CPMD 10-Q
Cannapharmarx, Inc. (CPMD)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________to ___________
Commission File Number:
(Exact name of small business issuer as specified in its charter) |
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(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 |
N/A | N/A | N/A |
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 |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.
The number of shares of the registrant’s common stock issued and outstanding as of May 16, 2025, was
CANNAPHARMARX, INC.
March 31, 2025
TABLE OF CONTENTS
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| PART I. FINANCIAL INFORMATION |
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Item 1 | Financial Statements (unaudited) |
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| Table of Contents |
CANNAPHARMARX, INC. CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS |
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| March 31, 2025 (Unaudited) |
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| December 31, 2024 |
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ASSETS |
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Current assets |
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Cash |
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Goods and services tax receivable |
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Accounts receivable |
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Inventory |
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Total current assets |
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Non-current assets |
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Equipment, net |
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Right-of-use building, net |
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Investments |
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Total assets |
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LIABILITIES AND STOCKHOLDERS’ DEFICIT |
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Current liabilities |
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Accounts payable and accrued liabilities |
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Deferred revenue |
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Notes payable |
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Convertible notes - net of discount |
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Derivative conversion feature |
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Loans payable - related party |
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Liability for right-of-use building, current portion |
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Obligation to issue shares |
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Total current liabilities |
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Non-current liability |
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Liability for right-of-use building |
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Total liabilities |
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STOCKHOLDERS’ DEFICIT |
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Preferred stock series A, $ |
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Preferred stock series B, $ |
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Preferred stock series C, $ |
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Common stock, $ |
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Treasury stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Accumulated other comprehensive income |
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Total stockholders’ deficit |
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Total liabilities and stockholders’ deficit |
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| $ |
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The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
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| Table of Contents |
CANNAPHARMARX, INC. CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited) |
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| Three months ended March 31, |
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| 2025 |
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| 2024 |
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Revenue |
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Cost of goods sold |
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Gross loss |
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Operating expenses |
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Amortization and depreciation |
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General and administrative |
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Payroll and consulting fees |
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Professional fees |
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Rent |
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Total operating expenses |
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Loss from operations |
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Other income (expenses) |
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Change in the fair value of derivative conversion feature |
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Change in the fair value of obligation to issue shares |
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Gain on the extinguishment of debt |
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Other expense |
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Interest expense |
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Loss on impairment of inventory |
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Total other expenses |
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Net loss |
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Foreign currency translation adjustment |
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Net comprehensive loss |
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Basic and diluted loss per share of common stock |
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Weighted average number of shares outstanding |
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The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
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| Table of Contents |
CANNAPHARMARX, INC. CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) |
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| Three months ended March 31, |
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| 2025 |
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| 2024 |
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Operating activities |
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Net loss |
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Adjustments for non-cash items: |
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Amortization and depreciation included in cost of goods sold |
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Amortization and depreciation |
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Change in the fair value of derivative conversion feature |
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Change in the fair value of obligation to issue shares |
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Other expense |
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Interest expense |
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Gain on the extinguishment of debt |
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Loss on impairment of inventory included in cost of goods sold |
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Loss on impairment of inventory |
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Changes in operating assets and liabilities: |
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Goods and services tax receivable |
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Accounts receivable |
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Inventory |
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Deferred revenue |
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Accounts payable and accrued liabilities |
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Cash used in operating activities |
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Financing activities |
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Proceeds from issuance of warrants |
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Proceeds from related party loans |
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Repayment of convertible notes |
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Cash provided by financing activities |
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Net change in cash |
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Cash, beginning of period |
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Cash, end of period |
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Supplemental disclosure of cash flow information: |
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Cash paid for income taxes |
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Cash paid for interest expense |
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Supplemental disclosure of non-cash flow financing activities: |
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Cancellation of Series B preferred stock |
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Conversion of preferred stock series A into common stock |
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Reclassification of notes payable to related party loans |
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The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
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| Table of Contents |
CANNAPHARMARX, INC. CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT (Unaudited) |
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| Preferred stock series A |
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| Preferred stock series B |
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| Preferred stock series C |
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| Common stock |
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| Treasury stock |
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| Accumulated other |
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| Number of shares |
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| Value |
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| Number of shares |
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| Value |
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| Number of shares |
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| Value |
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| Number of shares |
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| Value |
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| Number of shares |
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| Value |
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| Additional paid-in capital |
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| Accumulated deficit |
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| comprehensive income (loss) |
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| Total stockholders' deficit |
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Balance, December 31, 2023 |
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Exercise of warrants on cashless basis |
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Conversion of preferred stock series A to common stock |
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Cancellation of preferred stock series B |
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Conversion of convertible notes to common stock |
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Issuance of warrants for convertible notes |
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Foreign currency translation adjustment |
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Net loss |
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Balance, March 31, 2024 |
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Exercise of warrants on cashless basis |
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Conversion of convertible notes to common stock |
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Foreign currency translation adjustment |
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Net loss |
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Balance, December 31, 2024 |
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Foreign currency translation adjustment |
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Net loss |
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Balance, March 31, 2025 |
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The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
| 6 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 |
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
CannaPharmaRx, Inc. (hereinafter “CPMD”, or the “Company”) was originally incorporated in the state of Colorado in August 1998 as Network Acquisitions, Inc. The Company focuses its business efforts on evaluation, negotiation, acquisition, and development of cannabis cultivation projects in Canada.
On January 6, 2022, the Company entered into a 20-year operating lease with Formosa Mountain Ltd. for the use of a leased facility located in Cremona, Alberta, Canada. CPMD recommissioned the 55,000 square foot facility (“Facility”) into a new indoor cannabis farm with 11 growing rooms and 1 drying and packing room during 2022. The Facility currently operates 5 of these growing rooms and the drying and packing room and plans to increase capacity over the next one to two years to open a second drying and packing room and to operate the full 11 growing rooms.
The Company received an operating license from Health Canada on December 9, 2022, and a cannabis license from the Canada Revenue Agency on December 22, 2022. Under the new license, the Company commenced cannabis production during the year ended December 31, 2023.
Basis of presentation
a) Principles of presentation
The accompanying condensed interim consolidated financial statements (the “financial statements”) have been prepared in accordance with generally accepted accounting principles (“US GAAP”) in the United States of America and the rules and regulations of the Securities and Exchange Commission.
All figures are in United States (“US”) dollars (“USD”) unless indicated otherwise.
b) Principles of consolidation
These financial statements include accounts of CannaPharmaRx, Inc. and its wholly owned subsidiaries, including CannaPharmaRX Canada Corp., Alternative Medical Solutions Inc. and 2323414 Alberta Ltd. Subsidiaries are consolidated from the date of acquisition and control and continue to be consolidated until the date that such control ceases. Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect these returns through its power over the investee. All intercompany balances, income, expenses, and unrealized gains and losses resulting from intercompany transactions are eliminated on consolidation.
Use of estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. The most significant estimates relate to the purchase price allocation of acquired businesses, the impairment of long-lived assets, the valuation of financial instruments, the valuation of inventory, the provision of income taxes and contingencies. The Company bases its estimates on historical experience, known or expected trends, and various other assumptions that are believed to be reasonable given the quality of information available as at the date of these financial statements. The results of these assumptions provide the basis for making estimates about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.
