of these positions and his influence.
Invictus Accounting Group LLP
Invictus is a provider of professional accounting and financial reporting services. The Company’s Chief Financial Officer, Oliver Foeste, is the Managing Partner of Invictus, making the entity a related party.
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Fabian Vancott
Fabian Vancott is a law firm that provides legal services to the Company. Director Anthony Panek is a partner of the firm. Unpaid professional fees to this firm are included in the Company’s related‑party accounts payable.
Richard Orman
Mr. Orman served as the Chairman of the Board of Directors. An entity affiliated with him provided office space to the Company till June 30, 2025, resulting in related‑party rent expense. Mr. Orman resigned from the Board on January 8, 2026.
Dominic Colvin and PLC International Investments Inc. (“PLC”)
Mr. Colvin, a former Chief Executive Officer and director of the Company, and is thereby, a related party. Amounts owed to him for unpaid salary and reimbursable expenses are included in related‑party accrued liabilities.
PLC is a holder of a note payable from the Company and is affiliated with Mr. Colvin, thereby constituting a related‑party financial arrangement.
D.N.S. Cantek 2019 Ltd. (“Cantek”)
Cantek is a customer entity owned by Koze. Revenues from Cantek constitute related‑party sales. Mr. Tal serves as an advisor to Cantek.
Related party transactions
a) Key related party transactions
A summary of the Company’s related party transactions is as follows:
|
| 2025 |
|
| 2024 |
| ||
Revenue |
| $ | 394,633 |
|
| $ | 770,265 |
|
Lease expense payable to Formosa included in cost of goods sold |
|
| 1,073,328 |
|
|
| - |
|
Rent expense included in general and administrative expense |
|
| 2,124 |
|
|
| 4,381 |
|
Marketing expense included in general and administrative expense |
|
| 71,287 |
|
|
| - |
|
Professional fees |
|
| 259,834 |
|
|
| 225,794 |
|
Royalty expense |
|
| 303,525 |
|
|
| - |
|
Interest expense |
|
| 1,850,868 |
|
|
| 110,795 |
|
Imputed interest expense |
|
| 490,630 |
|
|
| - |
|
Other expense |
|
| 1,930,000 |
|
|
| - |
|
Total related party transactions |
| $ | 6,376,229 |
|
| $ | 1,111,235 |
|
Revenue
During the year ended December 31, 2025, the Company recognized revenue of $394,633 (2024 - $770,265) from D.N.S. CANTEK 2019 LTD (“Cantek”), an Israeli limited corporation owned by Koze, and for which Mr. Tal serves as a financial advisor.
These related party relationships did not influence our business decisions or pricing, as sales are determined primarily based on market demand and the ability to achieve the highest possible selling price.
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A summary of the Company’s average selling prices by market is as follows:
|
| Average Price per Gram (CAD)* |
| |||||
Market |
| Premium Batches |
|
| Medium Batches |
| ||
Germany |
|
| 2.05 |
|
|
| 1.6 |
|
Israel |
|
| 2.0 |
|
| 1.6-1.8 |
| |
Canada |
|
| 2.0 |
|
| 1.1-1.5 |
| |
Portugal |
| 1.8-2.0 |
|
| 0.8-1.5 |
| ||
* Batches with THC concentrations below 20% are generally sold at lower average prices compared to higher-THC batches.
Lease expense
The Company has a lease with Formosa, which became a related party upon the appointment of its manager, Elliot Zemel, as a director of the Company on March 11, 2025. During the year ended December 31, 2025, the Company incurred lease expense of $1,073,328 associated with the Formosa lease, which is included in cost of goods sold.
Rent
Effective February 1, 2023, the Company entered into a rental agreement granting it the right to use office space located at Suite 3600, 888 5th Avenue SW, Calgary, Alberta, Canada, T2P 3R7 for a monthly rent of CAD $500 per month. This space was provided by a company affiliated with Richard Orman (“Mr. Orman”), chairman of the Company’s board of directors. The Company ceased using the office space and accordingly stopped accruing rent expense after June 30, 2025. During the year ended December 31, 2025, the Company incurred rent expense of $2,124 (2024 - $4,381) for this space which is recorded as a general and administrative expense.
Marketing expense
During the year ended December 31, 2025, the Company incurred marketing expense of $71,287 (2024 - $nil) with Sky Home Services LLC, a company managed by Mr. Tal, which is recorded as a general and administrative expense.
Professional fees
| · | During the year ended December 31, 2025, the Company incurred professional expenses of $203,727 (2024 - $180,899) related to accounting fees payable to Invictus Accounting Group LLP (“Invictus”), a company which provides part-time CFO, financial reporting, and bookkeeping services to the Company. Mr. Oliver Foeste is the Managing Partner of Invictus. |
| · | During the year ended December 31, 2025, the Company incurred professional expenses of $56,107 payable to Fabian Vancott (2024 - $44,895) related to legal fees. Anthony Panek who is a partner in Fabian Vancott, is also a director of the Company. |
Royalty expense
On March 17, 2025, the Company and Alberta Ltd., entered into a security and royalty agreement with Koze (the “Royalty Agreement”), pursuant to which the Company is required to pay a monthly royalty of CAD $0.20 per gram on cannabis product sales, payable at the beginning of the month for the previous month, as additional consideration related to the lease with Formosa. Immediately upon failure to pay the royalty when due, the royalty rate increases to CAD $0.40 per gram sold for the applicable month. As of December 31, 2025, Alberta Ltd. was in default of its payment obligations, and Koze agreed to forbear from exercising its rights over the ownership interest until May 31, 2026. During the year ended December 31, 2025, the Company sold 1,046,769 grams of cannabis products and incurred a royalty expense of $303,525 (2024 - $nil).
Interest expense
| · | During the year ended December 31, 2025, the Company incurred interest expense on promissory and convertible notes with Mr. Tal of $82,602 (2024 - $110,795). |
| · | During the year ended December 31, 2025, the Company incurred interest expense on promissory and convertible notes with Koze of $1,264,887. |
| · | During the year ended December 31, 2025, the Company incurred interest expense on promissory note with Formosa of $102,648. |
| · | During the year ended December 31, 2025, the Company incurred interest expense on rent in default with Formosa of $400,731. |
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Imputed interest expense
| · | During the year ended December 31, 2025, the Company incurred imputed interest expense on promissory and convertible notes with Mr. Tal of $29,675 (2024 - $nil). |
| · | During the year ended December 31, 2025, the Company incurred imputed interest expense on promissory and convertible notes with Koze of $386,231. |
| · | During the year ended December 31, 2025, the Company incurred imputed interest expense on promissory note with Formosa of $74,724. |
Other expense
During the year ended December 31, 2025, the Company made a one-time adjustment of $1,930,000 to lease-related rent expense due to a clarification in the interpretation of the lease terms for the Facility, which is recorded as other expense.
b) Amounts due to related parties
A summary of the Company’s related party liabilities as at December 31, 2025 and 2024, is as follows:
|
| 2025 |
|
| 2024 |
| ||
Accounts payable and accrued liabilities |
| $ | 5,416,889 |
|
| $ | 1,038,963 |
|
Accrued interest |
|
| 1,352,899 |
|
|
| 56,298 |
|
Convertible notes |
|
| - |
|
|
| 212,555 |
|
Loans payable to related parties |
|
| 13,116,485 |
|
|
| 462,818 |
|
Royalty payable |
|
| 305,492 |
|
|
| - |
|
Obligation to issue shares |
|
| 2,166,681 |
|
|
| 1,827,005 |
|
Total related party liabilities |
| $ | 22,358,446 |
|
| $ | 3,597,639 |
|
Accounts payable and accrued liabilities
As at December 31, 2025, accounts payable and accrued liabilities include balances owing to related parties as follows:
| · | As at December 31, 2025, $4,283,706 was payable to Formosa for outstanding lease payments. As at December 31, 2025, accrued interest on unpaid lease payments on the Formosa lease was $1,037,180. |
| · | As at December 31, 2025, $146,306 (December 31, 2024 - $89,392) was payable to Invictus for part-time CFO, financial reporting, and bookkeeping services provided to the Company. |
| · | As at December 31, 2025, $319,279 (December 31, 2024 - $319,279) was payable to Mr. Orman for unpaid directors’ fees for 2021 through 2023. |
| · | As at December 31, 2025, $551,953 (December 31, 2024 - $525,754) was payable to Dominic Colvin, a director of the Company, for unpaid salary and expense reimbursement amounts during Mr. Colvin’s employment with the Company as its CEO during the years 2019 through 2022. Mr. Colvin has disputed this amount and is asserting a claim for $1,679,060. As of December 31, 2025, the Company is in the process of reviewing the claim and remains in ongoing discussions with Mr. Colvin. No resolution has been reached with respect to this matter. |
| · | As at December 31, 2025, $115,645 (December 31, 2024 - $104,538) was payable to Fabian Vancott in respect of unpaid legal fees. |
Loans payable to related parties
As at December 31, 2025, the loans payable to related parties consists of the following:
PLC International Investments Inc. (“PLC”)
| · | A $13,430 interest-free loan from PLC, a company owned by Dominic Colvin, a director of the Company; |
Loans payable to Koze
On March 11, 2025, Koze became a related party upon the appointment of its manager as a director of the Company. As a result, the balance owing on promissory notes was reclassified from notes payable to loans payable to related parties during the three months ended March 31, 2025.
| 43 |
| Table of Contents |
On August 7, 2025, the Company entered into the Debt Modification agreement with Koze to amend the annual interest rates on all outstanding promissory and convertible notes held by Koze to 6%, compounding annually.
| · | Koze LTB: |
On November 22, 2023, the Company entered into promissory notes of $2,550,000 with Koze, as part of the LTB transaction, bearing interest at 13% per annum. Originally due on November 22, 2024, the maturity date for this note was extended to December 31, 2025, by agreement with Koze. On March 18, 2026, Mr. Tal and Koze agreed to extend the maturity date of the promissory notes to December 31, 2026.
As a result of the Debt Modification, principal and accrued interest outstanding related to the note as of August 7, 2025 of $2,550,000 and $555,406, respectively, were extinguished. A new note (“Koze LTB”) of $2,978,661 bearing 6% interest, compounding annually, was recognized resulting in a gain of $126,745 from extinguishment, recorded directly to additional paid-in capital.
During the year ended December 31, 2025, the Company recognized interest expense of $268,604 and imputed interest expense of $114,817 related to the note. As at December 31, 2025, the outstanding principal balance on the note was $3,093,478 and accrued interest payable on the note was $76,062.
| · | Koze A: |
On May 25, 2023, the Company entered into a promissory note with Koze, bearing interest at 24% compounded monthly, to fund for certain documented expenses.
As a result of the Debt Modification, principal and accrued interest outstanding related to the note as of August 7, 2025 of $849,278 and $443,339, respectively, were extinguished. A new note (“Koze A”) of $1,134,669 bearing 6% interest, compounding annually, was recognized resulting in a gain of $157,949 from extinguishment, recorded directly to additional paid-in capital.
