CPMD 10-Q
Cannapharmarx, Inc. (CPMD)
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form
For the Quarter Ended
For the transition period from ___________ to _______________
Commission File Number:
(Exact name of small business issuer as specified in its charter)
| (State of other jurisdiction of incorporation) | (IRS Employer ID No.) |
(Address of principal executive offices)
(Issuer’s Telephone Number)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| OTC Pink Sheets |
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days:
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒
The number of shares of the registrant’s only class of common stock issued and outstanding as of November 21, 2022 was shares.
TABLE OF CONTENTS
| i |
Forward Looking Statements
This Report includes statements that are, or may be deemed to be, “forward-looking statements,” as defined in the Private Securities Reform Act of 1995. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “projects,” “expects,” “intends,” “may,” “will,” “seeks” or “should” or, in each case, their negative or other variations or comparable terminology, or in relation to discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include matters that are not historical facts. They appear in a number of places throughout this Quarterly Report and include statements regarding Issuer’s current intentions, beliefs or expectations concerning, among other things, the Issuer’s future plans for the Project, results of operations, financial condition, prospects, growth, strategies and the markets in which the Issuer intends to operate.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not an assurance of future performance. The Issuer’s actual results of operations and financial condition may differ materially from those suggested by the forward-looking statements contained in this document. In addition, even if the Issuer’s future results of operations and financial condition are consistent with the forward-looking statements contained in this document, those results or developments may not be indicative of results or developments in subsequent periods. The information in this Quarterly Report identifies important factors that could cause such differences (including, but not limited to, a change in overall economic conditions in the United States, a change in the Issuer’s financial condition, changes in tax law or the interpretation thereof, interest rate fluctuations and other market conditions, and the effect of new legislation or government directives).
Forward-looking statements include, but are not limited to, information concerning possible or assumed future results of the Issuer’s operations set forth under the section entitled “Business of the Issuer”. Such statements, estimates and projections reflect various assumptions by the Issuer concerning anticipated results and are subject to significant business, financing, economic and competitive uncertainties and contingencies, many of which are beyond the control of the Issuer and are based upon assumptions with respect to future business decisions that are subject to change. Accordingly, there can be no assurance that such statements, estimates and projections will be realized or that actual results will not vary considerably from those anticipated, expected or projected. The Issuer, its accountants, its legal advisers and its agents or affiliates do not make any representations as to the accuracy or completeness of such statements, estimates and projections, or that any forecasts will be achieved.
The Issuer is not obliged to, and does not intend to, update or revise any forward-looking statements made in this Quarterly Report whether as a result of new information, future events or otherwise. All subsequent written forward-looking statements attributable to the Issuer, or persons acting on behalf of the Issuer, are expressly qualified in their entirety by the cautionary statements contained throughout this Quarterly Report. As a result of these risks, prospective investors of the Convertible Bonds should not place undue reliance on these forward-looking statements. Neither the forward-looking statements nor the underlying assumptions have been verified or audited by any third party.
| ii |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CANNAPHARMARX, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| HST Receivable | ||||||||
| Prepaid expense | ||||||||
| Other assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Right of use building, net | ||||||||
| Investments | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES & STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued interest | ||||||||
| Accrued legal settlement | ||||||||
| Common shares payable | ||||||||
| Notes payable | ||||||||
| Convertible notes -net of discount | ||||||||
| Derivative liability | ||||||||
| Loan payable - related party | ||||||||
| Total current liabilities | ||||||||
| Liability for right of use building long-term | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders' Equity | ||||||||
| Preferred stock, Series A, $ par value, shares authorized, and shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively | ||||||||
| Preferred Stock Series B, $ par value, shares authorized and shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively | ||||||||
| Common stock, $ par value; shares authorized, and issued and outstanding as of September 30, 2022 and December 31, 2021, respectively | ||||||||
| Treasury stock, and -- shares as of September 30, 2022 and December 31, 2021, respectively | ( | ) | ( | ) | ||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income (loss) | ( | ) | ||||||
| Total Stockholders' Equity (Deficit) | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders' (Equity) | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 1 |
CANNAPHARMARX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months | Three Months | Nine Months | Nine Months | |||||||||||||
| Ended | Ended | Ended | Ended | |||||||||||||
| September 30, | September 30, | September 30, | September 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Operating Expenses: | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Acquisition expenses | ||||||||||||||||
| Amortization and depreciation | ||||||||||||||||
| Stock based compensation | ||||||||||||||||
| Travel and entertainment | ||||||||||||||||
| Rent | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Payroll and consulting fees | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Income (loss) from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Interest (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain or (loss) on the extinguishment of debt | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Change in the fair value of derivative liability | ( | ) | ( | ) | ( | ) | ||||||||||
| Other income | ||||||||||||||||
| Other income (expense) net | ( | ) | ( | ) | ( | ) | ||||||||||
| Income (loss) before provision for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision (credit) for income tax | ||||||||||||||||
| Net income (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Basic and diluted earnings(loss) per common share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of shares outstanding | ||||||||||||||||
| Comprehensive loss: | ||||||||||||||||
| Net income (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Foreign currency translation adjustment | ||||||||||||||||
| Comprehensive income (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 2 |
CANNAPHARMARX, INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
| Nine Months | Nine Months | |||||||
| Ended | Ended | |||||||
| September 30, | September 30, | |||||||
| 2022 | 2021 | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net income to net cash provided by (used for) operating activities | ||||||||
| Stock-based compensation expense | ||||||||
| Advertising expense paid with common stock | ||||||||
| Stock issued in connection with financing | ||||||||
| Amortization of debt discount | ||||||||
| Loss on the extinguishment of debt | ||||||||
| Change in the fair value of derivatives | ( | ) | ||||||
| Depreciation | ||||||||
| Changes in operating assets and liabilities | ||||||||
| (Increase)/decrease in prepaid expenses | ( | ) | ||||||
| HST Receivable | ( | ) | ( | ) | ||||
| Prepaids | ( | ) | ||||||
| Other assets | ( | ) | ||||||
| Accrued interest | ( | ) | ||||||
| Accrued expense related party | ||||||||
| Accounts payable and accrued expense | ( | ) | ||||||
| Net cash provided by (used for) operating activities | ( | ) | ( | ) | ||||
| Cash Flows From Investing Activities: | ||||||||
| Purchase of fixed assets | ( | ) | ( | ) | ||||
| Net impact from sale of AMS building excluding mortgage payoff | ||||||||
| Purchase of private company equity | ( | ) | ||||||
| Net cash provided by (used for) investing activities | ( | ) | ||||||
| Cash Flows From Financing Activities: | ||||||||
| Proceeds from the sale of preferred stock | ||||||||
| Common stock payable | ||||||||
| Proceeds from convertible loans, net of repayments | ||||||||
| Proceeds from notes payable, net of repayment | ||||||||
| Proceeds from the sale of common stock in private placements | ||||||||
| Proceeds (repayment of related party loans), net | ( | ) | ||||||
| Net cash provided by (used for) financing activities | ||||||||
| Effect of exchange rates on cash and cash equivalents | ( | ) | ||||||
| Net Increase (Decrease) In Cash | ( | ) | ||||||
| Cash At The Beginning Of The Period | ||||||||
| Cash At The End Of The Period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Acquisition of right of use assets for lease obligations | $ | $ | ||||||
| Stock issued as a financing expense on convertible notes | $ | $ | ||||||
| Preferred atock issued as a deposit on an acquisition | $ | $ | ||||||
| Common stock issued for advertising expense | $ | $ | ||||||
| Common stock issued to convert convertible notes and accrued interest into equity | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 3 |
CANNAPHARMARX, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
| Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock Series A | Preferred Stock Series B | Common Stock | Treasury Stock | Paid in | Accumulated | other comprehensive | Equity/ | |||||||||||||||||||||||||||||||||||||||