Cash
The Company considers all its cash in bank accounts and its highly liquid temporary cash investments with an original maturity of three months or less to be cash and cash equivalents. On March 31, 2025, the Company had cash of $
Investments
The Company invests in equity securities, which are accounted for in accordance with ASC 321, Investments – Equity Securities. Equity securities are measured at fair value, with changes in fair value recognized in net income. For equity securities without readily determinable fair values, the Company has elected the measurement alternative, recording these investments at cost minus impairment, adjusted for observable price changes.
| 7 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 |
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
The Company performs a qualitative assessment for impairment of equity securities without readily determinable fair values. If impairment is indicated, the investment is written down to fair value through earnings.
Revenue recognition
The Company’s revenue is comprised of sales of cannabis products.
The Company’s revenue-generating activities have a single performance obligation and revenue is recognized at the point in time when control of the product transfers and the Company’s obligations have been fulfilled. This generally occurs when the product is shipped or delivered to the customer, depending upon the method of distribution and shipping terms set forth in the customer contract. Revenue is measured as the amount of consideration the Company expects to receive in exchange for the sale of the Company’s product.
Sales of products are for cash or otherwise agreed-upon credit terms. The Company’s payment terms vary by location and customer; however, the time period between when revenue is recognized and when payment is due is not significant.
Equipment
Equipment is recorded at cost, net of accumulated depreciation and impairment losses. Depreciation is calculated on a straight-line basis over the assets’ estimated useful lives, which are as follows:
Category | Useful life |
Computer equipment | |
Office equipment | |
Plant equipment |
Inventory
Inventory is valued at the lower of cost and net realizable value, with cost determined using the weighted average cost method. Net realizable value is calculated as the estimated selling price in the ordinary course of business, less any estimated costs to complete and sell the goods. Costs are capitalized to inventory, until substantially ready for sale. Costs include direct and indirect labor, raw
materials, consumables, packaging supplies, utilities, facility costs, quality and testing costs, production related depreciation, and other overhead costs.
Cost of goods sold
Cost of goods sold (“COGS”) represents the direct costs attributable to the production of goods sold by the Company during the reporting period. These costs primarily include raw materials, direct labor, and manufacturing overhead incurred in the production process. Manufacturing overhead consists of indirect costs such as depreciation of production equipment, facility rent, utilities, and maintenance expenses allocated to production activities.
The Company values its inventory at the lower of cost or net realizable value, with cost determined using the weighted average cost method. Costs are expensed to COGS as inventory is sold. Adjustments to inventory valuation, including write-downs for excess or obsolete inventory, are also included in COGS when applicable.
Leases
At the start of a contract containing a lease, the Company classifies leases other than short-term leases as either operating or finance leases, following the criteria outlined in ASU 2016-02 Leases. Lease classification is only reassessed when: (a) the contract is modified and not treated as a separate contract, or (b) there is a change in the lease term or a reassessment of whether the lessee is likely to exercise a purchase option for the underlying asset. The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases with terms of 12 months or less.
For both finance and operating leases, right-of-use assets and lease liabilities are initially measured as the present value of future lease payments plus initial direct costs, discounted at the lease's implicit interest rate, or, if not available, the Company’s incremental borrowing rate.
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CANNAPHARMARX, INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 |
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Subsequent measurements differ by lease type:
· | For finance leases, lease liabilities are measured at amortized cost using the effective interest rate method, and right-of-use assets are measured at cost less accumulated amortization, depreciated on a straight-line basis over the lease term. |
|
|
· | For operating leases, lease liabilities are measured at the present value of unpaid lease payments, discounted at the original discount rate. Right-of-use assets are adjusted by accumulated amortization, calculated as the difference between the straight-line lease cost (including amortization of initial direct costs) and the periodic accretion of the lease liability. |
As at March 31, 2025, the Company has one lease which is classified as an operating lease.
Derivative financial instruments
Terms of convertible and other promissory notes are reviewed to determine whether they contain embedded derivative instruments that are required to be accounted for separately from the host contract and recorded on the balance sheet at fair value. The fair value of derivative instruments is required to be revalued at each reporting date, with corresponding changes in fair value recorded in the current period operating results. Derivative conversion feature arose due to the issuance of variably priced convertible notes. As at March 31, 2025, the Company had derivative conversion features valued at $
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risk.
Foreign currency translation
The functional currency and the reporting currency of the Company’s principal entity, CannaPharmaRx, Inc. is the USD. The functional currency of the Company’s Canadian operations is the CAD. Management adopted ASC 830 Foreign Currency Matters for transactions that occur in foreign currencies. Monetary assets denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Average monthly rates are used to translate revenues and expenses.
Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods.
Assets and liabilities of the Company’s operations are translated into USD, the reporting currency, at the exchange rate in effect at the balance sheet dates. Revenue and expenses are translated at average rates in effect during the reporting periods. Equity transactions are recorded at the historical rate when the transaction occurred. The resulting translation adjustment is reflected as accumulated other comprehensive income, a separate component of stockholders' deficit in the statement of stockholders' deficit.
Harmonized sales tax
The Company's revenues from Canadian operations include applicable Goods and Services Tax (“GST”) or Harmonized Sales Tax (“HST”), depending on the province of sale. GST is a 5% consumption tax applied to taxable goods and services at the point of sale. In certain provinces, GST is combined with Provincial Sales Tax and referred to as HST. The tax is collected by vendors from consumers and subsequently remitted, net of eligible input tax credits, to the Canadian Revenue Agency, which distributes the applicable portions to the respective provinces.
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CANNAPHARMARX, INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 |
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Stock-based compensation
The Company has adopted ASC Topic 718 Compensation - Stock Compensation, which establishes a fair value method of accounting for stock-based compensation plans. In accordance with guidance now incorporated in ASC Topic 718, the fair value 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 an 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 share purchase warrants was determined at the date of grant using an option pricing model. The option pricing 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 as at March 31, 2025 or December 31, 2024.
Long-lived assets
The Company evaluates the recoverability of its long-lived assets whenever events or changes in circumstances have indicated that an asset may not be recoverable. The long-lived asset is grouped with other assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. If the sum of the projected undiscounted cash flows is less than the carrying value of the assets, the assets are written down to the estimated fair value.
Fair values of assets and liabilities
The Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded, and the reliability of the assumptions used to determine fair value.
Level 1: |
| Valuation is based on quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities. |
|
| |
Level 2: |
| Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. For example, Level 2 assets and liabilities may include debt securities with quoted prices that are traded less frequently than exchange-traded instruments. |
|
| |
Level 3: |
| Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category generally includes certain private equity investments and long-term derivative contracts. |
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The Company’s financial instruments comprise of cash, accounts receivable, investments, accounts payable and accrued liabilities, accrued interest, notes payable, convertible notes, derivative conversion feature, loan payable - related party, liability for right-of-use building and obligation to issue shares.
The Company measures the fair value of its convertible notes, derivative conversion feature and obligation to issue shares based on Level 2 hierarchy.
There are no other financial assets or liabilities measured at fair value on a recurring basis presented on the Company’s balance sheet. As of March 31, 2025, the carrying values of the Company’s financial instruments approximate their fair values.
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CANNAPHARMARX, INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 |
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial instruments
The estimated fair value for financial instruments was determined at discrete points in time based on relevant market information. These estimates involve uncertainties and could not be determined with exact precision. The fair value of the Company’s financial instruments, which include cash, accounts receivable, accounts payable and accrued liabilities, accrued interest, notes payable, loans payable - related party and liability for right-of-use building, 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.The Company does not recognize any deferred taxes as it does not anticipate taxable income in the foreseeable future.