During the year ended December 31, 2025, the Company received additional funding of $216,924 under the note. During the year ended December 31, 2025, the Company recognized interest expense of $173,181 and imputed interest expense of $48,650 related to the note. As at December 31, 2025, the outstanding principal balance on the note was $1,400,243 and accrued interest payable on the note was $31,070.
| · | Koze B: |
On May 25, 2023, the Company entered into another promissory note with Koze, bearing interest at 24% compounded monthly, to fund certain documented expenses.
As a result of the Debt Modification, principal and accrued interest outstanding related to the note as of August 7, 2025 of $4,040,474 and $1,366,780, respectively, were extinguished. A new note (“Koze B”) of $4,767,106 bearing 6% interest, compounding annually, was recognized resulting in a gain of $640,148 from extinguishment, recorded directly to additional paid-in capital.
During the year ended December 31, 2025, the Company received additional funding of $498,630 under the note. During the year ended December 31, 2025, the Company recognized interest expense of $763,630 and imputed interest expense of $204,591 related to the note. As at December 31, 2025, the outstanding principal balance on the note was $5,529,686 and accrued interest payable on the note was $132,215.
| · | Koze C: |
On February 8, 2024, the Company entered into another promissory note with Koze, bearing interest at 24% compounded monthly.
As a result of the Debt Modification, principal and accrued interest outstanding related to the note as of August 7, 2025 of $275,000 and $97,403, respectively, were extinguished. A new note (“Koze C”) of $330,551 bearing 6% interest, compounding annually, was recognized resulting in a gain of $41,852 from extinguishment, recorded directly to additional paid-in capital.
During the year ended December 31, 2025, the Company recognized interest expense of $46,668 and imputed interest expense of $13,150 related to the note. As at December 31, 2025, the outstanding principal balance on the note was $343,701 and accrued interest payable on the note was $8,394.
| 44 |
| Table of Contents |
| · | Koze convertible note (“Koze CN”): |
The Company has a convertible note with Koze, bearing interest at 24%.
As a result of the Debt Modification, principal and accrued interest outstanding related to the note as of August 7, 2025 of $68,555 and $75,714, respectively, were extinguished. A new note, Koze CN, of $126,275 bearing 6% interest, compounding annually, was recognized resulting in a gain of $17,995 from extinguishment, recorded directly to additional paid-in capital.
During the year ended December 31, 2025, the Company recognized interest expense of $12,804 and imputed interest expense of $5,023 related to the note. As at December 31, 2025, the outstanding principal balance on the note was $131,298 and accrued interest payable on the note was $3,207.
During the year ended December 31, 2025, Koze made payments of $2,086,675 directly to the Company’s suppliers. In addition, $819,867 was received directly by Koze, as collections from customers.
Loans payable to Mr. Tal
On August 7, 2025, the Company entered into the Debt Modification agreement with Mr. Tal to amend the annual interest rates on all outstanding promissory and convertible notes held by him to 6%, compounding annually.
| · | Mr. Tal LTB: |
On November 22, 2023, the Company entered into a promissory note of $450,000 with Mr. Tal as part of the LTB transaction, bearing interest at 13% per annum. Originally due on November 22, 2024, the maturity date for this note was extended to December 31, 2025, by agreement with Mr. Tal. On March 18, 2026, Mr. Tal and Koze agreed to extend the maturity date of the promissory notes to December 31, 2026.
As a result of the Debt Modification, principal and accrued interest outstanding related to the note as of August 7, 2025 of $438,296 and $89,768, respectively, were extinguished. A new note (“Mr. Tal LTB”) of $507,422 bearing 6% interest, compounding annually, was recognized resulting in a gain of $20,641 from extinguishment, recorded directly to additional paid-in capital.
During the year ended December 31, 2025, the Company recorded payments to the note of $77,729 (2024 - $nil). During the year ended December 31, 2025, the Company recognized interest expense of $45,357 (2024 - $58,660) and imputed interest expense of $17,954 related to the note. As at December 31, 2025, the outstanding balance on the note was $447,647 (December 31, 2024 - $450,000) and accrued interest payable on the note was $11,887 (December 31, 2024 - $56,298).
| · | Mr. Tal convertible note (“Mr. Tal CN”): |
The Company has a convertible note with Mr. Tal, bearing interest at 24%.
As a result of the Debt Modification, principal and accrued interest outstanding related to the note as of August 7, 2025 of $212,555 and $121,427, respectively, were extinguished. A new note, Mr. Tal CN, of $294,850 bearing 6% interest, compounding annually, was recognized resulting in a gain of $39,132 from extinguishment, recorded directly to additional paid-in capital.
During the year ended December 31, 2025, the Company recognized interest expense of $37,245 (2024 - $52,135) and imputed interest expense of $11,721 related to the note. As at December 31, 2025, the outstanding principal balance on the note was $306,571 (December 31, 2024 - $212,555) and accrued interest payable on the note was $7,488 (December 31, 2024 - $91,669).
Promissory note with Formosa
On January 1, 2025, the Company entered into a promissory note with Formosa in the amount of $1,930,000, bearing interest at 5% per annum, with respect to a one-time adjustment made to lease-related rent expense due to a clarification in the interpretation of the lease terms for the Facility.
As a result of the Debt Modification, principal and accrued interest outstanding related to the note as of August 7, 2025 of $1,930,000 and $58,098, respectively, were extinguished. A new note of $1,775,707 bearing 6% interest, compounding annually, was recognized resulting in a gain of $212,391 from extinguishment, recorded directly to additional paid-in capital.
During the year ended December 31, 2025, the Company recognized interest expense of $102,648 and imputed interest expense of $74,724 related to the note. As at December 31, 2025, the outstanding principal balance on the note was $1,850,431 (December 31, 2024 - $nil) and accrued interest payable on the note was $45,396 (December 31, 2024 - $nil).
| 45 |
| Table of Contents |
A summary of the Company’s loans payable to related parties as at December 31, 2025 and 2024 is as follows:
|
| 2025 |
|
| 2024 |
| ||
PLC |
| $ | 13,430 |
|
| $ | 23,510 |
|
Koze LTB |
|
| 3,093,478 |
|
|
| - |
|
Koze A |
|
| 1,400,243 |
|
|
| - |
|
Koze B |
|
| 5,529,686 |
|
|
| - |
|
Koze C |
|
| 343,701 |
|
|
| - |
|
Koze CN |
|
| 131,298 |
|
|
| - |
|
Mr. Tal LTB |
|
| 447,647 |
|
|
| 439,308 |
|
Mr. Tal CN |
|
| 306,571 |
|
|
| - |
|
Promissory note with Formosa |
|
| 1,850,431 |
|
|
| - |
|
|
| $ | 13,116,485 |
|
| $ | 462,818 |
|
A summary of the accrued interest of the Company’s loans payable to related parties as at December 31, 2025 and 2024 is as follows:
|
| 2025 |
|
| 2024 |
| ||
Koze LTB |
| $ | 76,062 |
|
| $ | - |
|
Koze A |
|
| 31,070 |
|
|
| - |
|
Koze B |
|
| 132,215 |
|
|
| - |
|
Koze C |
|
| 8,394 |
|
|
| - |
|
Koze CN |
|
| 3,207 |
|
|
| - |
|
Mr. Tal LTB |
|
| 11,887 |
|
|
| 56,298 |
|
Mr. Tal CN |
|
| 7,488 |
|
|
| - |
|
Promissory note with Formosa |
|
| 45,396 |
|
|
| - |
|
|
| $ | 315,719 |
|
| $ | 56,298 |
|
Royalty payable
Pursuant to the Royalty Agreement, as of December 31, 2025, the royalty amount payable to Koze was $305,492 (CAD $418,707) (2024 - $nil).
Obligation to issue shares
As at December 31, 2025, the Company has an obligation to issue an additional 166,668 preferred shares Series C to each of Mr. Tal and Koze (December 31, 2024 - 150,799 each) as part of the LTB transaction, valued at $1,083,341 for each party (December 31, 2024 - $1,827,005 each).
| 46 |
| Table of Contents |
ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
On November 15, 2024, Green Growth Certified Public Accountants resigned from its role as the Company’s independent auditor. On November 15, 2024, Barzily Co., were appointed as our independent auditors.
The following table summarizes the aggregate fees for professional audit and other services rendered during the fiscal years ended December 31, 2025 and 2024:
|
| Fiscal 2025 |
|
| Fiscal 2024 |
| ||
|
|
|
|
|
|
| ||
Audit fees (1) |
| $ | 140,500 |
|
| $ | 116,316 |
|
Audit-related fees |
|
| - |
|
|
| - |
|
|
|
| 140,500 |
|
|
| 116,316 |
|
Tax fees |
|
| - |
|
|
| - |
|
All other fees |
|
| - |
|
|
| - |
|
|
| $ | 140,500 |
|
| $ | 116,316 |
|
(1) | Audit fees represent fees for professional services for the year ended December 31, 2025 provided by Barzily & Co. of $137,500 (December 31, 2024 - $49,966) and Green Growth CPAs of $3,000 (December 31, 2024 - $66,350) in connection with the quarterly review and audit of our financial statements. |
Audit fees consist of fees billed for services rendered for the audit of our financial statements and review of our financial statements included in our quarterly reports on Form 10-Q and services provided in connection with other statutory or regulatory filings.
Audit-related fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and not reported under Audit fees. No such fees were billed in fiscal 2025 or 2024.
Tax fees consist of fees billed for professional services related to the preparation of our federal and provincial income tax returns and tax advice. No such fees were billed in fiscal 2025 or 2024.
The Board of Directors has reviewed and discussed with the Company's management and Barzily & Co., its independent registered public accounting firm, the audited financial statements of the Company contained in this Annual Report on Form 10-K. The Board has also discussed with the auditors the matters required to be discussed pursuant to SAS No. 61 (Codification of Statements on Auditing Standards, AU Section 380), which includes, among other items, matters related to the conduct of the audit of the Company's financial statements.
The Board has also received and reviewed the written disclosures and the letter from the independent registered public accounting firm required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees) and has discussed with its auditors its independence from the Company.
Based on the review and discussions referred to above, the Board approved the inclusion of the audited financial statements be included in the Company’s Annual Report on Form 10-K for its 2025 fiscal year.