| Shares | Value | Shares | Value | Shares | Value | Shares | Value | Capital | deficit | income (loss) | Deficit | |||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Net loss | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Change in foreign currency translation | – | – | – | – | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Conversion of Series A Preferred to common | ( | ) | ( | ) | – | – | ||||||||||||||||||||||||||||||||||||||||
| Conversion of convertible notes to common shares | – | – | – | |||||||||||||||||||||||||||||||||||||||||||
| Sale of common stock in a private placement | – | – | – | |||||||||||||||||||||||||||||||||||||||||||
| Beneficial conversion feature of convertible notes | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation related to warrant issuance | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Net income (loss) | – | – | – | – | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Change in foreign currency translation | – | – | – | – | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Purchase of Series A Preferred | – | – | – | |||||||||||||||||||||||||||||||||||||||||||
| Conversion of Series A Preferred to common stock | ( | ) | ( | ) | – | – | ||||||||||||||||||||||||||||||||||||||||
| Conversion of convertible notes to common shares | – | – | – | |||||||||||||||||||||||||||||||||||||||||||
| Sale of common stock in private placement | – | – | – | |||||||||||||||||||||||||||||||||||||||||||
| Loss on loan conversions | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for services | – | – | – | |||||||||||||||||||||||||||||||||||||||||||
| Commitment shares issued with convertible note | – | – | – | |||||||||||||||||||||||||||||||||||||||||||
| Beneficial conversion feature of convertible notes | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation related to warrant issuances | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||
| Net income (loss) | – | – | – | – | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Change in foreign currency translation | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Purchase of Series A Preferred | – | – | – | |||||||||||||||||||||||||||||||||||||||||||
| Conversion of Series A Preferred to common stock | ( | ) | ( | ) | – | – | ||||||||||||||||||||||||||||||||||||||||
| Conversion of convertible notes to common shares | – | – | – | |||||||||||||||||||||||||||||||||||||||||||
| Loss on loan conversions | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for services | – | – | – | |||||||||||||||||||||||||||||||||||||||||||
| Commitment shares issued with convertible note | – | – | – | |||||||||||||||||||||||||||||||||||||||||||
| Beneficial conversion feature of convertible notes | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation related to warrant issuances | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 4 |
CANNAPHARMARX, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (continued)
(Unaudited)
| Preferred Stock Series A | Preferred Stock Series B | Common Stock | Treasury Stock | Paid in | Accumulated | Other comprehensive | Equity/ | |||||||||||||||||||||||||||||||||||||||
| Shares | Value | Shares | Value | Shares | Value | Shares | Value | Capital | Deficit | income (loss) | Deficit | |||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Net income (loss) | – | – | – | – | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Change in foreign currency translation | – | – | – | – | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Conversion of Series A Preferred to common stock | ( | ) | ( | ) | – | – | ||||||||||||||||||||||||||||||||||||||||
| Conversion of convertible notes to common shares | – | – | – | |||||||||||||||||||||||||||||||||||||||||||
| Sale of common stock in private placement | – | – | – | |||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for services | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Commitment shares issued with convertible note | – | – | – | |||||||||||||||||||||||||||||||||||||||||||
| Beneficial conversion feature of convertible notes | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation related to warrant issuances | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||
| – | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||
| Net income (loss) | – | – | – | – | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Change in foreign currency translation | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Conversion of convertible notes to common shares | – | – | – | |||||||||||||||||||||||||||||||||||||||||||
| Sale of common stock in private placement | – | – | – | |||||||||||||||||||||||||||||||||||||||||||
| Commitment shares issued for equity line of credit | – | – | – | |||||||||||||||||||||||||||||||||||||||||||
| Beneficial conversion feature of convertible notes | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation related to warrant issuances | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||
| Net income (loss) | – | – | – | – | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Change in foreign currency translation | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Conversion of convertible notes to common shares | – | – | – | |||||||||||||||||||||||||||||||||||||||||||
| Conversion of Series A shares to common shares | ( | ) | ( | ) | – | – | ||||||||||||||||||||||||||||||||||||||||
| To convert common shares issued for equity line of credit to preferred shares | |
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| Issuance of Series B shares for deposit on acquisition | – | – | – | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Beneficial conversion feature of convertible notes | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation related to warrant issuances | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 5 |
CANNAPHARMARX, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTH INTERIM PERIODS ENDED SEPTEMBER 30, 2022 AND 2021
| NOTE 1. | NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES |
Nature of Operations
CannaPharmaRx, Inc. (the “Company”) is a Delaware corporation. As of the date of this Report, the Company intends to engage in acquisitions or joint ventures with a company or companies that will allow it to become a national or internationally branded cannabis cultivation company, or otherwise engage in the cannabis industry. Management is engaged in seeking out and evaluating businesses for acquisition. However, if an opportunity in another industry arises the Company will review that opportunity as well.
History
The Company was originally incorporated in the State of Colorado in August 1998 under the name “Network Acquisitions, Inc.” It changed its name to Cavion Technologies, Inc. in February 1999 and subsequently to Concord Ventures, Inc. in October 2006. On December 21, 2000, the Company filed for protection under Chapter 11 of the United States Bankruptcy Code. In connection with the filing, on February 16, 2001, the Company sold its entire business, and all of its assets, for the benefit of its creditors. After the sale, the Company still had liabilities of $8.4 million and was subsequently dismissed by the Court from the Chapter 11 reorganization, effective March 13, 2001, at which time the last of the Company’s then remaining directors resigned. On March 13, 2001, the Company had no business or source of income, no assets, no employees or directors, outstanding liabilities of approximately $8.4 million, and had terminated its duty to file reports under securities law. In February 2008, after filing of a Form 10 registration statement pursuant to the Securities Exchange Act of 1934, as amended, we were re-listed on the OTC Bulletin Board.
In April 2010, the Company re-domiciled in Delaware under the name CCVG, Inc. (“CCVG”). Effective December 31, 2010, the Company completed an Agreement and Plan of Merger and Reorganization (the “Reorganization”) which provided for the merger of two of the Company’s wholly-owned subsidiaries. As a result of this reorganization, the Company’s name became “Golden Dragon Inc.,” which became the surviving publicly quoted parent holding company.
On May 9, 2014, the Company entered into a Share Purchase Agreement (the “Share Purchase Agreement”) with CannaPharmaRx, Inc., a Colorado corporation (“Canna Colorado”), and David Cutler, a former President, Chief Executive Officer, Chief Financial Officer, and director of the Company. Under the Share Purchase Agreement, Canna Colorado purchased 1,421,120 restricted shares of the Company’s common stock from Mr. Cutler and an additional 9,000,000 common shares directly from the Company.
In October 2014, the Company changed its legal name to “CannaPharmaRx, Inc.”
In April 2016, the Company ceased operations. As a result, the Company was then considered a “shell” company as defined under the Securities Exchange Act of 1934, as amended, as defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act.
Effective December 31, 2018, the Company and Hanover CPMD Acquisition Corp. (“CPMD Hanover”) a newly formed, wholly-owned subsidiary, entered into a Securities Purchase Agreement with Alternative Medical Solutions, Inc., an Ontario, Canada corporation (“AMS”), its shareholders, wherein the Company acquired all of the issued and outstanding securities of AMS. AMS is a corporation organized under the laws of the Province of Ontario, Canada
As a result of the completion of the acquisition of AMS on December 31, 2019, the Company no longer fits the definition of a “shell company,” as defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act. It filed the required disclosure on Form 8-K/A with the SEC on February 14, 2019, advising that it was no longer a shell company pursuant to the aforesaid Rule.
| 6 |
Effective February 25, 2019, the Company acquired shares and Warrants to purchase 2,500,000 shares of Common Stock of GN Ventures, Ltd., Alberta, Canada, f/k/a Great Northern Cannabis, Ltd. (“GN”), in exchange for an aggregate of shares of its Common Stock, from a former shareholder of GN who is now the Company’s President and CEO. In May 2020, the Company exchanged of its shares for shares of GN.