Loss per share
Loss per share is presented in accordance with Accounting Standards Update, Earnings per Share (Topic 260), which requires the presentation of both basic and diluted earnings per share (“EPS”) on the income statements.
Basic EPS excludes any dilutive effects of options, warrants, and convertible securities but does include the restricted shares of common stock issued. 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 reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted to common stock. Diluted EPS calculations are determined by dividing net income by the weighted average number of shares of common stock and dilutive common stock equivalents outstanding. Diluted EPS excludes all potential dilutive common shares if their effect is anti-dilutive. As at March 31, 2025 there were
Recently issued accounting pronouncements
In November 2023, the Financial Accounting Standards Board issued Accounting Standards Update 2023-07 (“ASU 2023-07”), Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, requiring public entities to disclose information about their reportable segments’ significant expenses and other segment items on an interim and annual basis. Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC Topic 280 on an interim and annual basis. The Company adopted ASU 2023-07 during the year ended December 31, 2024. See Note 17 in the accompanying notes to the condensed consolidated interim financial statements for further detail.
In December 2023, the Financial Accounting Standards Board issued Accounting Standards Update 2023-09 (“ASU 2023-09”), Income Taxes (Topic 740): Improvements to Income Tax Disclosures, requiring entities to disclose more detailed information about income tax expense (benefit), significant components of income tax expense (benefit), separate disclosure of income tax expense (benefit) for domestic and foreign jurisdictions and by major jurisdictions. The Company adopted ASU 2023-09 as of January 1, 2025.
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.
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CANNAPHARMARX, INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 |
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Recently issued accounting pronouncements not yet effective
In November 2024, the Financial Accounting Standards Board issued Accounting Standards Update 2024-03 (“ASU 2024-03”), Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosure (Subtopic 220-40): update required disclosure of specified information about certain costs and expenses. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026. The Company has not early adopted this standard.
NOTE 2 - GOING CONCERN AND LIQUIDITY
As at March 31, 2025, the Company had cash of $
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 current financial projections, the Company 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 intention to incur debt and/or raise additional funding through 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 - INVENTORY
A summary of the Company’s inventory as at March 31, 2025, and December 31, 2024 is as follows:
|
| 2025 |
|
| 2024 |
| ||
|
|
|
|
|
|
| ||
Finished goods |
| $ |
|
| $ |
| ||
Work in process |
|
|
|
|
|
| ||
Less: impairment of finished goods inventory included in cost of goods sold |
|
| ( | ) |
|
| ( | ) |
Less: impairment of work in process inventory included in cost of goods sold |
|
| ( | ) |
|
| ( | ) |
|
| $ |
|
| $ |
| ||
NOTE 4 - EQUIPMENT
A summary of the Company’s equipment as at March 31, 2025 is as follows:
|
| Gross Carrying Amount |
|
| Accumulated Depreciation |
|
| Net Book Value |
| |||
Computers, office and plant equipment |
| $ |
|
| $ | ( | ) |
| $ |
| ||
A summary of the Company’s equipment as at December 31, 2024 is as follows:
|
| Gross Carrying Amount |
|
| Accumulated Depreciation |
|
| Net Book Value |
| |||
Computers, office and plant equipment |
| $ |
|
| $ | ( | ) |
| $ |
| ||
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CANNAPHARMARX, INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 |
NOTE 4 – EQUIPMENT (continued)
During the three months ended March 31, 2025, the Company recorded depreciation expense on fixed assets of $
For the three months ended March 31, 2025, equipment depreciation expense allocated to inventory was $
NOTE 5 - RIGHT-OF-USE BUILDING
On January 1, 2022, the Company entered into a 20-year lease agreement commencing January 1, 2022 with Formosa Mountain Ltd. (“Formosa”) for the buildings from which 2323414 grows its cannabis products in Cremona, Alberta.
A discount rate of
On January 1 2025, the Company amended the lease agreement whereby the lease payments were changed to CAD 125,000 per month for the remainder of the lease term.
A summary of the Company’s right-of-use building asset at March 31, 2025 and December 31, 2024 is as follows:
|
| 2025 |
|
| 2024 |
| ||
Gross carrying amount |
| $ |
|
| $ |
| ||
Accumulated depreciation |
|
| ( | ) |
|
| ( | ) |
Net book value |
| $ |
|
| $ |
| ||
NOTE 6 - INVESTMENTS
On November 22, 2023, the Company closed a deal with LTB Management, LLC (“LTB”) to acquire
The total purchase consideration for the investment was $
The contingent consideration includes a quarterly true up of the sellers of LTB’s preferred share proportional ownership to
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CANNAPHARMARX, INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 |
NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
A summary of the Company’s accounts payable and accrued liabilities as at March 31, 2025, and December 31, 2024 is as follows:
|
| 2025 |
|
| 2024 |
| ||
|
|
|
|
|
|
| ||
Accounts payable |
| $ |
|
| $ |
| ||
Accrued liabilities |
|
|
|
|
|
| ||
Accrued interest |
|
|
|
|
|
| ||
Accrued legal settlement (a) |
|
|
|
|
|
| ||
Total accounts payable and accrued liabilities |
| $ |
|
| $ |
| ||
(a) | The Company has previously been a party to an action filed by Gary M. Cohen, a former officer and director of the Company in 2014. In March 2015, the Company entered into a settlement agreement with Mr. Cohen wherein the Company agreed to repurchase |
NOTE 8 - NOTES PAYABLE
A summary of the Company’s notes payable as at March 31, 2025, and December 31, 2024 is as follows:
|
| 2025 |
|
| 2024 |
| ||
Notes payable |
| $ |
|
| $ |
| ||
CEBA loan |
|
|
|
|
|
| ||
Secured promissory notes |
|
|
|
|
|
| ||
Other promissory notes |
|
|
|
|
|
| ||
Promissory notes (LTB Transaction) |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
Notes payable
On May 10, 2024 and May 31, 2024, the Company entered into notes payable agreements (“Note A” and “Note B”, respectively) bearing interest at
On August 13, 2024, the Company entered into notes payable agreements (“Note C”) with a third individual in the amounts of $
CEBA loan
Due to the global COVID 19 outbreak, the Government of Canada introduced the Canada Emergency Business Account (“CEBA”) program. The Company participated in this program and received a $60,000 CAD loan. The loan was interest-free until January 18, 2024 at which time it was converted to a non-amortizing term loan with an interest rate of
| 14 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 |
NOTE 8 - NOTES PAYABLE (continued)
Secured promissory notes
During the year ended December 31, 2021, the Company entered into secured promissory note agreements with investors for non-interest-bearing notes maturing within 12 months with a total value of $
Promissory notes (LTB Transaction)
On November 22, 2023, the Company entered into promissory notes of $
The remaining $
The original maturity date of the promissory notes was November 22, 2024. On November 22, 2024, the Company entered into an agreement with both the shareholders to extend the maturity date of the promissory notes to December 31, 2025.