Pre-approval policies
The Board's policy is to pre-approve all audit services and all permitted non-audit services (including the fees and terms thereof) to be provided by the Company’s independent registered public accounting firm; provided, however, pre-approval requirements for non-audit services are not required if all such services (1) do not aggregate to more than five percent of total revenues paid by the Company to its accountant in the fiscal year when services are provided; (2) were not recognized as non-audit services at the time of the engagement; and (3) are promptly brought to the attention of the Board and approved prior to the completion of the audit.
| 47 |
| Table of Contents |
PART IV
ITEM 15 - EXHIBITS, FINANCIAL STATEMENTS SCHEDULES
The following exhibits are included with this Report:
Amended and Restated Membership Interest Purchase Agreement, dated November 22, 2023 | ||
Certificate of Amendment of Certificate of Incorporation dated 10/22/14 | ||
3.3 |
| Certificate of Designation of Preferences, Rights and Limitation of Series C Convertible Preferred Shares |
4.1 |
| Description of Common Shares |
Security And Royalty Agreement between the Company and Koze Investments, LLC dated March 17, 2025 | ||
Transfer of 2323414 Alberta Ltd. to Elliot Zemel dated March 17, 2025 | ||
Forbearance Agreement 2323414 Alberta (CPMD) - Formosa (June 2025) | ||
10.1 |
| Employment Agreement between CannaPharmaRX, Inc. and 1082900 BC Ltd. (Dean Medwid) dated May 22, 2023 |
10.2 |
| Supply agreement between CannaPharmaRX, Inc. and D.N.S. Cantek 2019 Ltd dated February 12, 2024 |
| Amended and Restated Membership Interest Purchase Agreement, dated November 22, 2023 | |
10.4 |
| Lease agreement between CannaPharmaRX, Inc. and Formosa Mountain Ltd. dated January 1, 2022. |
19.1 |
| Insider Trading Policy (Code of Ethics) |
| ||
| ||
| ||
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) |
The following exhibits have previously been filed or furnished with the on the date indicated:
ITEM 16 - FORM 10-K SUMMARY
None.
| 48 |
| Table of Contents |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned thereunder duly authorized.
|
| CANNAPHARMARX, INC. |
|
|
|
|
|
Dated: March 31, 2026 | By: | /s/ Constantine Nkafu |
|
|
| Constantine Nkafu |
|
|
| Chief Executive Officer |
|
|
|
|
|
| By: | s/ Oliver Foeste |
|
|
| Oliver Foeste |
|
|
| Chief Financial Officer |
|
In accordance with the Exchange Act, this Annual Report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 31, 2026.
| 49 |
| Table of Contents |
INDEX TO FINANCIAL STATEMENTS
|
| Page |
Report of the Independent Registered Accounting Firm ID |
| F-2 |
|
|
|
Audited Financial Statements: |
|
|
|
|
|
Consolidated Balance Sheets as of December 31, 2025 and 2024 |
| F-4 |
| F-5 | |
Consolidated Statements of Cash Flows for the Years ended December 31, 2025, and 2024 |
| F-6 |
| F-7 | |
| F-8 |
| F-1 |
| Table of Contents |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the board of directors of CannaPharmaRx, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of CannaPharmaRx, Inc. and its subsidiaries (“the Company”) as of December 31, 2025 and 2024, the related consolidated statements of operations and comprehensive income, changes in stockholders’ deficit and cash flows, for the years then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations, and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Going concern
The accompanying financial statements are presented on a going-concern basis. As discussed in Note 2 to the consolidated financial statements, the Company does not have sufficient existing cash resources to fund its current limited operations. The Company has suffered losses from operations, has a working capital deficiency and cash used in operating activities. These matters, among others, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plan regarding to these matters are also described in Note 2. The financial statements do not include any adjustments for the values of assets and liabilities and their classification that may be necessary in the event that the Company is no longer able to continue its operations as a going concern.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of Inventory
As described in Note 4 to the financial statements, the Company’s inventory is $1,115 thousand as of December 31, 2025, consists of work in process and finished goods. As discussed in Note 1, The Company valuated its inventory at the lower of cost and net realizable value. Cannabis plants at various stages of growth, is a material asset and the core component of its business operations. The valuation of inventory directly impacts the Company’s reported financial results for the current and future periods and involves significant management judgment and estimates:
| · | Estimates regarding the duration of inventory growth – Assumptions about the growth cycle of cannabis plants and associated costs. |
|
|
|
| · | Costs allocation to inventory – Allocation of direct and indirect costs, including labor, raw materials, consumables, packaging supplies, utilities, facility costs, quality and testing costs, production related depreciation, and other overhead costs, using a weighted average cost method. |
|
|
|
| · | Estimates of inventory quantities – Work in Process inventory quantities are estimated according to management's information and experience. |
|
|
|
| · | Estimates regarding net realizable value (NRV) – Considerations of selling prices and future market demand. |
|
|
|
| · | Variability in inventory value due to THC content – Market pricing depends on the potency of cannabis products, influencing inventory valuation. |
| F-2 |
| Table of Contents |
We identified the valuation of inventory as a critical audit matter due to the complexity and subjectivity involved in management’s estimates and the significant impact on the financial statements. Auditing these assumptions required a high degree of auditor judgment and the application of specialized procedures.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the valuation of inventory included, among others, the following:
| · | We assessed the planning and examined the effectiveness of internal controls related to the existence and valuation of inventory |
|
|
|
| · | We obtained an understanding and evaluated the design of the internal controls over management’s valuation of inventory. |
|
|
|
| · | We physically sampled the inventory count to assess the accuracy of inventory quantities and verify existence. |
|
|
|
| · | We tested the costs allocated to inventory and compared them to accumulated costs recorded in the Company’s books. |
|
|
|
| · | We performed an independent test using an alternative cost allocation model and compared the results to management’s calculations. |
|
|
|
| · | We evaluated key assumptions, including expected yields and cumulative stage of completion. |
|
|
|
| · | We reviewed actual sales transactions for the current year to validate assumptions about realizable values. |
|
|
|
| · | We performed a completeness and accuracy check of the data used by the company in determining the provision for impairment of inventory. |
We have served as the Company’s auditors since 2024.
/s/ Barzily and Co. CPA's
March 31, 2026
| F-3 |
| Table of Contents |
CANNAPHARMARX, INC. CONSOLIDATED BALANCE SHEETS (in United States dollars) |
|
| Note |
|
| December 31, 2025 |
|
| December 31, 2024 |
| |||
|
|
|
|
|
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|
|
| |||
ASSETS |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
| |||
Current assets |
|
|
|
|
|
|
|
|
| |||
Cash |
|
|
|
| $ |
|
| $ |
| |||
Goods and services tax receivable |
|
|
|
|
|
|
|
|
| |||
Accounts receivable |
|
| 3 |
|
|
|
|
|
|
| ||
Inventory |
|
| 4 |
|
|
|
|
|
|
| ||
Total current assets |
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets |
|
|
|
|
|
|
|
|
|
|
|
|
Equipment, net |
|
|
|
|
|
|
|
|
|
| ||
Right-of-use building, net |
|
| 5 |
|
|
|
|
|
|
| ||
Investment |
|
| 6 |
|
|
|
|
|
|
| ||
Total assets |
|
|
|
|
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
| 7 |
|
| $ |
|
| $ |
| ||
Accrued interest |
|
| 8 |
|
|
|
|
|
|
| ||
Deferred revenue |
|
|
|
|
|
|
|
|
|
| ||
Notes payable |
|
| 9 |
|
|
|
|
|
|
| ||
Convertible notes |
|
| 10 |
|
|
|
|
|
|
| ||
Derivative conversion feature |
|
| 11 |
|
|
|
|
|
|
| ||
Loans payable to related parties, current portion |
|
| 12 |
|
|
|
|
|
|
| ||
Royalty payable |
|
| 12 |
|
|
|
|
|
|
| ||
Liability for right-of-use building, current portion |
|
| 13 |
|
|
|
|
|
|
| ||
Obligation to issue shares |
|
| 6 |
|
|
|
|
|
|
| ||
Total current liabilities |
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liability |
|
|
|
|
|
|
|
|
|
|
|
|
Loans payable to related parties |
|
| 12 |
|
|
|
|
|
|
| ||
Liability for right-of-use building |
|
| 13 |
|
|
|
|
|
|
| ||
Total liabilities |
|
|
|
|
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
|
|
|
|
|
Preferred shares series A, $ |
|
| 14 |
|
| $ |
|
| $ |
| ||
Preferred shares series B, $ |
|
| 14 |
|
|
|
|
|
|
| ||
Preferred shares series C, $ |
|
| 14 |
|
|
|
|
|
|
| ||
Common shares, $ |
|
| 14 |
|
|
|
|
|
|
| ||
Shares to be issued |
|
| 14 |
|
|
|
|
|
|
| ||
Treasury shares, $ |
|
| 14 |
|
|
|
|
|
|
| ||
Additional paid-in capital |
|
|
|
|
|
|
|
|
|
| ||
Accumulated deficit |
|
|
|
|
|
| ( | ) |
|
| ( | ) |
Accumulated other comprehensive (loss) income |
|
|
|
|
|
| ( | ) |
|
|
| |
Total shareholders’ deficit |
|
|
|
|
|
| ( | ) |
|
| ( | ) |
Total liabilities and shareholders’ deficit |
|
|
|
|
| $ |
|
| $ |
| ||
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
| Table of Contents |
CANNAPHARMARX, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS For the years ended December 31, 2025 and 2024 (in United States dollars) |
|
| Note |
|
| 2025 |
|
| 2024 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Revenue |
|
| 15 |
|
| $ |
|
| $ |
| ||
Cost of goods sold |
|
| 16 |
|
|
|
|
|
|
| ||
Gross loss |
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
|
|
|
|
|
|
|
| ||
Payroll and consulting fees |
|
|
|
|
|
|
|
|
|
| ||
Professional fees |
|
|
|
|
|
|
|
|
|
| ||
Royalty expense |
|
| 12 |
|
|
|
|
|
|
| ||
Total operating expenses |
|
|
|
|
|
|
|
|
|
| ||
Loss from operations |
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses) |
|
|
|
|
|
|
|
|
|
|
|
|
Change in the fair value of derivative conversion feature |
|
| 11 |
|
|
| ( | ) |
|
|
| |
Change in the fair value of obligation to issue shares |
|
| 6 |
|
|
|
|
|
| ( | ) | |
Foreign exchange gain |
|
|
|
|
|
|
|
|
|
| ||
Interest expense |
|
| 9,10,12 |
|
|
| ( | ) |
|
| ( | ) |
Imputed interest expense |
|
| 12 |
|
|
| ( | ) |
|
|
| |
Loss on the extinguishment of debt |
|
| 10 |
|
|
|
|
|
| ( | ) | |
Loss on impairment of investment |
|
| 6 |
|
|
| ( | ) |
|
|
| |
Gain on write-off of accounts payable and accrued liabilities |
|
| 7 |
|
|
|
|
|
|
| ||
Other expense |
|
| 18 |
|
|
| ( | ) |
|
|
| |
Total other expenses |
|
|
|
|
|
| ( | ) |
|
| ( | ) |
Net loss |
|
|
|
|
|
| ( | ) |
|
| ( | ) |
Foreign currency translation adjustment |
|
|
|
|
|
| ( | ) |
|
|
| |
Net comprehensive loss |
|
|
|
|
| $ | ( | ) |
| $ | ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share of common shares |
|
|
|
|
| $ | ( | ) |
| $ | ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding |
|
|
|
|
|
|
|
|
|
| ||
The accompanying notes are an integral part of these consolidated financial statements.