GN owns a 60,000 square foot cannabis cultivation and grow facility located on 38 acres in Stevensville, Ontario, Canada. Because the Company is a minority shareholder of GN and GN is a privately held company, the Company cannot confirm that the information it currently has on GN’s operations is complete or fully reliable. GN estimates annual total production capacity from the Stevensville facility of up to 5,000 kilograms of cannabis. GN believes the Stevensville facility to be complete, and GN’s subsidiary, 9869247 Canada Limited, received a license to cultivate from the Canadian Ministry of Health on July 5, 2019. As a result, in October 2019, GN commenced cultivation activities and began generating revenues during the first calendar quarter of 2020.
On January 1, 2022, the Company entered into a 20 year finance lease with Formosa Mountain Ltd., for a cannabis production facility in Cremona, Alberta, Canada. The facility is a 55,000 square foot, 6,000 kg per year plant, built in 2015. The licensing process is currently underway, and production and sales are anticipated in Q4 of 2022.
COVID-19
The global pandemic related to an outbreak of the novel coronavirus disease (“COVID-19”) has cast uncertainty on each of these assumptions. There can be no assurance that they continue to be valid. The situation is dynamic and the ultimate duration and magnitude of the impact of COVID-19 on the economy and the financial effect on our business remain unknown at this time. These impacts could include, amongst others, an impact on our ability to obtain debt or equity financing, impairment of investments, net realizable value of inventory, impairments in the value of our long-lived assets, or potential future decreases in revenue or profitability of our ongoing operations.
Basis of Presentation
The accompanying financial statements have been prepared in accordance with the Financial Accounting Standards Board (“FASB”) “FASB Accounting Standard Codification™” (the “Codification”) which is the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States. Certain amounts in prior periods have been reclassified to conform to the current presentation.
All figures are in U.S. dollars unless indicated otherwise.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. The most significant estimates relate to purchase price allocation of acquired businesses, impairment of long-lived assets and goodwill, valuation of financial instruments, income taxes, and contingencies. The Company bases its estimates on historical experience, known or expected trends, and various other assumptions that are believed to be reasonable given the quality of information available as of the date of these financial statements. The results of these assumptions provide the basis for making estimates about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.
Cash and Cash Equivalents
The Company considers all highly liquid temporary
cash investments with an original maturity of the year or less to be cash equivalents. On September 30, 2022, and December 31, 2021, the
Company's cash and cash equivalents totaled $
| 7 |
Comprehensive Gain or Loss
ASC 220 “Comprehensive Income,” establishes standards for the reporting and display of comprehensive income and its components in the financial statements. As of September 30, 2022, and December 31, 2021, the Company determined that it had items that represented components of comprehensive income and, therefore, has included a statement of comprehensive income in the financial statements.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on net earnings and financial position.
Derivative Financial Instruments
The Company does not use derivative instruments
to hedge exposures to cash flow, market, or foreign currency risk. Terms of convertible and other promissory notes are reviewed to determine
whether they contain embedded derivative instruments that are required to be accounted for separately from the host contract and recorded
on the balance sheet at fair value. The fair value of derivative liabilities is required to be revalued at each reporting date, with corresponding
changes in fair value recorded in the current period operating results. These derivative liabilities arose in 2022 and 2021 due to the
issuance of variably priced convertible notes. For the periods ended September 30, 2022, and December 31, 2021, the Company had derivative
liabilities of $
Beneficial Conversion Features
In accordance with FASB ASC 470-20, “Debt with Conversion and Other Options” the Company records a beneficial conversion feature (“BCF”) related to the issuance of convertible debt or preferred stock instruments that have conversion features at fixed rates that are in-the-money when issued. The BCF for the convertible instruments is recognized and measured by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The intrinsic value is generally calculated at the commitment date as the difference between the conversion price and the fair value of the common stock or other securities into which the security is convertible, multiplied by the number of shares into which the security is convertible. If certain other securities are issued with the convertible security, the proceeds are allocated among the different components. The portion of the proceeds allocated to the convertible security is divided by the contractual number of the conversion shares to determine the effective conversion price, which is used to measure the BCF. The effective conversion price is used to compute the intrinsic value. The value of the BCF is limited to the basis that is initially allocated to the convertible security.
Foreign Currency Translation
The functional currency and the reporting currency of CannaPharmaRx’s US operations is United States dollars, (“USD”). The functional currency of the Company’s Canadian operations in Canadian dollars (“CAD”), Management has adopted ASC 830 “Foreign Currency Matters” for transactions that occur in foreign currencies. Monetary assets denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Average monthly rates are used to translate revenues and expenses.
Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods.
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Assets and liabilities of the Company’s operations are translated into the reporting currency, United States dollars, at the exchange rate in effect at the balance sheet dates. Revenue and expenses are translated at average rates in effect during the reporting periods. Equity transactions are recorded at the historical rate when the transaction occurred. The resulting translation adjustment is reflected as accumulated other comprehensive income, a separate component of stockholders' equity in the statement of stockholders' equity. These translation adjustments are reflected in accumulated other comprehensive income, a separate component of the Company's stockholders' equity.
Harmonized Sales Tax
The Harmonized Sales Tax (“HST”) is a combination of the Canadian Goods and Services Tax (“GST”) and Provincial Sales Tax (“PST”) that is applied to taxable goods and services. By fusing sales tax at the federal level with sales tax at the provincial level, the participating provinces harmonized both taxes into a single federal-provincial sales tax. HST is a consumption tax paid by the consumer at the point of sale (POS). The vendor or seller collects the tax proceeds from consumers by adding the HST rate to the cost of goods and services. They then remit the total collected tax to the government periodically.
The HST is in effect in five of the ten Canadian provinces: New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, and Prince Edward Island. The HST is collected by the Canada Revenue Agency (CRA), which remits the appropriate amounts to the participating provinces. The HST may differ across these five provinces, as each province will set its own PST rates within the HST. In provinces and territories which have not enacted the HST, the CRA collects only the 5% goods and services tax. The current rate in Ontario is 13%.
The Company has adopted ASC Topic 718, (Compensation—Stock Compensation), which establishes a fair value method of accounting for stock-based compensation plans. In accordance with guidance now incorporated in ASC Topic 718, the cost of stock options and warrants issued to employees and non-employees is measured on the grant date based on the fair value. The fair value is determined using the Black-Scholes option-pricing model. The resulting amount is charged to expense on a straight-line basis over the period in which the Company expects to receive the benefit, which is generally the vesting period. The fair value of stock warrants was determined at the date of grant using the Black-Scholes option-pricing model. The Black-Scholes option model requires management to make various estimates and assumptions, including expected term, expected volatility, risk-free rate, and dividend yield. The Company had no stock options outstanding at September 30, 2022.
Goodwill and Intangible Assets
Goodwill represents the future economic benefit
arising from other assets acquired that could not be individually identified and separately recognized. The goodwill arising from the
Company’s acquisitions is attributable to the value of the potential expanded market opportunity with new customers. Intangible
assets have either an identifiable or indefinite useful life. Intangible assets with identifiable useful lives are amortized on a straight-line
basis over their economic or legal life, whichever is shorter. The Company’s amortizable intangible assets consist of customer relationships
and non-compete agreements. Their useful lives range from
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Goodwill and indefinite-lived assets are not amortized but are subject to annual impairment testing unless circumstances dictate more frequent assessments. The Company performs an annual impairment assessment for goodwill during the fourth quarter of each year and more frequently whenever events or changes in circumstances indicate that the fair value of the asset may be less than the carrying amount. Goodwill impairment testing is a two-step process performed at the reporting unit level. Step one compares the fair value of the reporting unit to its carrying amount. The fair value of the reporting unit is determined by considering both the income approach and market approaches. The fair values calculated under the income approach and market approaches are weighted based on circumstances surrounding the reporting unit. Under the income approach, the Company determines fair value based on estimated future cash flows of the reporting unit, which are discounted to the present value using discount factors that consider the timing and risk of cash flows. For the discount rate, the Company relies on the capital asset pricing model approach, which includes an assessment of the risk-free interest rate, the rate of return from publicly traded stocks, the Company’s risk relative to the overall market, the Company’s size and industry and other Company-specific risks. Other significant assumptions used in the income approach include the terminal value, growth rates, future capital expenditures, and changes in future working capital requirements. The market approaches use key multiples from guideline businesses that are comparable and are traded on a public market. If the fair value of the reporting unit is greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount exceeds its fair value, then the second step must be completed to measure the amount of impairment, if any. Step two calculates the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets of the reporting unit from the fair value of the reporting unit as calculated in step one. In this step, the fair value of the reporting unit is allocated to all of the reporting unit’s assets and liabilities in a hypothetical purchase price allocation as if the reporting unit had been acquired on that date. If the carrying amount of goodwill exceeds the implied fair value of goodwill, an impairment loss is recognized in an amount equal to the excess.