Other promissory notes
The Company has an additional promissory note with Mr. Zemel which bears interest at 24% compounded monthly. As at March 31, 2025, the principal balance owed on the promissory note was $
On May 25, 2023, the Company entered into a promissory note with Koze Investments LLC (“Koze”), a company partially owned by Mr. Zemel, to fund the Company for certain documented Company expenses. The promissory note bears interest at 24% compounded quarterly. Mr. Zemel became related party of the Company following his appointment as director of the Company on March 11, 2025. As a result, the balance owing on the promissory note of $
On January 1, 2025, the Company entered into a promissory note with Formosa, a company managed by Mr. Zemel, in the amount of $
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CANNAPHARMARX, INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 |
NOTE 9 - CONVERTIBLE NOTES AND DERIVATIVE CONVERSION FEATURE
A summary of the Company’s convertible notes is as follows:
Balance, December 31, 2023 |
| $ |
| |
Additions |
|
|
| |
Value of conversion of notes into 204,353,254 shares of common stock |
|
| ( | ) |
Settlements |
|
| ( | ) |
Balance, December 31, 2024 and March 31, 2025 |
| $ |
|
During the three months ended March 31, 2025, the Company recorded a loss on conversion of $nil (2024 - $
A summary of the terms and conditions of the convertible notes outstanding which have a derivative conversion feature as at March 31, 2025 is as follows:
Maturity Date |
| Interest Rate |
|
| Conversion price |
| Principal at inception |
|
| Principal outstanding |
| |||
|
|
|
|
| $ |
|
| $ |
| |||||
Jan. 7, 2021 |
|
| % |
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|
|
| ||||
Dec. 11, 2022 |
|
| % |
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|
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|
| ||||
Dec. 11, 2022 |
|
| % |
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| ||||
Apr. 11, 2024 |
|
| % |
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|
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|
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| ||||
May 5, 2024 |
|
| % |
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|
|
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|
| ||||
Sep. 25, 2024 |
|
| % |
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||
As at March 31, 2025 the Company had $
As at the date of these financial statements, all convertible notes were past their maturity date. Additionally, because of the late filing of previous annual reports, and the loss of the Company’s active listing in the OTC market, the penalty provisions of all convertible notes outstanding became effective.The Company estimated that the maximum penalty provisions amounted to one times the face value of all the convertible notes outstanding. As at March 31, 2025, the accrued liability for penalties was $
The convertible notes were determined to be compound instruments, comprising separate financial instruments, being the debt obligation and the conversion option, which were bifurcated and are presented separately on the consolidated balance sheets. As the number of common shares to be issued on exercise of the conversion option is contingent on a variable share price, the conversion option has been classified as derivative conversion feature.
A summary of Company’s derivative conversion feature as at March 31, 2025 is as follows:
Balance, December 31, 2023 |
| $ |
| |
Changes in fair value of derivative conversion feature |
|
| ( | ) |
Balance, December 31, 2024 |
|
|
| |
Changes in fair value of derivative conversion feature |
|
| ( | ) |
Balance, March 31, 2025 |
| $ |
|
As at March 31, 2025 the Company had derivative conversion feature of $
| 16 |
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CANNAPHARMARX, INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 |
NOTE 9 - CONVERTIBLE NOTES AND DERIVATIVE CONVERSION FEATURE (continued)
The Company used an option pricing model to calculate the derivative conversion feature. A summary of the Company’s weighted average inputs used in the model is as follows:
|
| 2025 |
|
| 2024 |
| ||
Stock Price |
| $ |
|
| $ |
| ||
Exercise Price |
| $ |
|
| $ |
| ||
Risk-free interest rate |
|
| % |
|
| % | ||
Expected volatility |
|
| % |
|
| % | ||
Expected life |
|
|
|
| ||||
Expected dividend yield |
|
| % |
|
| % | ||
The risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company uses the historical volatility of its common stock to estimate the future volatility of its common stock. The expected life of the conversion feature of the notes was based on the remaining term of the notes. The expected annual dividend yield was based on the fact that the Company has not customarily paid dividends in the past and does not expect to pay dividends in the future.
NOTE 10 - RELATED PARTY TRANSACTIONS
a) Key related party transactions
A summary of the Company’s related party transactions for the three months ended March 31, 2025 and 2024, is as follows:
Name of related party |
| 2025 |
|
| 2024 |
| ||
|
|
|
|
|
|
| ||
Professional fees |
| $ |
|
| $ |
| ||
Interest expense |
|
| |
|
|
| |
|
Lease expense |
|
| |
|
|
| |
|
Other expense |
|
|
|
|
|
| ||
Total related party transactions |
| $ |
|
| $ |
| ||
Professional fees
| · | During the three months ended March 31, 2025, the Company incurred professional expenses of $ |
| · | During the three months ended March 31, 2025, the Company incurred professional expenses of $ |
Interest, lease and other expense
| · | During the three months ended March 31, 2025, the Company incurred interest expense on promissory notes with Mr. Tal of $ |
| · | On March 11, 2025, Mr. Zemel became a related party after his appointment as a director of the Company. During the three months ended March 31, 2025, the Company incurred interest expense on promissory notes with Mr. Zemel of $ |
| · | During the three months ended March 31, 2025, the Company recognized interest expense related to rent in default of $ |
| · | During the three months ended March 31, 2025, the Company incurred lease expense of $ |
| · | During the three months ended March 31, 2025, the Company made a one-time adjustment of $ |
| 17 |
CANNAPHARMARX, INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 |
NOTE 10 - RELATED PARTY TRANSACTIONS (continued)
b) Amounts due to related parties
A summary of the Company’s related party liabilities as at March 31, 2025 and December 31, 2024, is as follows:
|
| 2025 |
|
| 2024 |
| ||
|
|
|
|
|
|
| ||
Accounts payable and accrued liabilities |
| $ |
|
| $ |
| ||
Accrued interest |
|
|
|
|
|
| ||
Loan payable - related party |
|
|
|
|
|
| ||
Convertible notes |
|
|
|
|
|
| ||
Obligation to issue shares of common stock |
|
|
|
|
|
| ||
Total liabilities, related parties |
| $ |
|
| $ |
| ||
Accounts payable and accrued liabilities
As at March 31, 2025, accounts payable and accrued liabilities include balances owing to related parties as follows:
| · | As at March 31, 2025, $ |
| · | As at March 31, 2025, $ |
| · | As at March 31, 2025, $ |
| · | As at March 31, 2025, $ |
| · | As at March 31, 2025, $ |
Loan payable - related party
As at March 31, 2025, the loan payable - related party is as follows:
| · | A $ |
| · | Promissory notes totaling $ |
| · | A promissory note of $ |
| · | A $ |
| 18 |
CANNAPHARMARX, INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 |
NOTE 10 - RELATED PARTY TRANSACTIONS (continued)
Convertible notes
As at March 31, 2025, $
As at March 31, 2025, $
Obligation to issue shares
As at March 31, 2025, the Company has an obligation to issue an additional
Rent
Effective February 1, 2023, the Company entered into a rental agreement granting it the right to use office space located at Suite 3600, 888 5th Avenue SW, Calgary, Alberta, Canada, T2P 3R7 for a monthly rent of $500 CAD per month. This space was provided by a company affiliated with Mr. Orman. During the three months ended March 31, 2025, the Company incurred rent expense of $
Security and royalty agreement
On March 17, 2025, the Company and its subsidiary, 2323414 Alberta Ltd. (the “subsidiary”), entered into a security and royalty agreement with Mr. Zemel, pursuant to which the Company agreed to pay a royalty of CAD $0.20 per gram on product sales from the preceding month, payable at the beginning of the following month. If the royalty is not paid as stipulated, the amount payable increases to CAD $0.40 per gram sold for the applicable month. There were no sales made after March 17, 2025, which is the effective date and therefore, for the three months ended March 31, 2025, royalty amount payable to Mr. Zemel was $nil (2024 - $nil).