| F-5 |
| Table of Contents |
CANNAPHARMARX, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 2025 and 2024 (in United States dollars) |
|
| 2025 |
|
| 2024 |
| ||
|
|
|
|
|
|
| ||
Operating activities |
|
|
|
|
|
| ||
Net loss |
| $ | ( | ) |
| $ | ( | ) |
Adjustments for non-cash items: |
|
|
|
|
|
|
|
|
Loss on impairment of inventory included in cost of goods sold |
|
|
|
|
|
| ||
Shares to be issued for services included in general and administrative |
|
|
|
|
|
| ||
Change in the fair value of derivative conversion feature |
|
|
|
|
| ( | ) | |
Change in the fair value of obligation to issue shares |
|
| ( | ) |
|
|
| |
Foreign exchange gain |
|
| ( | ) |
|
|
| |
Interest expense |
|
|
|
|
|
| ||
Imputed interest expense |
|
|
|
|
|
| ||
Loss on the extinguishment of debt |
|
|
|
|
|
| ||
Loss on impairment of investment |
|
|
|
|
|
| ||
Gain on write-off of accounts payable and accrued liabilities |
|
| ( | ) |
|
|
|
|
Other expense |
|
|
|
|
|
| ||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Goods and services tax receivable |
|
| ( | ) |
|
|
| |
Accounts receivable |
|
| ( | ) |
|
| ( | ) |
Inventory |
|
| ( | ) |
|
| ( | ) |
Royalty payable |
|
|
|
|
|
| ||
Accounts payable and accrued liabilities |
|
|
|
|
|
| ||
Deferred revenue |
|
|
|
|
|
| ||
Accrued interest |
|
|
|
|
| ( | ) | |
Cash used in operating activities |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
Purchase of equipment |
|
| ( | ) |
|
|
| |
Cash used in investing activities |
|
| ( | ) |
|
|
| |
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
Proceeds from notes payable |
|
|
|
|
|
| ||
Proceeds from loans payable to related parties |
|
|
|
|
|
| ||
Proceeds from convertible notes |
|
|
|
|
|
| ||
Cash provided by financing activities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Net change in cash |
|
| ( | ) |
|
|
| |
Cash, beginning of year |
|
|
|
|
|
| ||
Cash, end of year |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cancellation of preferred shares Series B |
| $ |
|
| $ |
| ||
Conversion of convertible loans into common shares |
| $ |
|
| $ |
| ||
Conversion of preferred shares Series A into common shares |
| $ |
|
| $ |
| ||
Cash received by related parties directly from customers |
| $ | |
|
| $ | |
|
Cash paid by related parties directly to suppliers |
| $ | |
|
| $ | |
|
Reclassification of notes payable to loans payable to related parties |
| $ |
|
| $ |
| ||
Reclassification of convertible notes to loans payable to related parties |
| $ |
|
| $ |
| ||
Adjustment for related party loan modification included in additional paid-in capital |
| $ |
|
| $ |
| ||
The accompanying notes are an integral part of these consolidated financial statements.
| F-6 |
| Table of Contents |
CANNAPHARMARX, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT (in United States dollars) |
|
| Preferred Shares Series A |
|
|
|
| Preferred Shares Series B |
|
|
|
| Preferred Shares Series C |
|
|
|
| Common Shares |
|
|
|
| Shares to be issued |
|
|
|
| Treasury Shares |
|
|
|
| Additional |
|
|
|
| Accumulated Other |
|
| Total |
| |||||||||||||||||||||||
|
| Number |
|
|
|
| Number |
|
|
|
| Number |
|
|
|
| Number |
|
|
|
| Number |
|
|
|
| Number |
|
|
|
| Paid-in |
|
| Accumulated |
|
| Comprehensive |
|
| Shareholders’ |
| ||||||||||||||||||||||
|
| of shares |
|
| Value |
|
| of shares |
|
| Value |
|
| of shares |
|
| Value |
|
| of shares |
|
| Value |
|
| of shares |
|
| Value |
|
| of shares |
|
| Value |
|
| Capital |
|
| Deficit |
|
| (Loss) Income |
|
| Deficit |
| ||||||||||||||||
Balance, December 31, 2023 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
| - |
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | ||||||||||||
Exercise of share purchase warrants on cashless basis |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| ||||||||||
Conversion of preferred shares Series A to common shares |
|
| ( | ) |
|
| ( | ) |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Cancellation of preferred shares Series B |
|
| - |
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Conversion of convertible notes to common shares |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Issuance of share purchase warrants for convertible notes |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Change in foreign currency translation |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | ||||||||
Balance, December 31, 2024 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
| - |
|
|
|
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ | ( | ) | |||||||||||||
Related party loan modification, adjustment |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Shares to be issued |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Change in foreign currency translation |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | ||||||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | ||||||||
Balance, December 31, 2025 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | |||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-7 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 (in United States dollars) |
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
CannaPharmaRx, Inc. was originally incorporated in the state of Colorado in August 1998 as Network Acquisitions, Inc. The Company underwent several name changes over the years and, in October 2014, changed its legal name to CannaPharmaRx, Inc. (hereinafter the “Company”). The Company focuses its business efforts on the operation of cannabis cultivation facilities in Canada.
On January 6, 2022, the Company entered into a 20-year operating lease with Formosa Mountain Ltd. (“Formosa”) for the use of a facility located in Cremona, Alberta, Canada. During 2022, the Company recommissioned the 55,000 square foot facility (the “Facility”) into an indoor cannabis farm with 10 growing rooms and one drying and packing room. During 2025, the Company added one additional growing room to its operations. The Facility now has six growing rooms and one drying and packing room in operation and plans to increase capacity over the next one to two years to open a second drying and packing room and to operate all 10 growing rooms.
The Company received an operating license from Health Canada on December 9, 2022, and a cannabis license from the Canada Revenue Agency on December 22, 2022, and commenced cannabis production during the year ended December 31, 2023.
Potential liability exposure and insurance coverage
The Company has not paid any insurance premiums since early 2024. As a result, its current insurance coverage has lapsed. The Company may be subject to claims for damages and other expenses that are not covered by insurance. The Company’s business, profitability, and growth prospects could be adversely affected in the event it is required to pay damages and incur defense costs in connection with a liability claim. There can be no assurance that the Company will be able to reinstate or obtain insurance coverage in the future in amounts, or at a cost, that would provide adequate protection.
Cease Trade Order (“CTO”)
In 2023, the British Columbia Securities Commission (“BCSC”) issued a Cease Trade Order (“CTO”) against the Company due to the Company’s failure to file certain continuous disclosure documents under Canadian securities laws. The CTO restricted the trading in the Company’s securities in Canada, including share issuances and conversions of convertible instruments. The Company filed an application to the BCSC to revoke the CTO, and on December 12, 2025, the BCSC rescinded the CTO in full.
Basis of presentation
a) Principles of presentation
The accompanying consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) and the rules and regulations of the Securities and Exchange Commission.
All figures are in USD unless indicated otherwise.
b) Principles of consolidation
These financial statements include accounts of CannaPharmaRx, Inc. and its wholly owned subsidiaries, including CannaPharmaRX Canada Corp., Alternative Medical Solutions Inc. and 2323414 Alberta Ltd. Subsidiaries are consolidated from the date of acquisition and control and continue to be consolidated until the date that such control ceases.
c) Reclassification of prior period presentation
Rent expense for the year ended December 31, 2024 of $
| F-8 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 (in United States dollars) |
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
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 assets, 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 the purchase price allocation of acquired businesses, the impairment of long-lived assets, the valuation of financial instruments, the valuation of inventory, the provision of 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 at 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
The Company holds all its cash in bank accounts. On December 31, 2025, the Company had cash of $
Investments
The Company invests in equity securities, which are accounted for in accordance with ASC 321, Investments - Equity Securities. Equity securities are measured at fair value, with changes in fair value recognized in net income. For equity securities without readily determinable fair values, the Company has elected the measurement alternative, recording these investments at cost minus impairment, adjusted for observable price changes.
The Company performs a qualitative assessment for impairment of equity securities without readily determinable fair values. If impairment is indicated, the investment is written down to fair value through earnings.
Revenue recognition
The Company’s revenue is comprised of sales of cannabis products.
The Company’s revenue-generating activities have a single performance obligation and revenue is recognized at the point in time when control of the product transfers and the Company’s obligations have been fulfilled. This generally occurs when the product is shipped to the customer, depending upon the method of distribution and shipping terms set forth in the customer contract. Revenue is measured as the amount of consideration the Company expects to receive in exchange for the sale of the Company’s product.
Sales of products are for cash or otherwise agreed-upon credit terms. The Company’s payment terms vary by location and customer; however, the time period between when revenue is recognized and when payment is due is not significant.
Accounts Receivable
The Company has adopted standardized credit policies and performs assessments in an effort to minimize credit losses. Accounts receivable are recorded at their net realizable value, which is management’s best estimate of the cash that will ultimately be received from customers and third parties, respectively. The Company reviews the balances regularly and when management determines they may not be fully collectible, the balances are reduced to their expected net realizable value in accordance with ASC 326 Financial Instruments - Credit Losses.
The provision for credit losses on accounts receivable is recorded in general and administrative expense. If current or expected future economic trends, events, or changes in circumstances indicate that specific receivable balances may be impaired, further consideration is given to the collectability of those balances and the allowance is adjusted accordingly. Accounts receivable are written off after exhaustive collection efforts occur and the receivable is deemed uncollectible.
| F-9 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 (in United States dollars) |
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Equipment
Equipment is recorded at cost, net of accumulated depreciation and impairment losses. Depreciation is calculated on a straight-line basis over the assets’ estimated useful lives, which are as follows:
Category |
| Useful life |
Computer equipment |
| |
Office equipment |
| |
Plant equipment |
| |
Plant improvements |
|
Inventory
Inventory is valued at the lower of cost and net realizable value, with cost determined using the weighted average cost method. Net realizable value is calculated as the estimated selling price in the ordinary course of business, less any estimated costs to complete and sell the goods. Costs are capitalized to inventory, until substantially ready for sale. Costs include direct and indirect labor, raw materials, consumables, packaging supplies, utilities, facility costs, quality and testing costs, production related depreciation, and other overhead costs.
Cost of goods sold
Cost of goods sold (“COGS”) represents the direct costs attributable to the production of goods sold by the Company during the reporting period. These costs primarily include raw materials, direct labor, and manufacturing overhead incurred in the production process. Manufacturing overhead consists of indirect costs such as depreciation of production equipment, facility rent, utilities, and maintenance expenses allocated to production activities.