Determining the fair value of a reporting unit is judgmental and requires the use of significant estimates and assumptions, including revenue growth rates, strategic plans, and future market conditions, among others. There can be no assurance that the Company’s estimates and assumptions made for purposes of the goodwill impairment testing will prove to be accurate predictions of the future. Changes in assumptions and estimates could cause the Company to perform an impairment test before scheduled annual impairment tests.
The Company had
The Company evaluates the recoverability of its long-lived assets whenever events or changes in circumstances have indicated that an asset may not be recoverable. The long-lived asset is grouped with other assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. If the sum of the projected undiscounted cash flows is less than the carrying value of the assets, the assets are written down to the estimated fair value.
The Company had a net balance at September 30,
2022 of $
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. | |||
| 10 |
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The Company may also be required, from time to time, to measure certain other financial assets at fair value on a nonrecurring basis. These adjustments to fair value usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.
Financial Instruments
The estimated fair value for financial instruments was determined at discrete points in time based on relevant market information. These estimates involve uncertainties and could not be determined with exact precision. The fair value of the Company’s financial instruments, which include cash, prepaid expenses, accounts payable, and the related party loan, each approximate their carrying value due either to their short length to maturity or interest rates that approximate prevailing market rates.
Income Taxes
The Company accounts for income taxes under the liability method, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
Income (loss) per share is presented in accordance with Accounting Standards Update (“ASU”), Earning per Share (Topic 260) which requires the presentation of both basic and diluted earnings per share (“EPS”) on the income statements. Basic EPS would exclude any dilutive effects of options, warrants, and convertible securities but does include the restricted shares of common stock issued. Diluted EPS reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted to common stock. Basic EPS calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted EPS calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding.
Recently Issued Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new pronouncements that have been issued that might have a material impact on its financial position or results of operations. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which establishes a new lease accounting model for lessees. The updated guidance requires an entity to recognize assets and liabilities arising from financing and operating leases, along with additional qualitative and quantitative disclosures. The amended guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. In March 2019, the FASB issued ASU 2019-01, Codification Improvements, which clarifies certain aspects of the new lease standard. The FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases in July 2018. Also in 2018, the FASB issued ASU 2018-11, Leases (Topic 842) Targeted Improvements, which provides an optional transition method whereby the new lease standard is applied at the adoption date and recognized as an adjustment to retained earnings. The amendments have the same effective date and transition requirements as the new lease standard On November 15, 2019, the FASB has issued ASU 2019-10, which amends the effective dates for three major accounting standards. The ASU defers the effective dates for the credit losses, derivatives, and lease standards for certain companies. Since the Company is classified as a small reporting company and has a calendar-year end companies the Company eligible for deferring the adoption of ASC 842 to December 15, 2021.
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In the first quarter of fiscal 2022, we adopted ASU 2016-02 using the “Comparatives Under 840 Option” approach to transition. Under this method, financial information related to periods prior to adoption will be as originally reported under the previous standard – ASC 840, Leases. The effects of adopting the new standard (ASC 842, Leases) in fiscal 2022 were recognized as a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal first quarter. We elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carry forward the historical lease classification as operating or capital leases. We also elected to combine lease and non-lease components and to exclude short-term leases from our consolidated balance sheets. We did not elect the hindsight practical expedient in determining the lease term for existing leases as of February 3, 2019.
The most significant impact of adoption was the
recognition of finance lease assets and finance lease liabilities of $
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) and also issued subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, and ASU 2019-05 (collectively, “Topic 326”). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. The Company will be required to adopt this ASU for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The adoption of Topic 326 is not expected to have a material effect on the Company’s financial statements and financial statement disclosures.
| NOTE 2. | GOING CONCERN AND LIQUIDITY |
As of September 30, 2022, and December 31,
2021, the Company had $
These financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. Based on its current financial projections, the Company believes it does not have sufficient existing cash resources to fund its current limited operations. Accordingly, there is substantial doubt about the Company’s ability to continue as a going concern.
It is the Company’s current intention to raise debt and/or equity financing to fund ongoing operating expenses. There is no assurance that these events will be satisfactorily completed or at terms acceptable to the Company. Any issuance of equity securities, if accomplished, could cause substantial dilution to existing stockholders. Any failure by the Company to successfully implement these plans would have a material adverse effect on its business, including the possible inability to continue operations.
| NOTE 3. | INVESTMENT |
As of September 30, 2022, and December 31, 2021,
the balance of investments was $
On February 25, 2019, the Company acquired
shares and
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On May, 2020, the Company exchanged
of its common shares for common shares of GN. These shares were valued at $0.675 each which represents the value of the GN shares
as determined by the Company’s year end impairment analysis and were recorded as an investment of $. As of December 31,
2020, the Company’s investment in GN was $
On October 6, 2020, the Company invested $
On January 15, 2021, the Company invested an additional
$
As of September 30, 2022, the Company’s
investment in Klonetics was $
| NOTE 4. | PREPAID EXPENSES |
The following tables set forth the components of the Company’s prepaid expenses as of September 30, 2022, and December 31, 2021:
| September 30, 2022 | December 31, 2021 | |||||||
| Prepaid expenses | $ | $ | ||||||
| Total | $ | $ | ||||||
The balance of prepaid expense of $
| NOTE 5. | PROPERTY, PLANT, AND EQUIPMENT |
The following table sets forth the components of the Company’s property and equipment on September 30, 2022, and December 31, 2021:
| September 30, 2022 | December 31, 2021 | |||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Depreciation | Net Book Value | Gross Carrying Amount | Accumulated Depreciation | Net Book Value | |||||||||||||||||||
| Computers, software, and office equipment | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Plant equipment | ( | ) | ||||||||||||||||||||||
| Plant improvements | ( | ) | ||||||||||||||||||||||
| Total fixed assets | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
For the nine months ended September 30, 2022,
and 2021, the Company recorded depreciation expense of $
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| NOTE 6. | ACCOUNT PAYABLE AND ACCRUED LIABILITIES |
Accounts payables are recognized initially at the transaction price and subsequently measured at the undiscounted amount of cash or other consideration expected to be paid. Accrued expenses are recognized based on the expected amount required to settle the obligation or liability.
The following table sets forth the components of the Company’s accrued liabilities on September 30, 2022, and December 31, 2021.
September 30, 2022 | December 31, 2021 | |||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued interest (a) | ||||||||
| Accrued legal settlement (b) | ||||||||
| Total accounts payable and accrued liabilities | $ | $ | ||||||
_____________________
| (a) |
| (b) |
Common shares payable
As of September 30, 2022 and December 31, 2021 the balance of common stock payable was $249,991 and $-0- respectively. This amount represent 25,000,000 underlying shares issuable on the Company’s equity line of credit for $250,000 in cash raised for the Company that weren’t available for issuance because the Company did not have enough authorized shares to do so. On November 14, 2022 the Company’s shareholders approved an increase in its authorized shares from 300,000,000 to 1,000,000,000. The 25,000,000 shares are expected to be issued before December 31, 2022.
| NOTE 7. | RELATED PARTY TRANSACTIONS |
The following table sets forth the components of the Company’s related party liabilities on September 30, 2022 and December 31, 2021.