Under the terms of the agreement, a default occurs if the subsidiary fails to make such payments or lease payments for three consecutive months or for any four months within any rolling six-month period. As collateral for the obligations under the agreement, the Company granted Mr. Zemel a security interest in all of its ownership interest in the subsidiary. The security interest will remain in place until all obligations are fully satisfied.
NOTE 11 - LIABILITY FOR RIGHT-OF-USE BUILDING
A summary of the Company’s weighted average discount rate used in calculating lease liabilities and weighted average remaining lease term as at March 31, 2025 and December 31, 2024, is as follows:
|
| 2025 |
|
| 2024 |
| ||
Weighted average discount rate |
|
| % |
|
| % | ||
Weighted average remaining lease term |
|
|
|
| ||||
| 19 |
CANNAPHARMARX, INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 |
11 - LIABILITY FOR RIGHT-OF-USE BUILDING (continued)
Supplementary information on the Company’s operating lease liabilities for the three months ended March 31, 2025 and 2024 included the following:
|
| 2025 |
|
| 2024 |
| ||
Interest |
| $ |
|
| $ |
| ||
Amortization and depreciation |
| $ |
|
| $ |
| ||
A summary of the maturity of contractual undiscounted liabilities associated with the Company’s operating leases as at March 31, 2025 is as follows:
2025 |
| $ |
| |
2026 |
|
|
| |
2027 |
|
|
| |
2028 |
|
|
| |
2029 |
|
|
| |
Thereafter |
|
|
| |
Total undiscounted cashflows |
|
|
| |
Less: imputed interest |
|
| ( | ) |
Liability for right-of-use building, total |
|
|
| |
Liability for right-of-use building, current portion |
|
|
| |
Liability for right-of-use building, non-current portion |
| $ |
|
As at March 31, 2025, the Company has not made any payments on its lease liabilities. The unpaid lease payments for the three months ending March 31, 2025 of $
For the three months ended March 31, 2025, the Company recognized interest expense related to rent in default of $
NOTE 12 - STOCKHOLDERS’ DEFICIT
Preferred stock
The Company is authorized to issue up to
Series A preferred stock
In April 2018, the Company issued
The beneficial conversion feature (“BCF”) attributed to the purchase of series A convertible preferred stock (“Series A Stock”) was deemed to have no value on the date of purchase because there was no public trading market for the Series A Stock, and none is expected to develop in the future. Therefore, the BCF related to the Series A Stock was considered to have no value on the date of issuance.
| 20 |
CANNAPHARMARX, INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 |
NOTE 12 - STOCKHOLDERS’ DEFICIT (continued)
On March 5, 2024, 10,000 shares of Series A Stock were converted into common stock. There were no conversions during the three months ended March 31, 2025.
As at March 31, 2025,
Series B preferred stock
In August 2019, the Company closed an offering of up to $
Each Common Warrant is exercisable to purchase one share of common stock at the election of the holder at an exercise price of $
On March 28, 2024, the Company cancelled
As at March 31, 2025,
Series C preferred stock
In March 2023, the Company issued
Each share of Series C Stock entitles the holder to 1,250 votes on all matters submitted to a vote of the shareholders; is convertible into
In March 2024, the Company noted a historical accounting treatment error whereby the
As at March 31, 2025,
Common stock
The Company is authorized to issue
There were no share capital transactions during the three months ended March 31, 2025.
Share capital transactions during the year ended December 31, 2024:
On March 5, 2024,
On March 8, 2024, the Company issued
The Company issued
| 21 |
CANNAPHARMARX, INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 |
NOTE 12 - STOCKHOLDERS’ DEFICIT (continued)
Stock purchase warrants
A summary of the Company’s stock purchase warrant activity is as follows:
|
| Number of stock purchase warrants |
|
| Weighted average exercise price |
| ||
|
|
|
|
|
|
| ||
Stock purchase warrants outstanding, December 31, 2023 |
| # |
|
| $ |
| ||
Issued |
|
|
|
|
|
| ||
Redeemed |
|
| ( | ) |
|
|
| |
Expired |
|
| ( | ) |
|
|
| |
Stock purchase warrants outstanding, December 31, 2024 and March 31, 2025 |
| # |
|
| $ |
| ||
A summary of the number of the Company’s stock purchase warrants outstanding and exercisable as at March 31, 2025 is as follows:
Expiration date |
| Number of stock purchase warrants |
|
| Weighted average exercise price |
|
| Weighted average remaining life (Years) |
| |||
| # |
|
| $ |
|
|
|
| ||||
| # |
|
| $ |
|
|
|
| ||||
| # |
|
| $ |
|
|
|
| ||||
|
| # |
|
| $ |
|
|
|
|
| ||
There were no warrants transactions during the three months ended March 31, 2025.
During the year ended December 31, 2024,
NOTE 13 - REVENUE
The Company generates revenue majorly from sale of cannabis and related products to its customers. During the three months ended March 31, 2025, the Company recognized revenue of $
NOTE 14 - COST OF GOODS SOLD
A summary of the Company’s cost of goods sold for the three months ended March 31, 2025 and 2024 is as follows:
|
| 2025 |
|
| 2024 |
| ||
|
|
|
|
|
|
| ||
Direct materials |
| $ |
|
| $ |
| ||
Direct labor |
|
|
|
|
|
| ||
Depreciation |
|
|
|
|
|
| ||
Overheads |
|
|
|
|
|
| ||
Loss on impairment of inventory |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
| 22 |
CANNAPHARMARX, INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 |
NOTE 15 - GENERAL AND ADMINISTRATIVE
A summary of the Company’s general and administrative expenses for the three months ended March 31, 2025 and 2024 is as follows:
|
| 2025 |
|
| 2024 |
| ||
|
|
|
|
|
|
| ||
Advertising and promotion |
| $ |
|
| $ |
| ||
Insurance |
|
|
|
|
|
| ||
Interest and bank charges |
|
|
|
|
|
| ||
Office and administrative |
|
|
|
|
|
| ||
Plant supplies |
|
|
|
|
|
| ||
Repairs and maintenance |
|
|
|
|
|
| ||
Taxes |
|
|
|
|
|
| ||
Exchange gain and loss |
|
| ( | ) |
|
|
| |
Transfer agent fees |
|
|
|
|
|
| ||
Utilities |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
NOTE 16 - COMMITMENTS AND CONTINGENCIES
As at March 31, 2025, the Company has outstanding borrowings under various loan agreements with multiple lenders. Certain borrowings are secured by the Company’s assets, including equipment, investments and receivables. In the event of default, lenders may have the right to seize collateralized assets.
Ataraxia Canada, Inc.
As part of the Company’s acquisition of Alternative Medical Solutions Inc. (“AMS”) in 2018, an action filed against AMS by Ataraxia Canada, Inc. (“Ataraxia”) was assumed, alleging breach of contract, specifically, breach of a non-binding term sheet providing for Ataraxia to acquire controlling interest in AMS. Ataraxia is seeking $15 million in damages. A Statement of Claim was prepared by Ataraxia, as plaintiff, and circulated to AMS, 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.
The Company’s agreement to acquire AMS contained a provision requiring CPMD to diligently defend against the claims brought forth in, and assume full and complete control of, the Ataraxia litigation, provided that CPMD 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 the Company all pertinent information and witnesses under their control, make such assignments and take such other steps as in the opinion of CPMD’s counsel are reasonably necessary to enable CPMD to defend against the claims brought forth in the Ataraxia litigation.