The Company values its inventory at the lower of cost or net realizable value, with cost determined using the weighted average cost method. Costs are expensed to COGS as inventory is sold. Adjustments to inventory valuation, including write-downs for excess or obsolete inventory, are also included in COGS when applicable.
Leases
At the start of a contract containing a lease, the Company classifies leases other than short-term leases as either operating or finance leases, following the criteria outlined in ASU 2016-02 Leases. Lease classification is only reassessed when: (a) the contract is modified and not treated as a separate contract, or (b) there is a change in the lease term or a reassessment of whether the lessee is likely to exercise a purchase option for the underlying asset. The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases with terms of 12 months or less.
For operating leases, right-of-use assets and lease liabilities are initially measured as the present value of future lease payments plus initial direct costs, discounted at the lease's implicit interest rate, or, if not available, the Company’s incremental borrowing rate.
Subsequent measurements for operating lease liabilities are measured at the present value of unpaid lease payments, discounted at the original discount rate. Right-of-use assets are adjusted by accumulated amortization, calculated as the difference between the straight-line lease cost (including amortization of initial direct costs) and the periodic accretion of the lease liability.
As at December 31, 2025, the Company has one lease which is classified as an operating lease.
| F-10 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 (in United States dollars) |
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Derivative financial instruments
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 instruments is required to be revalued at each reporting date, with corresponding changes in fair value recorded in the current period operating results. Derivative conversion feature arose due to the issuance of variably priced convertible notes. For the year ended December 31, 2025, the Company had derivative conversion features valued at $
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risk.
Foreign currency translation
The functional currency and the reporting currency of the Company’s United States (“US”) operations is United States dollars (“USD”). The functional currency of the Company’s Canadian operations is Canadian dollars (“CAD”). Management 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 USD, the reporting currency, 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 shareholders' deficit in the consolidated statements of changes in shareholders' deficit.
As at December 31, 2025, the official spot exchange rate for translation of CAD to USD was
Harmonized sales tax
The Company's revenues from Canadian operations include applicable Goods and Services Tax (“GST”) or Harmonized Sales Tax (“HST”), depending on the province of sale. GST is a 5% consumption tax applied to taxable goods and services at the point of sale. In certain provinces, GST is combined with Provincial Sales Tax and referred to as HST. The tax is collected by vendors from consumers and subsequently remitted, net of eligible input tax credits, to the Canada Revenue Agency (“CRA”), which distributes the applicable portions to the respective provinces.
| F-11 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 (in United States dollars) |
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
The fair value of equity instruments issued as consideration for services is based on the quoted market price of the Company’s common shares as on the grant date.
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.
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’s financial assets and liabilities comprise of cash, accounts receivable, investment, accounts payable and accrued liabilities, accrued interest, notes payable, convertible notes, derivative conversion feature, loans payable to related parties, royalty payable and obligation to issue shares.
The Company measures the fair value of its convertible notes, derivative conversion feature and obligation to issue shares based on Level 3 hierarchy.
There are no other financial assets or liabilities measured at fair value on a recurring basis presented on the Company’s balance sheet. As at December 31, 2025, the carrying values of the Company’s financial instruments approximate their fair values.
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, accounts receivable, investment, accounts payable and accrued liabilities, accrued interest, notes payable, convertible notes, derivative conversion feature, loans payable to related parties, royalty payable and obligation to issue shares each approximate their carrying value due either to their short length to maturity or interest rates that approximate prevailing market rates.
| F-12 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 (in United States dollars) |
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
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.The Company does not recognize any deferred taxes as it does not anticipate taxable income in the foreseeable future.
(Loss) earnings per share
(Loss) earnings per share is presented in accordance with Accounting Standards Update, Earnings per Share (Topic 260), which requires the presentation of both basic and diluted earnings per share (“EPS”) on the income statements.
Basic EPS excludes any dilutive effects of share options, share purchase warrants, and convertible securities but does include the restricted shares of common shares issued. Basic EPS calculations are determined by dividing net income by the weighted average number of shares of common shares outstanding during the year.
Diluted EPS reflects the potential dilution that would occur if securities or other contracts to issue common shares were exercised using the treasury stock method or converted to common shares using the if-converted method. Diluted EPS calculations are determined by dividing net income by the weighted average number of shares of common shares and dilutive common shares equivalents outstanding. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive. As of December 31, 2025, convertible preferred shares outstanding totaled
Segment Reporting
The Company operates as a single operating segment. The Company's Chief Operating Decision Maker (“CODM”) is its CEO, who reviews financial information presented on a consolidated basis. The CODM uses revenue, cost of goods sold, consolidated operating margin and net income to assess financial performance and allocate resources. These financial metrics are used by the CODM to make key operating decisions, such as the determination of the rate at which the Company seeks to grow its operating profit margin and the allocation of budget between cost of goods sold, professional fees, and general and administrative expenses.
Debt Modifications and Extinguishments
The Company accounts for modifications and extinguishments of its debt instruments in accordance with ASC Topic 470-50, Debt—Modifications and Extinguishments. Amendments to debt instruments are evaluated to determine whether they qualify as a modification or an extinguishment, including a quantitative assessment of whether the present value of the future cash flows of the modified debt instrument differs by at least 10% from the original debt instrument (the "10% test"). The present value is calculated using the original effective interest rate, incorporating fees paid to or received from lenders. Qualitative factors, such as changes in embedded conversion features, significant economic change in the debt structure and alterations to the risk and cost profile of the debt instruments are also considered.
· | Extinguishment Accounting: If the 10% test or other criteria indicate a substantial difference, the original debt is derecognized, and the modified debt is recognized at fair value (or the present value of future cash flows discounted at the original effective interest rate). Any difference between the carrying amount of the original debt (including unamortized discounts, premiums, and issuance costs) and the new debt's initial carrying amount is recognized as a gain or loss in the consolidated statements of operations. For extinguishments with related parties that are in substance capital transactions, the gain or loss is recorded directly in additional paid-in capital. |
|
|
· | Modification Accounting: If the 10% test indicates no substantial difference, the modification is accounted for prospectively by adjusting the carrying amount of the original debt for any fees paid or received to the lender(s). These fees are amortized as an adjustment to the effective interest rate over the remaining term using the effective interest method. Unamortized discounts, premiums, and issuance costs from the original debt continue to be amortized over the modified term. |
| F-13 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 (in United States dollars) |
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
New accounting standards adopted
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. The Company adopted ASU 2023-09 beginning January 1, 2025. The adoption did not have any significant impact on the Company’s financial statement disclosures.
New accounting standards not yet adopted
In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This ASU requires an entity to disclose the amounts of inventory purchases, employee compensation, depreciation, and intangible asset amortization included in each relevant expense caption. It also requires an entity to include certain amounts that are already required to be disclosed under current GAAP in the same disclosure. Additionally, it requires an entity to disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively, and to disclose the total amount of selling expenses. The ASU is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027, with early adoption permitted.
In September 2025, the FASB issued ASU 2025-06, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) Targeted Improvements to the Accounting for Internal-Use Software. This standard modernizes the accounting for costs related to internal-use software by removing references to project stages and by clarifying the thresholds entities apply to begin capitalizing costs. The amendments in this update are effective for interim and annual periods beginning after December 15, 2027, and early adoption is permitted.
Management is currently evaluating the potential effect that these updated standards will have on our financial statement disclosures.
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.
NOTE 2 - GOING CONCERN AND LIQUIDITY
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.
As at December 31, 2025, the Company had cash of $
Based on current financial projections, the Company does not have sufficient existing cash resources to fund its current operations. Accordingly, there is substantial doubt about the Company’s ability to continue as a going concern. Management intends to address these liquidity challenges through debt financings and/or raise additional funding through equity financing to support ongoing operating expenses and working capital needs. There is no assurance that these events will be satisfactorily completed or at terms acceptable to the Company and therefore, the Company is heavily reliant on funding from related parties. If the Company is unable to secure adequate financing or otherwise successfully implement its plans, it may be required to significantly reduce or curtail its operations, or cease operations entirely. Any issuance of equity securities to raise capital could result in substantial dilution to existing shareholders. These consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
| F-14 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 (in United States dollars) |
NOTE 2 - GOING CONCERN AND LIQUIDITY (continued)
On March 17, 2025, the Company and its subsidiary, 2323414 Alberta Ltd. (“Alberta Ltd.”), which operates the Company’s principal business activities, including the cultivation, processing, and distribution of cannabis, entered into a security and royalty agreement with Koze Investments LLC (“Koze”), a California-based limited liability company engaged in providing financing and investment services. Koze has been considered a related party since March 11, 2025, the date on which its manager, Elliot Zemel, was appointed as a director of the Company. Pursuant to the agreement, the Company is required to pay a royalty on cannabis product sales from the prior month as an additional consideration for the lease with Formosa. If royalty payments are not made on time, the applicable rate increases. The agreement stipulates that a default occurs if Alberta Ltd. fails to make royalty or lease payments for three consecutive months, or for any four months within a rolling six-month period. As collateral, the Company granted Koze a security interest in its entire ownership interest in Alberta Ltd., which will remain in place until all obligations are fully satisfied. As of December 31, 2025, Alberta Ltd. was in default of its payment obligations, and Koze agreed to forbear from exercising its rights over the ownership interest until May 31, 2026. The Company also incurred royalty expense under the agreement and recorded a related royalty payable liability as of December 31, 2025.
NOTE 3 - ACCOUNTS RECEIVABLE
A summary of the Company’s accounts receivable as at December 31, 2025 and 2024 is as follows:
|
| 2025 |
|
| 2024 |
| ||
|
|
|
|
|
|
| ||
Accounts receivables |
| $ |
|
| $ |
| ||
Less: allowance for credit losses |
|
| ( | ) |
|
|
| |
|
| $ |
|
| $ |
| ||
As at December 31, 2025, $
NOTE 4 - INVENTORY
A summary of the Company’s inventory as at December 31, 2025 and 2024 is as follows:
|
| 2025 |
|
| 2024 |
| ||
|
|
|
|
|
|
| ||
Finished goods |
| $ |
|
| $ |
| ||
Work in process |
|
|
|
|
|
| ||
Less: impairment of finished goods inventory included in cost of goods sold |
|
|
|
|
| ( | ) | |
Less: impairment of work in process inventory included in cost of goods sold |
|
| ( | ) |
|
| ( | ) |
|
| $ |
|
| $ |
| ||
NOTE 5 - RIGHT-OF-USE BUILDING
On January 1, 2022, the Company entered into a 20-year lease agreement commencing January 1, 2022 with Formosa for the Facility in which it grows its cannabis products in Cremona, Alberta.