September 30, 2022 | December 31, 2021 | |||||||
| Loan payable, related parties(a) | $ | $ | ||||||
| Total loan payable, related parties | $ | $ | ||||||
| (a) |
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Effective March 22, 2019, the Company established its principal place of business and leases offices at 3600, 888 – 3rd St SW, Calgary, Alberta, Canada, T2P 5C5. The lease may be terminated by either party on 30 days’ notice. Rent is $2,000 CAD per month effective October 1, 2020 (retroactively reduced from $4,000 per month). This space was provided by a company to which, Mr. Orman, one of the Company’s directors, serves as a Director.
| NOTE 8. | CONVERTIBLE NOTES AND DERIVATIVE LIABILITIES |
The following tables set forth the components of the Company’s, convertible debentures as of September 30, 2022, and December 31, 2021:
| September 30, 2022 | December 31, 2021 | |||||||
| Principal value of convertible notes | $ | $ | ||||||
| Note discount | ( | ) | ( | ) | ||||
| Total convertible notes, net current | $ | $ | ||||||
During the nine months ended September 30, 2022,
and September 30, 2021, the Company received proceeds from convertible notes of $
December 31, 2021 Activity
During the year ended December 31, 2021, the Company
received proceeds from convertible notes of $
During the year ended December 31, 2021 the Company
recorded $
During the year ended December 31, 2021, the Company
issued common shares upon the conversion of $
September 30, 2022 Activity
During the nine months ended September 30, 2022
the Company received proceeds from convertible notes of $
During the nine months ended September 30, 2022,
the Company recorded $
During the nine months ended September 30, 2022,
the Company issued common shares upon the conversion of $
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Derivative liability
As of and December 31, 2021, derivative liabilities were valued using a probability-weighted average Black-Scholes-Merton pricing model with the following assumptions:
| September 30, 2022 | December 31, 2021 | |||||||
| Exercise Price | $ | $ | ||||||
| Stock Price | $ | $ – | ||||||
| Risk-free interest rate | ||||||||
| Expected volatility | ||||||||
| Expected life (in years) | ||||||||
| Expected dividend yield | ||||||||
| Fair Value: | $ | $ | ||||||
The risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company uses the historical volatility of its common stock to estimate the future volatility for its common stock. The expected life of the conversion feature of the notes was based on the remaining term of the notes. The expected dividend yield was based on the fact that the Company has not customarily paid dividends in the past and does not expect to pay dividends in the future.
During the period ended September 30, 2022, the
Company recognized a loss of $
| NOTE 9. | NOTES PAYABLE |
The following tables set forth the components of the Company’s, convertible debentures as of September 30, 2022, and December 31, 2021:
| September 30, 2022 | December 31, 2021 | |||||||
| Promissory Notes | $ | $ | ||||||
Pursuant to the terms of the Securities Purchase
Agreement with AMS, the Company issued a non-interest-bearing CAD $
The Company performed a valuation study as part
of the AMS acquisition. The valuation study determined that the Promissory Note should be valued at $
On July 3, 2019, the Company entered into a 12%
$
| 16 |
On April 21, 2020, the Company received a loan
from the Government of Canada under the Canada Emergency Business Account program (CEBA). This loan was in the amount of $
During the year ended December 31, 2021, the Company
entered into Note Agreements with secured investors amounting to $
| NOTE 10. | LEASES |
In the first quarter of fiscal 2022, we adopted ASU 2016-02 using the “Comparatives Under 840 Option” approach to transition. Under this method, financial information related to periods prior to adoption will be as originally reported under the previous standard – ASC 840, Leases. The effects of adopting the new standard (ASC 842, Leases) in fiscal 2022 were recognized as a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal first quarter. We elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carry forward the historical lease classification as operating or capital leases. We also elected to combine lease and non-lease components and to exclude short-term leases from our consolidated balance sheets. We did not elect the hindsight practical expedient in determining the lease term for existing leases as of February 3, 2019.
The most significant impact of adoption was the
recognition of finance lease assets and finance lease liabilities of $
Leases
The majority of our lease obligations are real estate finance leases from which we conduct our business. For any lease with an initial term in excess of 12 months, the related lease assets and liabilities are recognized on the Condensed Consolidated Balance Sheets as either operating or finance leases at the inception of an agreement where it is determined that a lease exists. Leases with an initial term of 12 months or less are not recorded on our Condensed Consolidated Balance Sheets; we recognize lease expense for these leases on a straight-line basis over the lease term.
Finance lease assets represent the right to use an underlying asset for the lease term, and finance lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are recognized based on the present value of future payments over the lease term at commencement date. We use a collateralized incremental borrowing rate based on the information available at commencement date, including lease term, in determining the present value of future payments. Our lease terms generally do not include options to extend or terminate the lease unless it is reasonably certain that the option will be exercised. Fixed payments may contain predetermined fixed rent escalations. We recognize the related rent expense on a straight-line basis from the commencement date to the end of the lease term.
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The weighted average remaining lease term is
Future lease payments under our non-cancellable leases as of September 30, 2022 were as follows ($CAD):
| 2022 | $ |
| 2023 | $
|
| 2024 | $
|
| 2025 | $
|
| 2026 | $
|
| NOTE 11. | INCOME TAXES |
As of September 30, 2022, the Company has 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 NOLS.
| NOTE 12. | COMMITMENTS AND CONTINGENCIES |
Effective March 22, 2019, the Company entered into a lease agreement to lease three offices at 3600 888 3 St SW, Calgary, Alberta, Canada, T2P 5C5. The lease may be terminated by either party on 30 days’ notice. Rent is $2,000 CAD per month. This space was provided by a company to which, Mr. Orman, one of the Company’s directors, serves as a director.
Effective January 1, 2022, the Company entered into a lease agreement with Formosa Mountain Ltd to lease a cannabis production facility in Cremona, Alberta, Canada. The facility is a 55,000 square foot, 6,000 kg per year plant, built in 2015. Rent is $82,500 CAD per month, and will increase by 5% each year. This lease has a 20 year term.
| NOTE 13. | STOCKHOLDERS’ EQUITY |
Preferred Stock
The Company is authorized to issue up to shares of one or more series of Preferred Stock, par value of $ per share. The Board of Directors may, without stockholder approval, determine the dividend rates, redemption prices, preferences on liquidation or dissolution, conversion rights, voting rights, and any other preferences.
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Series A Preferred Stock
In April 2018, the Company issued shares of its Series A Convertible Preferred Stock for $ per share to certain investors who then became members of management and the board of directors. Each share of Series A Convertible Preferred Stock is convertible into 1,250 shares of Common Stock and vote on an as-converted basis. The rights and designations of these Preferred Shares include the following:
| · | entitles the holder thereof to 1,250 votes on all matters submitted to a vote of the shareholders: |
| · | The holders of outstanding Series A Convertible Preferred Stock shall only be entitled to receive dividends upon declaration by the Board of Directors of a dividend payable on the Company’s Common Stock, whereupon the holders of the Series A Convertible Preferred Stock shall receive a dividend on the number of shares of Common Stock into which each share of Series A Convertible Preferred Stock is convertible; |
| · | Each Series A Preferred Share is convertible into 1,250 shares of Common Stock; |
| · | not redeemable. |
The beneficial conversion (“BCF”) feature attributed to the purchase of Preferred Stock was deemed to have no value on the date of purchase because there was no public trading market for the Convertible Preferred Stock, and none is expected to develop in the future. Therefore, the BCF related to the Preferred Shares was considered to have no value on the date of issuance.
Preferred A shares were converted into common shares during the nine months ended September 30, 2022 at 1250:1.
There were shares and shares of Series A Preferred Stock issued and outstanding as of September 30, 2022, and December 31, 2021, respectively.