The Company is currently reviewing two separate situations with legal counsel in order to ascertain whether CPMD has claims against Steven Barber arising out of his default of the Consulting Agreement the Company entered into as part of the AMS acquisition and various claims against Gary Herick, a former officer and director. In January 2020, the Company received correspondence from counsel for Mr. Barber demanding payment on amounts purported to be due pursuant to his Consulting Agreement with CPMD. The Company is 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 at the date of this Report, but the Company does not believe that these situations present a probability of material risk and therefore a loss contingency is not reflected in the consolidated financial statements.
| 23 |
CANNAPHARMARX, INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 |
NOTE 16 - COMMITMENTS AND CONTINGENCIES (continued)
Bristol Capital Investors, LLC
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 CPMD breached the Amended and Restated Limited Liability Company Membership Purchase Agreement entered into with BCI to purchase BCI’s interest in Ramon Road Production Campus, LLC, 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 intends to vigorously defend against BCI’s lawsuit. The parties conducted a court-ordered mediation and are engaging in on-going discussions.
The Company does not believe that these situations present a probability of material risk and therefore a loss contingency is not reflected in our consolidated financial statements.
Deloitte LLP
On July 18, 2024, Deloitte LLP (“Deloitte”) filed a civil claim in the Alberta Court of Justice, alleging a breach of contract. Deloitte was engaged by CPMD to assist with fiscal year 2022 Finance Backfill and Diagnostic services and in accordance with a signed engagement letter dated August 29, 2022, proceeded to perform the professional services. Deloitte pleads that it has discharged its responsibilities and delivered its accounts to CPMD. The Company acknowledged the satisfactory completion of services and the debts rendered but made no further payment as agreed other than an instalment payment on April 18, 2024. Deloitte is seeking recovery of the amount owed.
Former Executives
Former executives of the Company, John Cassels and Andrew Steedman (collectively “plaintiffs), have filed a lawsuit against the Company alleging damages and back pay due to them in the amount of $
NOTE 17 - OTHER EXPENSES
During the three months ended March 31, 2025, a one-time adjustment of $
NOTE 18 - SEGMENT NOTE
The Company operates as one operating segment. The Company's chief operating decision maker ("CODM") is its Board of Directors, who reviews financial information presented on a consolidated basis. The CODM uses revenue, cost of goods sold, consolidated operating margin and net income to assess financial performance and allocate resources. These financial metrics are used by the CODM to make key operating decisions, such as the determination of the rate at which the Company seeks to grow its operating margin and the allocation of budget between cost of goods sold, professional fees, and general and administrative expenses.
| 24 |
CANNAPHARMARX, INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 |
NOTE 18 - SEGMENT NOTE (continued)
The following table presents selected financial information with respect to the Company’s single operating segment for the three months ended March 31, 2025 and 2024:
|
| 2025 |
|
| 2024 |
| ||
|
|
|
|
|
|
| ||
Revenue |
| $ |
|
| $ |
| ||
Cost of goods sold |
|
|
|
|
|
| ||
Gross loss |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
Amortization and depreciation |
|
|
|
|
|
| ||
General and administrative |
|
|
|
|
|
| ||
Payroll and consulting fees |
|
|
|
|
|
| ||
Professional fees |
|
|
|
|
|
| ||
Rent |
|
|
|
|
|
| ||
Total operating expenses |
|
|
|
|
|
| ||
Loss from operations |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Other segment items |
|
| ( | ) |
|
| ( | ) |
Net loss |
| $ | ( | ) |
| $ | ( | ) |
| 25 |
| Table of Contents |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company’s financial condition and results of operations for the interim period as at and for the three months ended March 31, 2025 and 2024 should be read together with the Company’s financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and related footnotes included on Form 10-K for the year ended December 31, 2024.
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.
Forward-Looking Statements
This Quarterly Report on Form 10-Q includes a number of “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, including statements concerning anticipated financial results and developments of our operations in future periods 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, 2024 as filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 8, 2025 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:
| · | risks associated with the Company's history of losses and need for additional financing, |
| · | risks associated with increased costs affecting its financial condition, |
| · | risks associated with uninsured risks, |
| · | risks associated with governmental and environmental regulations, |
| · | risks associated with future legislation regarding the cannabis industry and climate change, |
| · | risks associated with cybersecurity and cyber-attacks, |
| · | risks related to economic conditions, |
| · | risks related to our ability to manage growth, |
| · | risks related to our dependence on key personnel, |
| · | risks related to our SEC filing history, and |
| · | risks related to our securities. |
This list is not exhaustive of the factors that may affect the Company’s forward-looking statements. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those described in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, estimated or expected. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Except as required by law, the Company disclaims any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. The Company qualifies all the forward-looking statements contained in this Quarterly Report on Form 10-Q by the foregoing cautionary statements.
| 26 |
| Table of Contents |
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”, CANNAPHARMARX”, the “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 (“USD”).
OVERVIEW AND HISTORY
CannaPharmaRx, Inc. (“CPMD”, “we”, “our”, or the “Company”) specializes in the acquisition, development, and operation of cannabis cultivation facilities in Canada. Originally incorporated in the state of Colorado in August 1998 as Network Acquisitions, Inc., we evolved to focus on producing high-quality medical cannabis and craft products. Our principal executive office is located at 302, 3204—Rideau Place SW., Calgary, Alberta, Canada T2S 1Z2.
On January 6, 2022, we entered into a 20-year operating lease for the use of a 55,000 square foot facility located in Cremona, Alberta, Canada (the “Facility”). During 2022, we recommissioned the Facility into a new indoor cannabis farm with 11 growing rooms and one (1) drying and packing room. The Facility currently operates five (5) of these growing rooms and the drying and packing room and plans to increase capacity over the next one to two years to open a second drying and packing room and to operate all 11 growing rooms.
We received an operating license from Health Canada on December 9, 2022, and a cannabis license from the Canada Revenue Agency on December 22, 2022. Under the new license, we commenced cannabis production during the year ended December 31, 2023.
Growth strategy
We plan to grow by increasing our growth capacity at the Facility to support sales of cannabis to the European markets, with a focus on Germany and Israel. To support this initiative, we are increasing the operations in the Facility from five growing rooms to 11 growing rooms over the next one to two years; building and developing a sales network in Germany and Israel; and applying for European Union Good Manufacturing Practices (“EU-GMP”) certification. Currently, we are required to send our cannabis to a third-party European intermediary for packaging in compliance with EU-GMP standards. Once certified, we will be able to remove this step from our delivery process and ship directly to countries within the European Union (“EU”), reducing overall costs and shipping timelines.
To facilitate our growth strategy, on November 22, 2023, we entered into an agreement with LTB Management, LLC (“LTB”) in support of building and developing a sales network in the EU and obtaining access to LTB’s e-commerce technology related to online sales of cannabis in the EU. Under this agreement, we obtained 100 Class B units of LTB in exchange for 27,224,962 warrants, each entitling the holders to purchase one share of our common stock at $0.02 per share until November 22, 2028; $3,000,000 in promissory notes payable to the LTB; and 100,000 Class C preferred shares of our company. Contingent consideration included a quarterly true up of LTB’s preferred share proportional ownership to 33% of the outstanding shares of our common stock, and an earn out whereby LTB can earn up to an additional 12% pro-rata preferred share proportional ownership (which, if earned, will result in the true up increasing by the pro-rata preferred share proportional ownership earned) based on our reaching a threshold of $2,500,000 in annual revenue at any time within 24 months of the agreement date. As at March 31, 2025, we have an obligation to issue an additional 309,286 Class C preferred shares to LTB under the true up, valued at $1,773,098.