A discount rate of
On January 1 2025, the Company amended the lease agreement whereby the lease payments were changed from CAD $90,979 to CAD $125,000 per month for the remainder of the lease term.
| F-15 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 (in United States dollars) |
NOTE 5 - RIGHT-OF-USE BUILDING (continued)
A summary of the Company’s right-of-use building asset at December 31, 2025 and 2024 is as follows:
|
| 2025 |
|
| 2024 |
| ||
Gross carrying amount |
| $ |
|
| $ |
| ||
Accumulated depreciation |
|
| ( | ) |
|
| ( | ) |
Net book value |
| $ |
|
| $ |
| ||
During the year ended December 31, 2025, the Company recorded and allocated to inventory depreciation expense on its right-of-use building of $
NOTE 6 - INVESTMENT
On November 22, 2023, the Company closed a transaction with Lucky Tackle Box Management, LLC (“LTB”) to acquire
The total purchase consideration for the investment was $
The contingent consideration includes a quarterly true up of the sellers of LTB’s preferred share proportional ownership to
As of December 31, 2025, management evaluated the investment’s fair value using a discounted cash flow analysis of LTB and concluded that projected cash flows available to Class B unitholders were negative in all periods. Management concluded that a full impairment was appropriate. Accordingly, management determined the fair value of the investment to be negligible and fully impaired the carrying amount of $
| F-16 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 (in United States dollars) |
NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
A summary of the Company’s accounts payable and accrued liabilities as at December 31, 2025 and 2024 is as follows:
|
| 2025 |
|
| 2024 |
| ||
|
|
|
|
|
|
| ||
Accounts payable (a) |
| $ |
|
| $ |
| ||
Accrued liabilities |
|
|
|
|
|
| ||
Accrued legal settlement (b) |
|
|
|
|
|
| ||
Total accounts payable and accrued liabilities |
| $ |
|
| $ |
| ||
(a) | During the year ended December 31, 2025, the Company evaluated its outstanding accounts payable originating prior to December 31, 2022. Based on this review and applicable statutes of limitations, the Company determined that certain obligations were no longer legally enforceable. Accordingly, the Company recorded a write-off of $ |
(b) | The Company was previously a defendant in an action filed in 2014 by Gary M. Cohen, a former officer and director of the Company. In March 2015, the Company entered into a settlement agreement with Mr. Cohen wherein the Company agreed to repurchase |
NOTE 8 - ACCRUED INTEREST
A summary of the Company’s accrued interest as at December 31, 2025 and 2024 is as follows:
|
| 2025 |
|
| 2024 |
| ||
|
|
|
|
|
|
| ||
Notes payable |
| $ |
|
| $ |
| ||
Loans payable to related parties |
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|
|
|
| ||
Convertible notes |
|
|
|
|
|
| ||
Rent in default on Formosa lease |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
NOTE 9 - NOTES PAYABLE
A summary of the Company’s notes payable as at December 31, 2025 and 2024 is as follows:
|
| 2025 |
|
| 2024 |
| ||
Notes payable |
| $ |
|
| $ |
| ||
Canada Emergency Business Account (“CEBA”) loan |
|
|
|
|
|
| ||
Secured promissory notes |
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|
|
|
|
| ||
Other promissory notes |
|
|
|
|
|
| ||
Promissory notes (LTB Transaction) |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
| F-17 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 (in United States dollars) |
NOTE 9 - NOTES PAYABLE (continued)
Notes payable
On May 10, 2024 and May 31, 2024, the Company entered into notes payable agreements (“Note A” and “Note B”, respectively) bearing interest at
During the year ended December 31, 2025, the Company recorded $
On August 13, 2024, the Company entered into a note payable agreement (“Note C”) with a third individual in the amount of $
During the year ended December 31, 2025, the Company recorded $
CEBA loan
Due to the global COVID 19 outbreak, the Government of Canada introduced the CEBA program. The Company participated in this program and received a CAD $60,000 loan. The loan was interest-free until January 18, 2024 at which time it was converted to a non-amortizing term loan with an interest rate of
During the year ended December 31, 2025, the Company recorded $
Secured promissory notes
During the year ended December 31, 2021, the Company entered into secured non-interest-bearing promissory note agreements with investors for $
Promissory notes (LTB transaction) reclassified to loans payable to related parties
On November 22, 2023, the Company entered into promissory notes of $
The remaining $
The original maturity date of the two promissory notes was November 22, 2024. On November 22, 2024, the Company entered into an agreement with Mr. Tal and Koze to extend the maturity date of the promissory notes to December 31, 2025. Management assessed that the modification did not result in an extinguishment of debt and has continued to accrue interest on the notes through to the revised maturity date. On March 18, 2026, Mr. Tal and Koze agreed to extend the maturity date of the promissory notes to December 31, 2026.
| F-18 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 (in United States dollars) |
NOTE 9 - NOTES PAYABLE (continued)
Other promissory notes reclassified to loans payable to related parties
On May 25, 2023, the Company entered into two promissory notes with Koze, bearing interest of
On February 8, 2024, the Company entered into another promissory note with Koze, bearing interest at
As a result of Koze becoming a related party in March 2025, the balance owing on these promissory notes was reclassified from notes payable to loans payable to related parties during the three months ended March 31, 2025 (Note 12).
On January 1, 2025, the Company entered into a promissory note with Formosa in the amount of $
Debt modification of debt instruments held by Mr. Tal and Koze
On August 7, 2025, the Company entered into an agreement (the “Debt Modification”) with Mr. Tal and Koze to amend the annual interest rates on all outstanding promissory and convertible notes held by them to 6%, compounding annually. This was deemed to be a substantial modification of the terms of the agreements and was accounted for as an extinguishment of the promissory and convertible notes and recognition of new notes at the new 6% rate. The term to maturity was unchanged (Note 12). In connection with the issuance of the new notes resulting from the Debt Modification, the Company determined that the market interest rate for similar instruments was 15%. Accordingly, the debt was recorded at a discount to reflect this effective interest rate, with the discount amortized to imputed interest expense over the term of the debt using the effective interest method.
A summary of the accrued interest of the Company’s notes payable (Note 8) as at December 31, 2025 and 2024 is as follows:
|
| 2025 |
|
| 2024 |
| ||
CEBA loan |
| $ |
|
| $ |
| ||
Note A |
|
|
|
|
|
| ||
Note B |
|
|
|
|
|
| ||
Note C |
|
|
|
|
|
| ||
Reclassified to loans payable to related parties: |
|
|
|
|
|
|
|
|
Koze LTB |
|
|
|
|
|
| ||
Koze A |
|
|
|
|
|
| ||
Koze B |
|
|
|
|
|
| ||
Koze C |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
| F-19 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 (in United States dollars) |
NOTE 10 - CONVERTIBLE NOTES
A summary of the Company’s convertible notes is as follows:
Balance, December 31, 2023 |
| $ |
| |
Additions |
|
|
| |
Value of conversion of notes into 204,353,254 common shares |
|
| ( | ) |
Settlements |
|
| ( | ) |
Balance, December 31, 2024 |
|
|
| |
Reclassification of convertible notes to loan payable to related parties |
|
| ( | ) |
Balance, December 31, 2025 |
| $ |
|
During the year ended December 31, 2025, there were no conversions of convertible notes and accordingly, no loss on conversion (2024 - $
A summary of the terms and conditions of the convertible notes outstanding which have a derivative conversion feature as at December 31, 2025 is as follows:
Maturity Date |
| Interest Rate |
|
| Conversion price |
| Principal at inception |
|
| Principal outstanding |
| |||
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| % |
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| $ |
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| $ |
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| % |
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| % |
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| |||||
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|
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|
|
|
|
| $ |
|
| $ |
| ||
Convertible notes included in loans payable to related parties
On August 7, 2025, as a result of the Debt Modification (Note 9), the convertible notes held by Mr. Tal and Koze with outstanding principal of $
As at the date of these financial statements, all convertible notes were past their maturity date, but they retained the terms and conditions as per their respective agreements. Additionally, because of the late filing of previous annual reports, and the loss of the Company’s active listing in the OTC market, the penalty provisions of all convertible notes outstanding became effective. The Company estimated that the maximum penalty provisions amounted to one times the face value of all the convertible notes outstanding on the date the conversion feature became exercisable. As at December 31, 2025, the accrued liability for penalties was $
The convertible notes were determined to be compound instruments, comprising separate financial instruments, being the debt obligation and the conversion option, which were bifurcated and are presented separately on the consolidated balance sheets. As the number of common shares to be issued on exercise of the conversion option is contingent on a variable share price, the conversion option has been classified as derivative conversion feature.
| F-20 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 (in United States dollars) |
NOTE 11 - DERIVATIVE CONVERSION FEATURE
A summary of Company’s derivative conversion feature as at December 31, 2025 is as follows:
Balance, December 31, 2023 |
| $ |
| |
Change in the fair value of derivative conversion feature |
|
| ( | ) |
Balance, December 31, 2024 |
|
|
| |
Change in the fair value of derivative conversion feature |
|
|
| |
Balance, December 31, 2025 |
| $ |
|
The Company used an option pricing model to calculate the derivative conversion feature. A summary of the Company’s weighted average inputs used in the model for the year ended December 31, 2025 and the year ended December 31, 2024 is as follows:
|
| 2025 |
|
| 2024 |
| ||
Share price |
| $ |
|
| $ |
| ||
Exercise price |
| $ |
|
| $ |
| ||
Risk-free interest rate |
|
| % |
|
| % | ||
Expected volatility |
|
| % |
|
| % | ||
Expected life |
|
|
|
| ||||
Expected dividend yield |
|
| % |
|
| % | ||
The risk-free interest rate was based on rates established by the Federal Reserve Bank. Beginning with the year ended December 31, 2025, the Company estimated expected volatility using a peer‑based approach rather than the historical volatility of its own common shares. The Company’s common shares trade infrequently on the OTC Markets, and management determined that historical volatility derived solely from Company‑specific trading data was not reflective of market‑participant assumptions. As at the date of these financial statements, all convertible notes were past their maturity date and accordingly, the expected term of the conversion feature of the notes was assumed to be 1 year from the date of these financial statements. The expected annual 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.