Series B Preferred Stock / Common Stock
In February 2019, the Company commenced an offering of up to $3 million in principal amount of Units at a price of $1.00 per Unit, each Unit consisting of one share of Series “B” Convertible Preferred Stock, each Convertible Preferred Share convertible into one share of the Company’s Common Stock at the election of the holder and one Common Stock Purchase Warrant exercisable to purchase one share of Common Stock at an exercise price of $2.00 per share, which offering is to be offered only to “accredited investors,” as that term is defined in Rule 501 of Regulation D. This Offering was closed at the end of August 2019. As of December 31, 2020, the Company had accepted $475,000 in subscriptions in this offering.
During the three months ended September 30, 2022 the company issued Preferred B shares as a deposit for an acquisition. This issuance was valued at $.
There were shares of Series B Convertible Preferred Stock issued and outstanding as of September 30, 2022, and shares issued and outstanding as of December 31, 2021.
Common stock
The Company is authorized to issue shares of Common Stock, par value $ per share. As of September 30, 2022, and December 31, 2021, there were and shares of Common Stock issued and outstanding, respectively.
Shares Reserved for Issuance
As of September 30, 2022, the Company had Common Shares reserved for issuance. These shares are comprised of Common Shares issuable upon the conversion of the Series A Preferred Stock; Common Shares issuable upon the conversion of Series B Preferred Stock; shares issuable upon a conversion of the convertible notes, and Common Shares issuable upon the exercise of warrants. None of these shares were used in the calculation of earnings per share because their inclusion would be anti-dilutive since the Company is operating at a loss. There are no assurances that the conversion rights will be utilized or that the options or the warrants will be exercised.
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Stock Options
During the period ended September 30, 2022, and December 31, 2021, the Company did not record any stock-based compensation expense related to stock options, as there were none outstanding.
Stock Purchase Warrants
The following table reflects all outstanding and exercisable warrants on September 30, 2022 and December 31, 2021:
| Number of Warrants Outstanding | Weighted Average Exercise Price | Average Remaining Contractual Life (Years) | ||||||||||
| Warrants outstanding December 31, 2019 | $ | |||||||||||
| Warrants exercised | ( | ) | ||||||||||
| Warrants outstanding December 31, 2020 | $ | |||||||||||
| Warrants issued (a) | $ | |||||||||||
| Warrants forfeited | ( | ) | ||||||||||
| Warrants outstanding December 31, 2021 | $ | |||||||||||
| Warrants outstanding September 30, 2022 | ||||||||||||
Stock purchase warrants are exercisable for two-five years from the date of issuance.
| (a) |
| NOTE 14. | SUBSEQUENT EVENTS |
On November 1, 2022 the Company entered into a convertible loan agreement and generated $35,000 in gross proceeds.
On November 14, 2022 the Company’s shareholders approved an increase in its authorized shares from 300,000,000 to 1,000,000,000.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes a number of forward-looking statements that reflect management's current views with respect to future events and financial performance. Forward-looking statements are projections in respect of future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. These statements include statements regarding the intent, belief or current expectations of us and members of our management team, as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks set forth in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 as filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 14, 2021 any of which may cause our company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied in our forward-looking statements. These risks and factors include, by way of example and without limitation:
| · | our ability to successfully commercialize our products and services on a large enough scale to generate profitable operations; |
| · | our ability to maintain and develop relationships with customers and suppliers; |
| · | our ability to successfully integrate acquired businesses or new brands; |
| · | the impact of competitive products and pricing; |
| · | supply constraints or difficulties; |
| · | the retention and availability of key personnel; |
| · | general economic and business conditions; |
| · | substantial doubt about our ability to continue as a going concern; |
| · | our need to raise additional funds in the future; |
| · | our ability to successfully recruit and retain qualified personnel in order to continue our operations; |
| · | our ability to successfully implement our business plan; |
| · | our ability to successfully acquire, develop or commercialize new products and equipment; |
| · | intellectual-property claims brought by third parties; and |
| · | the impact of any industry regulation. |
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Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, or performance. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time except as required by law. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions.
As used in this Quarterly Report on Form 10-Q and unless otherwise indicated, the terms “CannaPharmaRx,” “Company,” “we,” “us,” and “our” refer to CannaPharmaRx, Inc. and our wholly-owned subsidiaries. Unless otherwise specified, all dollar amounts are expressed in United States dollars.
The following discussion should be read in conjunction with our financial statements and notes thereto included herein. In connection with, and because we desire to take advantage of, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we caution readers regarding certain forward-looking statements in the following discussion and elsewhere in this report and in any other statement made by, or on our behalf, whether or not in future filings with the Securities and Exchange Commission. Forward looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on our behalf. We disclaim any obligation to update forward looking statements.
Overview and History
The Company was originally incorporated in the State of Colorado in August 1998 under the name “Network Acquisitions, Inc.” The Company changed our name to Cavion Technologies, Inc. in February 1999 and subsequently to Concord Ventures, Inc. in October 2006.
On December 21, 2000, the Company filed for protection under Chapter 11 of the United States Bankruptcy Code. In connection with the filing, on February 16, 2001, the Company sold our entire business, and all of our assets, for the benefit of our creditors. After the sale, the Company still had liabilities of $8.4 million and were subsequently dismissed by the Court from the Chapter 11 reorganization, effective March 13, 2001, at which time the last of the Company’s remaining directors resigned. On March 13, 2001, the Company had no business or other source of income, no assets, no employees or directors, outstanding liabilities of approximately $8.4 million and had terminated their duty to file reports under securities law. In February 2008, the Company was re-listed on the OTC Bulletin Board.
In April 2010, the Company re-domiciled in Delaware under the name CCVG, Inc. (“CCVG”). Effective December 31, 2010, CCVG completed an Agreement and Plan of Merger and Reorganization (the “Reorganization") which provided for the merger of two of their wholly-owned subsidiaries. As a result of this reorganization, the Company’s name was changed to “Golden Dragon Inc.”, which became the surviving publicly quoted parent holding company.
On May 9, 2014, the Company entered into a Share Purchase Agreement (the “Share Purchase Agreement”) with CannaPharmaRx, Inc., a Colorado corporation (“Canna Colorado”), and David Cutler, a former President, Chief Executive Officer, Chief Financial Officer and director of the Company. Under the Share Purchase Agreement, Canna Colorado purchased 1,421,120 shares of our common stock from Mr. Cutler and an additional 9,000,000 restricted common shares directly from the Company.
On May 15, 2014, as amended and effective January 29, 2015, the Company entered into an Agreement and Plan of Merger (the “Merger”) pursuant to which Canna Colorado became a subsidiary of our Company.
In October 2014, the Company changed their legal name to “CannaPharmaRx, Inc.”
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Pursuant to the Merger all of the shares of the Company’s common stock previously owned by Canna Colorado were canceled. As a result of the aforesaid transactions, the Company became an early-stage pharmaceutical company whose purpose was to advance cannabinoid research and discovery using proprietary formulation and drug delivery technology then under development.
In April 2016, we ceased operations. The Company’s then management resigned their respective positions with our Company with the exception of Mr. Gary Herick, who remained one of the Company’s officers and directors until April 23, 2019.
Effective December 31, 2018, the Company and Hanover CPMD Acquisition Corp. (“CPMD Hanover”) a newly formed, wholly-owned subsidiary, entered into a Securities Purchase Agreement with Alternative Medical Solutions, Inc., an Ontario, Canada corporation (“AMS”), its shareholders, wherein the Company acquired all of the issued and outstanding securities of AMS. AMS is a corporation organized under the laws of the Province of Ontario, Canada.
As a result of the completion of the acquisition of AMS on December 31, 2019, the Company no longer fit the definition of a “shell company,” as defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act. It filed the required disclosure on Form 8-K/A with the SEC on February 14, 2019, advising that it was no longer a shell company pursuant to the aforesaid Rule.