OUR PRODUCTS
Cannabis Products
We produce and sell dried cannabis flower, which is packaged for sale as dried flower and trim shake. We sell dried flower for medicinal purposes. Dried flower continues to be the core of all cannabis markets globally and accordingly our focus on consistent high-quality cultivation is relentless.
Going Concern
Substantial doubt exists as to our ability to continue as a going concern based on the fact that we do not have adequate working capital to finance our day-to-day operations. For the three ended March 31, 2025, the Company reported $335,319 (2024 - $25,839), respectively, in revenue.
| 27 |
| Table of Contents |
As at March 31, 2025, the Company had cash of $1,208, a working capital deficiency of $25,655,955 and an accumulated deficit of $101,874,736. Additionally, for the three months ended March 31, 2025, we used $601,381 in operating activities. These financial metrics and the Company’s deficit of $101,874,736 as at March 31, 2025 indicate substantial uncertainty about the Company’s ability to continue as a going concern. Management’s plans include engaging in further research and development and raising additional capital in the short term to fund such activities through sales of its common stock. Management’s ability to implement its plans and continue as a going concern may be dependent upon raising additional capital. Our continued existence depends on the success of our efforts to raise additional capital necessary to meet our obligations as they come due and to obtain sufficient capital to execute our business plan. We may obtain capital primarily through issuances of debt or equity or entering into collaborative arrangements with corporate partners. There can be no assurance that we will be successful in completing additional financing or collaboration transactions or, if financing is available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we may be required to further scale down or perhaps even cease the operation of our business. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments. Our financial statements do not include adjustments that might result from the outcome of this uncertainty.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024
Revenue
During the three months ended March 31, 2025 and 2024, the Company reported revenue of $335,319 and $25,839, respectively. Product sales of medical cannabis commenced during early 2024 and increased during latter part of 2024. During the three months ended March 31, 2025, the Company recognized revenue of $307,629 (2024 - $nil) from sale of cannabis products to Adjupharm GmbH, a pharmaceutical company based in Germany. This comprised of the majority of the revenues generated during the three months ended March 31, 2025.
Cost of Goods Sold
During the three months ended March 31, 2025 and 2024, the Company reported cost of goods sold of $837,926 and $463,248, respectively. Product sales commenced during the latter part of 2024 and therefore, the Company’s cost of goods sold were significantly lower in the prior year comparable quarter. Included in cost of goods sold for the three months ended March 31, 2025 and 2024 is loss on impairment of inventory of $479,933 and $nil, respectively, primarily due to lower net realizable value attributed to early batches of product as a result of suboptimal THC levels.
Gross Loss
During the three months ended March 31, 2025 and 2024, the Company reported a gross loss of $502,607 and $437,409, respectively. The gross loss increased in 2025 from 2024 primarily due to the inclusion of impairment of inventory of $479,933 in cost of goods sold offset by an increase in revenue of $309,480 during the three months ended March 31, 2025.
Operating Expenses
A summary of the Company’s operating expenses for the three months ended March 31, 2025 and 2024 is as follows:
|
| 2025 |
|
| 2024 |
| ||
|
|
|
|
|
|
| ||
Amortization and depreciation |
| $ | - |
|
| $ | 23,041 |
|
General and administrative |
|
| 27,711 |
|
|
| 208,549 |
|
Payroll and consulting fees |
|
| - |
|
|
| 97,599 |
|
Professional fees |
|
| 136,337 |
|
|
| 22,485 |
|
Rent |
|
| 1,045 |
|
|
| 1,112 |
|
|
| $ | 165,093 |
|
| $ | 352,786 |
|
During the three months ended March 31, 2025 and 2024, the Company’s operating expenses consisted primarily of amortization and depreciation, general and administrative expenses, payroll and consulting fees, and professional fees associated with the costs for services or employees in finance, accounting, sales, administrative activities and the compliance of a public company. Overall operating expenses for the three months ended March 31, 2025 were $165,093 compared to operating expenses of $352,786 in the prior year comparable period, a decrease of $187,693. The decrease is primarily attributable to the following:
| 28 |
| Table of Contents |
· | A $23,041 decrease to amortization and depreciation primarily due to allocation of the entire expense to inventory during the current period and an overall decrease in depreciation expense due to fixed assets reaching or nearing the end of their useful lives. |
· | A $180,838 decrease to general and administrative expenses primarily due to an overall decrease in discretionary and extraneous spending, and to allocation of a portion of the expenses to inventory. |
· | A $97,599 reduction in payroll and consulting fees due to a change in management resulting in a reduction in payroll accruals for officers, as well as allocation of direct labor to inventory. |
The decrease was partly offset by a $113,852 increase in professional fees due to higher accounting fees in 2024 associated with the additional accounting activities required for the product sales that began during 2024.
Other income (expenses)
A summary of the Company’s other income and expenses for the three months ended March 31, 2025 and 2024 is as follows:
|
| 2025 |
|
| 2024 |
| ||
|
|
|
|
|
|
| ||
Change in the fair value of derivative conversion feature |
| $ | 641,711 |
|
| $ | (8,036,332 | ) |
Change in the fair value of obligation to issue shares |
|
| 1,880,911 |
|
|
| (2,710,879 | ) |
Gain on the extinguishment of debt |
|
| - |
|
|
| 677,288 |
|
Other expense |
|
| (1,930,000 | ) |
|
|
|
|
Interest expense |
|
| (615,516 | ) |
|
| (576,423 | ) |
Loss on impairment of inventory |
|
| - |
|
|
| (279,092 | ) |
|
| $ | (22,894 | ) |
| $ | (10,925,438 | ) |
Other expenses totaled $22,894 for the three months ended March 31, 2025 compared to $10,925,438 in the prior year comparable quarter. The change is primarily attributable to the following:
· | A $8,678,043 increase in the fair value of derivative conversion feature primarily due to fluctuations in market conditions and changes in underlying assumptions used in valuation of the derivative conversion feature of convertible notes. |
· | A $4,591,790 increase in the fair value of obligation to issue shares was primarily due to fluctuations in the Company's stock price and other assumptions affecting the value of the obligation related to the LTB transaction (Note 6). |
· | Gain on the extinguishment of debt of $677,288 was recorded in the prior year comparable quarter. No such gain recorded in the current quarter. |
· | During the three months ended March 31, 2025, a one-time adjustment of $1,930,000 was made to lease-related rent expense due to a clarification in the interpretation of the lease terms between management and Formosa (Note 8). |
· | A $39,093 increase in interest expense is primarily due to increase in liabilities during the current year. |
· | Loss on impairment of inventory of $279,092 was not included in cost of goods sold in the prior year comparable quarter as compared to the current quarter where all of the loss on impairment of inventory is reclassified into cost of goods sold therefore resulting in a decrease of $279,092 in the current quarter. |
Net Loss
During the three months ended March 31, 2025, the Company recorded net loss of $690,594 or $0.00 per share compared to a net loss of $11,715,633 or $0.03 per share in the prior year comparable period.
LIQUIDITY AND CAPITAL RESOURCES
No funding transactions occurred during the three months ended March 31, 2025.