NOTE 12 - RELATED PARTY TRANSACTIONS
A related party is any individual or entity that can exercise significant influence over the Company, or over which the Company can exercise significant influence. Related parties include affiliates, principal owners, directors, executive management, their immediate family members, and entities under common control.
c) Key related party transactions
A summary of the Company’s related party transactions is as follows:
|
| 2025 |
|
| 2024 |
| ||
Revenue |
| $ |
|
| $ |
| ||
Lease expense payable to Formosa included in cost of goods sold |
|
|
|
|
|
| ||
Rent expense included in general and administrative expense |
|
|
|
|
|
| ||
Marketing expense included in general and administrative expense |
|
|
|
|
|
| ||
Professional fees |
|
|
|
|
|
| ||
Royalty expense |
|
|
|
|
|
| ||
Interest expense |
|
|
|
|
|
| ||
Imputed interest expense |
|
|
|
|
|
| ||
Other expense |
|
|
|
|
|
| ||
Total related party transactions |
| $ |
|
| $ |
| ||
| F-21 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 (in United States dollars) |
NOTE 12 - RELATED PARTY TRANSACTIONS (continued)
Revenue
During the year ended December 31, 2025, the Company recognized revenue of $
Lease expense
The Company has a lease with Formosa, which became a related party upon the appointment of its manager, Elliot Zemel, as a director of the Company on March 11, 2025. During the year ended December 31, 2025, the Company incurred lease expense of $
Rent
Marketing expense
During the year ended December 31, 2025, the Company incurred marketing expense of $
Professional fees
| · | During the year ended December 31, 2025, the Company incurred professional expenses of $ |
| · | During the year ended December 31, 2025, the Company incurred professional expenses of $ |
Royalty expense
On March 17, 2025, the Company and Alberta Ltd., entered into a security and royalty agreement with Koze (the “Royalty Agreement”) (Note 2), pursuant to which the Company is required to pay a monthly royalty of CAD $0.20 per gram on cannabis product sales, payable at the beginning of the month for the previous month, as additional consideration related to the lease with Formosa. Immediately upon failure to pay the royalty when due, the royalty rate increases to CAD $0.40 per gram sold for the applicable month. As of December 31, 2025, Alberta Ltd. was in default of its payment obligations, and Koze agreed to forbear from exercising its rights over the ownership interest until May 31, 2026. During the year ended December 31, 2025, the Company sold 1,046,769 grams of cannabis products and incurred a royalty expense of $
| F-22 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 (in United States dollars) |
NOTE 12 - RELATED PARTY TRANSACTIONS (continued)
Interest expense
| · | During the year ended December 31, 2025, the Company incurred interest expense on promissory and convertible notes with Mr. Tal of $ |
| · | During the year ended December 31, 2025, the Company incurred interest expense on promissory and convertible notes with Koze of $ |
| · | During the year ended December 31, 2025, the Company incurred interest expense on promissory note with Formosa of $ |
| · | During the year ended December 31, 2025, the Company incurred interest expense on rent in default with Formosa of $ |
Imputed interest expense
| · | During the year ended December 31, 2025, the Company incurred imputed interest expense on promissory and convertible notes with Mr. Tal of $ |
| · | During the year ended December 31, 2025, the Company incurred imputed interest expense on promissory and convertible notes with Koze of $ |
| · | During the year ended December 31, 2025, the Company incurred imputed interest expense on promissory note with Formosa of $ |
Other expense
During the year ended December 31, 2025, the Company made a one-time adjustment of $
d) Amounts due to related parties
A summary of the Company’s related party liabilities as at December 31, 2025 and 2024, is as follows:
|
| 2025 |
|
| 2024 |
| ||
Accounts payable and accrued liabilities |
| $ |
|
| $ |
| ||
Accrued interest |
|
|
|
|
|
| ||
Convertible notes |
|
|
|
|
|
| ||
Loans payable to related parties |
|
|
|
|
|
| ||
Royalty payable |
|
|
|
|
|
| ||
Obligation to issue shares |
|
|
|
|
|
| ||
Total related party liabilities |
| $ |
|
| $ |
| ||
Accounts payable and accrued liabilities
As at December 31, 2025, accounts payable and accrued liabilities include balances owing to related parties as follows:
| · | As at December 31, 2025, $ |
| · | As at December 31, 2025, $ |
| · | As at December 31, 2025, $ |
| · | As at December 31, 2025, $ |
| · | As at December 31, 2025, $ |
| F-23 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 (in United States dollars) |
NOTE 12 - RELATED PARTY TRANSACTIONS (continued)
Loans payable to related parties
As at December 31, 2025, the loans payable to related parties consists of the following:
PLC International Investments Inc. (“PLC”)
| · | A $ |
Loans payable to Koze
On March 11, 2025, Koze became a related party upon the appointment of its manager as a director of the Company. As a result, the balance owing on promissory notes was reclassified from notes payable to loans payable to related parties during the three months ended March 31, 2025 (Note 2).
On August 7, 2025, the Company entered into the Debt Modification agreement with Koze to amend the annual interest rates on all outstanding promissory and convertible notes held by Koze to 6%, compounding annually.
| · | Koze LTB: |
On November 22, 2023, the Company entered into promissory notes of $
As a result of the Debt Modification (Note 9),
During the year ended December 31, 2025, the Company recognized interest expense of $
| · | Koze A: |
On May 25, 2023, the Company entered into a promissory note with Koze, bearing interest at
As a result of the Debt Modification (Note 9),
During the year ended December 31, 2025, the Company received additional funding of $
| · | Koze B: |
On May 25, 2023, the Company entered into another promissory note with Koze, bearing interest at
As a result of the Debt Modification (Note 9),
During the year ended December 31, 2025, the Company received additional funding of $
| F-24 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 (in United States dollars) |
NOTE 12 - RELATED PARTY TRANSACTIONS (continued)
| · | Koze C: |
On February 8, 2024, the Company entered into another promissory note with Koze, bearing interest at
As a result of the Debt Modification (Note 9),
During the year ended December 31, 2025, the Company recognized interest expense of $
| · | Koze convertible note (“Koze CN”): |
The Company has a convertible note with Koze, bearing interest at
As a result of the Debt Modification (Note 9),
During the year ended December 31, 2025, the Company recognized interest expense of $
During the year ended December 31, 2025, Koze made payments of$
Loans payable to Mr. Tal
On August 7, 2025, the Company entered into the Debt Modification agreement with Mr. Tal to amend the annual interest rates on all outstanding promissory and convertible notes held by him to 6%, compounding annually.
| · | Mr. Tal LTB: |
On November 22, 2023, the Company entered into a promissory note of $
As a result of the Debt Modification (Note 9),
During the year ended December 31, 2025, the Company recorded payments to the note of $
| F-25 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 (in United States dollars) |
NOTE 12 - RELATED PARTY TRANSACTIONS (continued)
| · | Mr. Tal convertible note (“Mr. Tal CN”): |
The Company has a convertible note with Mr. Tal, bearing interest at
As a result of the Debt Modification (Note 9),
During the year ended December 31, 2025, the Company recognized interest expense of $
Promissory note with Formosa
On January 1, 2025, the Company entered into a promissory note with Formosa in the amount of $
As a result of the Debt Modification (Note 9),
During the year ended December 31, 2025, the Company recognized interest expense of $
A summary of the Company’s loans payable to related parties as at December 31, 2025 and 2024 is as follows:
|
| 2025 |
|
| 2024 |
| ||
PLC |
| $ |
|
| $ |
| ||
Koze LTB |
|
|
|
|
|
| ||
Koze A |
|
|
|
|
|
| ||
Koze B |
|
|
|
|
|
| ||
Koze C |
|
|
|
|
|
| ||
Koze CN |
|
|
|
|
|
| ||
Mr. Tal LTB |
|
|
|
|
|
| ||
Mr. Tal CN |
|
|
|
|
|
| ||
Promissory note with Formosa |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
| F-26 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 (in United States dollars) |
NOTE 12 - RELATED PARTY TRANSACTIONS (continued)
A summary of the accrued interest of the Company’s loans payable to related parties (Note 8) as at December 31, 2025 and 2024 is as follows:
|
| 2025 |
|
| 2024 |
| ||
Koze LTB |
| $ |
|
| $ |
| ||
Koze A |
|
|
|
|
|
| ||
Koze B |
|
|
|
|
|
| ||
Koze C |
|
|
|
|
|
| ||
Koze CN |
|
|
|
|
|
| ||
Mr. Tal LTB |
|
|
|
|
|
| ||
Mr. Tal CN |
|
|
|
|
|
| ||
Promissory note with Formosa |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
Royalty payable
Pursuant to the Royalty Agreement, as of December 31, 2025, the royalty amount payable to Koze was $
Obligation to issue shares
As at December 31, 2025, the Company has an obligation to issue an additional
NOTE 13 - LIABILITY FOR RIGHT-OF-USE BUILDING
A summary of the Company’s weighted average discount rate used in calculating lease liabilities and weighted average remaining lease term as at December 31, 2025 and 2024, is as follows:
|
| 2025 |
|
| 2024 |
| ||
Weighted average discount rate |
|
| % |
|
| % | ||
Weighted average remaining lease term |
|
|
|
| ||||
A summary of supplementary information of the Company’s operating lease liabilities is as follows:
|
| 2025 |
|
| 2024 |
| ||
|
|
|
|
|
|
| ||
Interest expense |
| $ |
|
| $ |
| ||
Depreciation |
|
|
|
|
|
| ||
Operating lease-related payments included in accounts payable and accrued liabilities |
| $ |
|
| $ |
| ||
| F-27 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 (in United States dollars) |
NOTE 13 - LIABILITY FOR RIGHT-OF-USE BUILDING (continued)
A summary of the maturity of contractual undiscounted liabilities associated with the Company’s operating leases as at December 31, 2025 is as follows:
2026 |
| $ |
| |
2027 |
|
|
| |
2028 |
|
|
| |
2029 |
|
|
| |
2030 |
|
|
| |
Thereafter |
|
|
| |
Total undiscounted cashflows |
|
|
| |
Less: imputed interest on operating lease |
|
| ( | ) |
Liability for right-of-use building, total |
|
|
| |
Liability for right-of-use building, current portion |
|
|
| |
Liability for right-of-use building, non-current portion |
| $ |
|
As at December 31, 2025, the Company has not made any payments on its lease liabilities. The unpaid lease payments for the year ended December 31, 2025 of $
For the year ended December 31, 2025, the Company recognized interest expense related to rent in default of $
As at December 31, 2025, the accrued interest related to rent in default (Note 8) was $
NOTE 14 - SHAREHOLDERS’ DEFICIT
Preferred shares
The Company is authorized to issue up to
Preferred shares Series A
Each share of the Company’s convertible preferred shares Series A (“Series A Shares”) is non-redeemable, entitles the holder to 1,250 votes on all matters submitted to a vote of the shareholders; is convertible into
The beneficial conversion feature (“BCF”) attributed to the purchase of the Series A Shares was deemed to have no value on the date of purchase because there was no public trading market for the Series A Shares, and none is expected to develop in the future. Therefore, the BCF related to the Series A Shares was considered to have no value on the date of issuance.
On March 5, 2024,
As at December 31, 2025,
| F-28 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 (in United States dollars) |
NOTE 14 - SHAREHOLDERS’ DEFICIT (continued)
Preferred shares Series B
The Company has
On March 28, 2024, the Company cancelled
There were no conversions during the year ended December 31, 2025. As at December 31, 2025,
Preferred shares Series C
Each share of the Company’s preferred shares Series C (“Series C”) issued in connection with the investment in LTB (Note 6) is convertible into
In March 2024, the Company noted a historical accounting treatment error whereby the 100,000 Series C shares issued in March 2023 had been recorded at the stated value rather than the par value. As a result, during the year ended December 31, 2024 the Company adjusted the value of the Series C shares to their par value of $
There were no conversions during the year ended December 31, 2025. As at December 31, 2025,
Common shares
The Company is authorized to issue
The Company issued
On March 8, 2024, the Company issued
There were no share capital transactions during the year ended December 31, 2025.