On January 6, 2021, the Company executed an Agreement of Purchase and Sale through its wholly-owned subsidiary, Alternative Medical Solutions Inc for the sale of the lands and premises located at Hanover, Ontario, Canada. The price was $2,000,000 CAD. As a result, and in anticipation of the closing, the Company recorded an impairment of goodwill and fixed assets relating to the property of $7,962,694 at December 31, 2020. This property was security for a $1,000,000 US Note with Koze Investments LLC by way of a first ranking charge. This transaction closed on July 9, 2021 and the note was repaid in full as principal of $1,000,000 plus accrued interest of $124,735 and penalties of $475,265. The note was discharged accordingly.
Effective February 25, 2019, the Company acquired 3,936,500 shares and 2,500,000 Warrants to purchase 2,500,000 shares of Common Stock of GN Ventures, Ltd, Alberta, Canada, f/k/a Great Northern Cannabis, Ltd. (“GN”), in exchange for an aggregate of 7,988,963 shares of its Common Stock, from a former shareholder of GN who is now the Company’s President and CEO. While no assurances can be provided, the Company believes this is the initial step in its efforts to acquire all or a significant portion of the issued and outstanding stock of GN. In May 2020, the Company exchanged 5,507,400 of its shares for 3,671,597 shares of GN.
GN owns a 60,000 square foot cannabis cultivation and grow facility located on 38 acres in Stevensville, Ontario, Canada. Because the Company is a minority shareholder of GN and GN is a privately held company, the Company cannot confirm that the information it currently has on GN’s operations is complete or fully reliable. GN estimates annual total production capacity from the Stevensville facility of up to 5,000 kilograms of cannabis. GN believes the Stevensville facility to be complete, and GN’s subsidiary, 9869247 Canada Limited, received a license to cultivate from the Canadian Ministry of Health on July 5, 2019. As a result, in October 2019, GN commenced cultivation activities and began generating revenues during the first calendar quarter of 2020.
On January 1, 2022, the Company entered into a 20 year finance lease with Formosa Mountain Ltd., for a cannabis production facility in Cremona, Alberta, Canada. The facility is a 55,000 square foot, 6,000 kg per year plant, built in 2015. The licensing process is currently underway, and production and sales are anticipated in Q4, 2022.
COVID-19
On March 11, 2020, the World Health Organization (“WHO”) declared the Covid-19 outbreak to be a global pandemic. In addition to the devastating effects on human life, the pandemic is having a negative ripple effect on the global economy, leading to disruptions and volatility in the global financial markets. Most U.S. states and many countries have issued policies intended to stop or slow the further spread of the disease.
The global pandemic related to an outbreak of the novel coronavirus disease (“COVID-19”) has cast uncertainty on each of these assumptions. There can be no assurance that they continue to be valid. The situation is dynamic and the ultimate duration and magnitude of the impact of COVID-19 on the economy and the financial effect on our business remain unknown at this time. These impacts could include, amongst others, an impact on our ability to obtain debt or equity financing, impairment of investments, net realizable value of inventory, impairments in the value of our long-lived assets, or potential future decreases in revenue or profitability of our ongoing operations.
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Wholly-Owned Subsidiaries
Our wholly-owned subsidiaries are:
CannaPharmaRx Canada Corp. (Alberta). CannaPharmaRx Canada Corp. is a wholly owned subsidiary of the Company. This subsidiary’s sole purpose and business is to hold the shares of Alternative Medical Solutions Inc. (Ontario).
Alternative Medical Solutions Inc. (Ontario). Alternative Medical Solutions Inc. (Ontario) is a wholly owned subsidiary of the CannaPharmaRx Canada Corp.
2323414 Alberta Ltd is a wholly owned subsidiary of CannaPharmaRx Inc. This subsidiary’s role is the business and operations of our Cremona, Alberta, Canada, production facility, currently being readied for operations anticipated in Q4 of 2022.
Our executive offices are located at Suite 3600, 888 3rd Street SW, Calgary, Alberta Canada, T2P 5C5 phone (949) 652-6838. Our website address is www.cannapharmarx.com.
We have not generated any revenues during the past five years. Following is our current Plan of Operation.
PLAN OF OPERATION
We are involved in the cannabis industry in Canada and are reviewing opportunities in other jurisdictions where cannabis has been legalized, including the US. Our principal business activities to date have been to negotiate, acquire and develop various cannabis cultivation projects throughout Canada. As of the date of this Report we do not own or operate any businesses in the US.
Following is a description of the projects we are pursuing as of the date of this Report:
Cremona
On January 1, 2022, the Company entered into a 20 year finance lease with Formosa Mountain Ltd for a cannabis production facility in Cremona, Alberta, Canada. The facility is a 55,000 square foot, 6,000 Kg per year plant, built in 2015 as a state of the art facility. Retooling of the facility is currently underway, as is the licensing process. Production and sales are anticipated in Q4 of 2022.
Results of Operations
The Company does not currently sell or market any products and did not have any sales in the three or nine months ended September 30, 2022 or 2021. The Company will commence actively marketing products after the products have been cleared or approved by Health Canada, but there can be no assurance, however, that we will be successful in obtaining Health Canada clearance or approval for our products.
Costs of Goods Sold
The Company did not have sales for the three or nine months ended September 30, 2022 or 2021 and, accordingly, there were no cost of goods sold.
Gross Profit and Gross Margin
For the three and nine month periods ended September 30, 2022 and 2021, the Company had no gross profit or gross margin.
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Operating Expenses
Our operating expenses consist primarily of general and administrative expenses, which include salaries, stock-based compensation expense and legal and professional fees associated with the costs for services or employees in finance, accounting, sales, administrative activities and the formation and compliance of a public company.
Overall operating expenses in three months ended September 30, 2022 was $588,475 compared to $771,203 for the three months ended September 30, 2021, a decrease of $182,728. The decrease in the 2022 period is primarily attributable acquisition expenses of $209,500 in the 2021 period compared to the 2022 period, significant decreases in professional fees in the 2022, offset by a significant increase in payroll as ramp up is underway for Cremona.
Overall operating expenses in the nine month period ended September 30, 2022 was $2,008,173 compared to $2,288,628 in the prior year for a decrease of $280,455. This decrease is due to a material reduction in general and administrative expenses, stock based compensation expense, acquisition expenses and professional fees in the 2022 period, offset by a material increase in payroll for Cremona and a increase in amortization and depreciation .
Other expense was $724,773 for the three months ended September 30, 2022, compared to other expense of $258,402, an increase of $466,371. The decrease is primarily attributable to other income of $622,683 in the 2021 period compared to zero in the 2022 period, an increase in interest expense in the 2022 period offset by the change in fair value of the derivative liability.
Other expense for the nine months ended September 30, 2022 was $2,883,386 compared to other income in the comparable prior year period of $791,588. The increase is other expense is primarily attributable to the change in the derivative liability due to the change in fair value derivative liability.
Net Income (Loss)
As a result of the foregoing, the Company had a net loss of $1,313,248 for the three months ended September 30, 2022, and a net loss of $1,029,605 for the comparable prior year period. Further, the Company had a net loss of $4,891,559 for the nine month period ended September 30, 2022 as compared to a net loss of $1,497,040 for the comparable prior year period.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2022, we had $7,502 in cash as compared to $27,767 at December 31, 2021.
Cash flows from operating activities
The Company used $1,023,863 in operating activities for the first nine months ended September 30, 2022 as compared to $2,087,367 during the prior year comparable quarter. The decrease in the net cash used in operating losses for the 2022 period is primarily attributable to change in the fair value of the derivates offset by higher operating losses and changes in operating assets and liabilities in 2022.
Cash flows from investing activities
The Company used $106,886 during the first nine months ended September 30, 2022 in investing activities as compared to providing $493,654 during the nine month period ended September 30, 2021. The decrease in cash flows from investing activities is attributable to the net impact of the sale of the AMS building in the 2022 period which generated $539,376.