Shares to be issued
During the year ended December 31, 2025, the Company recorded
| F-29 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 (in United States dollars) |
NOTE 14 - SHAREHOLDERS’ DEFICIT (continued)
Share purchase warrants
A summary of the Company’s share purchase warrant activity is as follows:
|
| Number of share purchase warrants |
|
| Weighted average exercise price |
| ||
|
|
|
|
|
|
| ||
Shares purchase warrants outstanding, December 31, 2023 |
| # |
|
| $ |
| ||
Issued |
|
|
|
|
|
| ||
Redeemed |
|
| ( | ) |
|
|
| |
Expired |
|
| ( | ) |
|
|
| |
Share purchase warrants outstanding, December 31, 2024 and December 31, 2025 |
| # |
|
| $ |
| ||
A summary of the number of the Company’s share purchase warrants outstanding and exercisable as at December 31, 2025 is as follows:
Expiration date |
| Number of share purchase warrants |
|
| Weighted average exercise price |
|
| Weighted average remaining life (Years) |
| |||
| # |
|
| $ |
|
|
|
| ||||
| # |
|
| $ |
|
|
|
| ||||
| # |
|
| $ |
|
|
|
| ||||
|
| # |
|
| $ |
|
|
|
|
| ||
There were no share purchase warrants transactions during the year ended December 31, 2025.
During the year ended December 31, 2024,
Additional paid-in capital
Pursuant to the Debt Modification (Note 9), as of August 7, 2025 the principal and accrued interest outstanding on all promissory notes and convertible notes held by Mr. Tal and Koze, both related parties, were extinguished and new notes were recognized resulting in a total gain of $
As at December 31, 2025, $
NOTE 15 - REVENUE
The Company generates revenue from the sale of cannabis and related products to its customers. The Company entered into a supply agreement on February 12, 2024 with Cantek, an Israeli limited corporation owned 100% by Koze, and for which Mr. Tal serves as a financial advisor, thereby making Cantek a related party of the Company. Cantek, a major customer of the Company, operates in the medical cannabis industry in Israel and is assisting with increasing the Company’s presence in Israel. During the year ended December 31, 2025, the Company recognized revenue of $
| F-30 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 (in United States dollars) |
NOTE 15 – REVENUE (continued)
During the year ended December 31, 2025, the Company also recognized revenue of $
NOTE 16 - COST OF GOODS SOLD
A summary of the Company’s cost of goods sold is as follows:
|
| 2025 |
|
| 2024 |
| ||
Direct materials |
| $ |
|
| $ |
| ||
Direct labor |
|
|
|
|
|
| ||
Depreciation |
|
|
|
|
|
| ||
Overhead |
|
|
|
|
|
| ||
Loss on impairment of inventory |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
NOTE 17 - COMMITMENTS AND CONTINGENCIES
As at December 31, 2025, the Company has outstanding borrowings under various loan agreements with multiple lenders, most of which are in default. Certain borrowings are secured by the Company’s assets, including equipment, investments and receivables. In the event of default, lenders may have the right to seize collateralized assets.
Steven Barber
As part of the Company’s acquisition of Alternative Medical Solutions Inc. (“AMS”) in 2018, the Company is currently reviewing with legal counsel to ascertain whether it has claims against Steven Barber arising out of his default of the Consulting Agreement the Company entered into as part of the AMS acquisition. In January 2020, the Company received correspondence from counsel for Mr. Barber demanding payment on amounts purported to be due pursuant to his Consulting Agreement with the Company. The Company has reviewed whether Mr. Barber has performed pursuant to the terms of the Consulting Agreement and noticed concerns.
No decision on whether to proceed on either of these situations has been reached as at the date of this Report, but the Company does not believe that these situations present a probability of material risk. As of December 31, 2025, the Company has an outstanding payable of $
Deloitte LLP
On July 18, 2024, Deloitte LLP (“Deloitte”) filed a civil claim in the Alberta Court of Justice, alleging a breach of contract. Deloitte was engaged by the Company to assist with fiscal year 2022 finance backfill and diagnostic services and in accordance with a signed engagement letter dated August 29, 2022, proceeded to perform the professional services. Deloitte pleads that it has discharged its responsibilities and delivered its accounts to the Company. The Company acknowledged the satisfactory completion of services and the debts rendered but made no further payment as agreed other than an instalment payment on April 18, 2024. Deloitte is seeking recovery of the amount owed. As of December 31, 2025, the amount payable for services from Deloitte included in accounts payable and accrued liabilities was $
Former Executives
Former executives John Cassels and Andrew Steedman (collectively the “plaintiffs”) have filed a lawsuit against the Company alleging wrongful termination, related misconduct, and unpaid compensation. The plaintiffs seek $
| F-31 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 (in United States dollars) |
NOTE 17 - COMMITMENTS AND CONTINGENCIES (continued)
Astor Street LLC
Astor Street LLC was issued two promissory notes by the Company in January 2021 and granted a security interest in all present and after acquired assets of the Company. Astor Street LLC commenced a claim to recover the amounts owing for CAD $
NOTE 18 - OTHER EXPENSE
During the year ended December 31, 2025, a one-time adjustment of $
NOTE 19 - SEGMENT NOTE
The Company operates as a single operating segment. The Company's CODM is its CEO, who reviews financial information presented on a consolidated basis. The CODM uses revenue, cost of goods sold, consolidated operating margin and net income to assess financial performance and allocate resources. These financial metrics are used by the CODM to make key operating decisions, such as the determination of the rate at which the Company seeks to grow its operating profit margin and the allocation of budget between cost of goods sold, professional fees, and general and administrative expenses.
The following table presents selected financial information with respect to the Company’s single operating segment for the year ended December 31, 2025 and 2024:
|
| 2025 |
|
| 2024 |
| ||
|
|
|
|
|
|
| ||
Revenue |
| $ |
|
| $ |
| ||
Cost of goods sold |
|
|
|
|
|
| ||
Gross loss |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
General and administrative |
|
|
|
|
|
| ||
Payroll and consulting fees |
|
|
|
|
|
| ||
Professional fees |
|
|
|
|
|
| ||
Royalty expense |
|
|
|
|
|
| ||
Total operating expenses |
|
|
|
|
|
| ||
Loss from operations |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Other segment items |
|
| ( | ) |
|
| ( | ) |
Net loss |
| $ | ( | ) |
| $ | ( | ) |
| F-32 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 (in United States dollars) |
NOTE 20 - EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share (“EPS”) excludes any dilutive effects of options, share purchase warrants, and convertible securities but does include the restricted shares of common shares issued. Basic EPS calculations are determined by dividing net income by the weighted average number of shares of common shares outstanding during the year.
Diluted EPS reflects the potential dilution that would occur if securities or other contracts to issue common shares were exercised using the treasury stock method or converted to common shares using the if-converted method. Diluted EPS calculations are determined by dividing net income by the weighted average number of shares of common shares and dilutive common share equivalents outstanding. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive.
As of December 31, 2025, convertible preferred shares outstanding totaled
NOTE 21 - INCOME TAX
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act was enacted and signed into law in response to the market volatility and instability resulting from the COVID-19 pandemic. It includes a significant number of tax provisions and lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (the “2017 Act”). The changes mainly related to: (1) the business interest expense disallowance rules for 2019 and 2020; (2) net operating loss rules; (3) charitable contribution limitations; (4) employee retention credit; and (5) the realization of corporate alternative minimum tax credits.
The Company continues to assess the impact and future implication of these provisions; however, it does not anticipate any amounts that could give rise to a material impact to the overall consolidated financial statements.
The provision for income tax expense for the years ended December 31, 2025 and 2024, consisted of the following:
|
| 2025 |
|
| 2024 |
| ||
Deferred tax benefit |
|
|
|
|
|
| ||
US - Federal |
| $ |
|
| $ |
| ||
US - State |
|
|
|
|
|
| ||
Canada |
|
|
|
|
|
| ||
Total deferred tax benefit |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Valuation allowance |
|
| ( | ) |
|
| ( | ) |
Income tax expense |
| $ |
|
| $ |
| ||
| F-33 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 (in United States dollars) |
NOTE 21 - INCOME TAX (continued)
The following table sets forth a reconciliation of the statutory federal and state income tax for the fiscal years ended December 31, 2025 and 2024:
|
| 2025 |
|
| 2024 |
| ||
Loss before tax |
| $ | ( | ) |
| $ | ( | ) |
Statutory tax rate |
|
| % |
|
| % | ||
Income tax recovery computed at statutory rate |
|
| ( | ) |
|
| ( | ) |
|
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|
|
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|
|
|
|
Foreign Tax Effects: |
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|
|
|
Canada: |
|
|
|
|
|
|
|
|
Statutory tax rate difference between United States and Canada |
|
|
|
|
|
| ||
Adjustment to prior years provision versus statutory tax returns and others |
|
| ( | ) |
|
| ( | ) |
Temporary differences originated in the year |
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|
|
|
|
| ||
Others |
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|
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|
|
| ||
Changes in valuation allowances |
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|
|
| ||
|
|
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|
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|
|
|
|
Non-deductible expenditures |
|
|
|
|
|
|
|
|
Revaluation (gain) loss - obligation to issue shares |
|
| ( | ) |
|
|
| |
Revaluation loss - extinguishment of debt |
|
|
|
|
|
| ||
Change in valuation allowance |
|
|
|
|
|
| ||
Income tax expense |
| $ |
|
| $ |
| ||
Treasury Department, the IRS, or other standard-setting bodies, which may result in adjustments to the amounts recorded, including the valuation allowance.
Significant components of the Company’s deferred tax assets and liabilities at December 31, 2025 and 2024, are as follows:
|
| 2025 |
|
| 2024 |
| ||
Deferred tax assets (liabilities) |
|
|
|
|
|
| ||
Net operating loss carryforwards |
| $ |
|
| $ |
| ||
Equipment |
|
| ( | ) |
|
| ( | ) |
Inventory |
|
| ( | ) |
|
| ( | ) |
Lease liability, net of right-of-use asset |
|
|
|
|
|
| ||
Derivative conversion feature |
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Other |
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|
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| ||
Write-off of accounts payable and accrued liabilities |
|
| ( | ) |
|
|
| |
Less: valuation allowance |
|
| ( | ) |
|
| ( | ) |
Net deferred tax assets |
| $ |
|
| $ |
| ||
As at December 31, 2025, the Company had approximately $
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 net operating loss carryforwards.
| F-34 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 (in United States dollars) |
NOTE 22 - SUBSEQUENT EVENTS
On January 8, 2026, Richard Orman resigned from the Board of Directors of the Company.
Pursuant to an investor relations agreement with another company, the Company agreed to issue
| F-35 |