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Cash flows from financing activities
During the nine months ended September 30, 2022 the Company had net cash provided from financing activities of $1,309,667 compared to $1,111,709 in the comparable period in 2021. The increase is primarily attributable to additional proceeds from convertible loans and proceeds from the sale of common stock.
In general, based on historical losses, the Company will be required to continue raising operating capital through debt and equity.
Currently, we have no committed source for any funds to allow us to complete any of our proposed acquisitions or projects. No representation is made that any funds will be available when needed. In the event funds cannot be raised, if and when needed, we may not be able to carry out our business plan. Our inability to obtain funding for our projects will have a negative impact on our anticipated results of operations.
On April 28, 2022, the Company entered into a $5,000,000 equity line of credit with Tysadco Partners, LLC, with a two-year term. The Company may draw down between $50,000 and $1,000,000. Settlement is common shares up to 9.99% after which preferred shares would be purchased. Purchase price is 75% of the average of the two lowest daily traded VWAP (volume weighted average price) prices during the valuation period. To date the Company has raised $500,000 on its line of credit and expects to continue using this line of credit in the future although there can be no assurance that it can continue to do so.
In general, based on historical losses, the Company will be required to continue raising operating capital through debt and equity.
Inflation
Although our operations are influenced by general economic conditions, we do not believe that inflation had a material effect on our results of operations during the nine-month period ended September 30, 2022.
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The following represents a summary of our critical accounting policies, defined as those policies that we believe are the most important to the portrayal of our financial condition and results of operations and that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are a smaller reporting company and are not required to provide the information under this item pursuant to Regulation S-K.
ITEM 4. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures - Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report.
These controls are designed to ensure that information required to be disclosed in the reports we file or submit pursuant to the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2022 at the reasonable assurance level. We believe that our financial statements presented in this Form 10-Q fairly present, in all material respects, our financial position, results of operations, and cash flows for all periods presented herein.
Inherent Limitations - Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdown can occur because of simple error or mistake. In particular, many of our current processes rely upon manual reviews and processes to ensure that neither human error nor system weakness has resulted in erroneous reporting of financial data.
Changes in Internal Control over Financial Reporting - There were no changes in our internal control over financial reporting during the period ended September 30, 2022, which were identified in conjunction with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As part of our acquisition of AMS, we assumed an action filed against AMS by Ataraxia Canada, Inc., alleging breach of contract, specifically, breach of a nonbinding term sheet providing for Ataraxia to acquire controlling interest in AMS and they are seeking $15 million in damages. A Statement of Claim was prepared by Ataraxia Canada, Inc., as plaintiff, and circulated to Alternative Medical Solutions Inc., as defendant, on August 2, 2018, under the Ontario Superior Court of Justice (Court file no. CV-17-580157). The parties have engaged in discussions with respect to a potential settlement of this matter. Counsel has advised that it believes it is premature to speculate on any outcome of this litigation, including the likelihood of a settlement or any potential liability at this time.
Our agreement to acquire AMS contained a provision requiring us to diligently defend against the claims brought forth in, and assume full and complete control of, the Ataraxia litigation, provided that we shall not enter into any compromise or settlement in respect of the Ataraxia litigation without the prior written consent of the sellers, which consent is not to be unreasonably withheld, conditioned or delayed. The sellers are obligated to cooperate fully and make available to us all pertinent information and witnesses under their control, make such assignments and take such other steps as in the opinion of our counsel are reasonably necessary to enable us to defend against the claims brought forth in the Ataraxia litigation.
We are currently reviewing two separate situations with our legal counsel in order to ascertain whether we have claims against Steven Barber arising out of his default of the Consulting Agreement we entered into as part of the AMS acquisition more fully described in” Part I, Item 1,” Business, above and various claims against Gary Herick, a former officer and director. In January 2020, we received correspondence from counsel for Mr. Barber demanding payment on amounts purported to be due pursuant to his Consulting Agreement with us. We are currently reviewing whether Mr. Barber has performed pursuant to the terms of the Consulting Agreement.
No decision on whether to proceed on either of these situations has been reached as of the date of this Report.
On July 9, 2020, we filed a lawsuit in the United States District Court for the District of Colorado (1:20-cv-01999-RM-GPG) against Gary Herick, Arrowhead Consulting, LLC, Whitemoon Energy LLC., Jamie Huttrer a/k/a Jamie Huttrer-Herick, and ZeroRMW, LLC (collectively, the “Herick Parties”). The lawsuit alleges, among other things, the Herick Parties engaged in various legal violations including breach of fiduciary duty, common law fraud, conversion, usurpation of corporate opportunities, securities violations pursuant to Section 10b-5 of the Securities Exchange Act of 1934, and civil conspiracy. Mr. Herick was a former officer and director of the Company. On September 8, the Herick Parties filed a Motion to Dismiss the Sixth Claim for Relief (§ 10b-5 Federal Securities Law). On September 28, 2020, we filed a First Amended Complaint. On October 10, 2020, the Herick Parties filed a Motion to Dismiss the Fourth and Fifth Claims for Relief. On October 30, 2020, the Parties filed a Stipulated Motion for an Extension of Time, through and including November 16, 2020, for us to respond to the Herick Parties’ Motion to Dismiss the Fourth and Fifth Claims for Relief.
On July 9, 2020, we made a demand of Gary Herick, Arrowhead Consulting, LLC, Whitemoon Energy LLC., Jamie Huttrer a/k/a Jamie Huttrer-Herick, and ZeroRMW, LLC (collectively, the “Herick Parties”) for a return of with seeking the return of profits made between the period of August 2018, to January 2019. During this period, Gary Herick was the Chief Financial Officer and Director of the Issuer. Gary Herick was also the owner of approximately twenty-nine percent (26%) of the Issuer’s common stock. Pursuant to the Securities Exchange Act of 1934, §16(b), 15 U.S.C.S. § 78p(b), an issuer may recover any profits realized by a beneficial owner from the sale of the issuer's equity securities within a nine (6) month period. All unlawful profits must be returned to the Issuer on or before Tuesday, September 8, 2020. If Herick does not return such profits by that date, the Company will file a lawsuit to recover such profits.
On February 17, 2021, a Settlement Agreement and Release together with a Lock Up Agreement were signed by all parties to the lawsuit. As a result, the litigation has been discontinued.
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On April 15, 2021, Bristol Capital Investors, LLC (BCI) filed a lawsuit in the Superior Court of the State of California, County of Los Angeles against CannaPharmaRx Inc. and Does 1 – 50, inclusive (Case No. 21st CV1 3696). The lawsuit alleges that CannaPharmaRx Inc. (CPMD) breached the Amended and Restated Limited Liability Company Membership Purchase Agreement it had entered into with Bristol Capital Investors, LLC (BCI) to purchase BCI’s interest in Ramon Road Production Campus, LLC (RRPC), a single asset entity which owned an improved property, known as the Glass House, located in Cathedral City, California. BCI alleges causes of action for Fraud, Breach of Contract, Breach of the Implied Covenant of Good Faith and Fair Dealing, and Negligent Misrepresentation, and seeks compensatory and consequential damages in the amount of $10.5 million dollars plus attorneys’ fees and costs The Company intended to vigorously defend against BCI’s lawsuit, however, on September 9, 2022 BGI gave notice that the litigation had been discontinued.
We are not a party to any other legal proceeding or aware of any other threatened action as of the date of this Report.
ITEM 1A. RISK FACTORS
We are a smaller reporting company and are not required to provide the information under this item pursuant to Regulation S-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURE
Not Applicable
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
| Exhibit No. | Description | |
| 31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted in IXBRL, and included in exhibit 101). | |
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on November 21, 2022.
| CannaPharmaRx, Inc. | ||
| Dated: November 21, 2022 | By: | /s/ Dominic Colvin |
| Dominic Colvin, | ||
| Principal Executive Officer | ||
| Dated: November 21, 2022 | By: | /s/ John Cassels |
|
John Cassels, Principal Financial Officer and | ||
| Principal Accounting Officer | ||
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