During the year ended December 31, 2024, we:
· | Issued $294,000 in new convertible notes to accredited investors with interest rates from 12% to 24% and converted $134,910 of the outstanding convertible notes into 204,353,254 shares of common stock. |
· | Entered into two additional notes payable agreements for $50,000 and $70,000, respectively, with a second private individual, each bearing interest at 10% per annum, the $50,000 note payable maturing on May 10, 2024 and the $70,000 note payable on May 31, 2024. |
· | Entered into an additional note payable agreement for $50,000 with a third private individual, bearing interest at 15% per annum, maturing on April 14, 2025. |
The summary of the Company’s cash flows for the three months ended March 31, 2025 and 2024 is as follows:
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| 2025 |
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| 2024 |
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Cash used in operating activities |
| $ | (601,381 | ) |
| $ | (548,829 | ) |
Cash provided by financing activities |
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| 600,433 |
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| 560,272 |
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| $ | (948 | ) |
| $ | 11,443 |
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As of March 31, 2025, the Company had $1,208 in cash as compared to $2,156, and working capital deficiency of $25,655,955 compared to $24,733,636 as of December 31, 2024.
Cash flows from operating activities
Cash used in operating activities for the three months ended March 31, 2025 increased by $52,552 compared to the prior year comparable period, primarily due to increase in operating expenses in the current period.
Cash flows from investing activities
For the three months ended March 31, 2025 ad 2024, there were no cash flows arising from investing activities.
Cash flows from financing activities
Cash provided by financing activities for the three months ended March 31, 2025 was $600,433 as compared to $560,272 in the prior year comparable period primarily due to decrease in proceeds from related party loans of $256,121 and $87,768 from proceeds from issuance of warrants. The proceeds in the prior year comparable period were partially offset by repayment of convertible notes of $384,050. No such repayments were made in the current quarter.
Related party transactions
Professional fees
| · | During the three months ended March 31, 2025, the Company incurred professional expenses of $78,363 (2024 - $31,961) related to accounting fees with Invictus Accounting Group LLP (“Invictus”), a company to which Oliver Foeste is Managing Partner, which provides part-time CFO, financial reporting, and bookkeeping services to the Company. |
| · | During the three months ended March 31, 2025, the Company incurred professional expenses of $34,000 with Fabian Vancott (2024 - $nil) related to legal fees. Anthony Panek who is a partner at Fabian Vancott, is also a director of the Company. |
Interest, lease and other expense
| · | During the three months ended March 31, 2025, the Company incurred interest expense on promissory notes with Mr. Tal of $14,425 (2024 - $14,585). |
| · | On March 11, 2025, Mr. Zemel became a related party after his appointment as a director of the Company. During the three months ended March 31, 2025, the Company incurred interest expense on promissory notes with Mr. Zemel of $415,936. |
| · | During the three months ended March 31, 2025, the Company recognized interest expense related to rent in default of $154,702 associated with unpaid lease payments (Note 11). The Company has a lease with Formosa, a company managed by Mr. Zemel. |
| · | During the three months ended March 31, 2025, the Company incurred lease expense of $261,285 associated with the Formosa lease. |
| · | During the three months ended March 31, 2025, the Company made a one-time adjustment of $1,930,000 to lease-related rent expense due to a clarification in the interpretation of the lease terms between management and Formosa (Note 17). |
Accounts payable and accrued liabilities
As at March 31, 2025, accounts payable and accrued liabilities include balances owing to related parties as follows:
| · | As at March 31, 2025, $3,301,508 was payable to Formosa for outstanding lease payments. As at March 31, 2025, accrued interest on unpaid lease payments on the Formosa lease was $752,615. |
| · | As at March 31, 2025, $139,878 (December 31, 2024 - $89,392) was payable to Invictus for part-time CFO, financial reporting, and bookkeeping services to the Company. |
| · | As at March 31, 2025, $319,279 (December 31, 2024 - $319,279) was payable to Richard Orman (“Mr. Orman”), chairman of the Company’s board of directors, for unpaid directors’ fees for 2021 through 2023. |
| · | As at March 31, 2025, $1,661,861 (December 31, 2024 - $1,661,386) was payable to Dominic Colvin, a director of the Company, for unpaid salary and expense reimbursement amounts during Mr. Colvin’s employment with the Company as its CEO during the years 2019 through 2022. |
| · | As at March 31, 2025, $138,539 (December 31, 2024 - $104,538) was payable to Fabian Vancott in respect of unpaid legal fees. |
Loan payable - related party
As at March 31, 2025, the loan payable - related party is as follows:
| · | A $12,829 interest-free loan from PLC International Investments Inc., a Company owned by Dominic Colvin, who currently serves as a director of the Company; |
| · | Promissory notes totaling $6,809,386 were issued to Mr. Zemel, a related party of the Company. Of this amount, $2,550,000 was issued on November 22, 2023, as part of the LTB transaction (Note 6), bearing interest at 13% per annum. Originally due on November 22, 2024, the maturity date for this note was extended to December 31, 2025, by agreement with Mr. Zemel. For the three months ended March 31, 2025, interest expense of $81,740 (2024 - $82,648) was recorded on this note. As at March 31, 2025, the accrued interest on the promissory note was $444,604 (December 31, 2024 - $362,864). The remaining promissory notes, issued to Mr. Zemel and Koze, relate to advances provided to the Company for documented expenses. These notes bear interest at 24% per annum. For the three months ended March 31, 2025, total interest expense of $375,470 (2024 - $218,616) was recorded on all promissory notes (Note 8). As at March 31, 2025, the accrued interest on these promissory notes was $1,352,587 (December 31, 2024 - $1,058,617). |
| · | A promissory note of $1,930,000 entered with Formosa on January 1, 2025, a company managed by Mr. Zemel. During the three months ended March 31, 2025, the Company recorded interest expense of $23,599 (2024 - $nil) on these promissory notes (Note 8). As at March 31, 2025, the accrued interest on the promissory note was $23,599 (December 31, 2024 - $nil). |
| · | A $450,000 promissory note entered into on November 22, 2023 with Mr. Tal, a shareholder of the Company with a “principal owner” designation as defined by the US Securities and Exchange Commission, as part of the LTB transaction (Note 6). The promissory note bears interest at 13% per annum. The original maturity date of the promissory notes was November 22, 2024. On November 22, 2024, the Company and Mr. Tal agreed to extend the maturity date of the promissory notes to December 31, 2025. During the three months ended March 31, 2025, the Company recorded interest expense of $14,425 (2024 - $14,585) on the promissory note. As at March 31, 2025, the accrued interest on the promissory note was $70,723 (December 31, 2024 - $56,298). |
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Convertible notes
As at March 31, 2025, $212,555 (December 31, 2024 - $212,555) of the Company’s convertible notes balance was attributable to amounts owed to Mr. Tal. During the three months ended March 31, 2025, Mr. Tal did not convert any of the convertible notes into shares of common stock of the Company. During the year ended December 31, 2024, Mr. Tal converted $18,695 of the convertible notes into 23,368,212 shares of common stock of the Company.
As at March 31, 2025, $68,556 of the Company’s convertible notes balance was attributable to amounts owed to Mr. Zemel.
Obligation to issue shares
As at March 31, 2025, the Company has an obligation to issue an additional 154,643 Class C preferred shares each to Mr. Tal and Koze (December 31, 2024 - 150,799 each) as part of the LTB transaction (Note 6), valued at $886,549 for each party (December 31, 2024 - $1,827,005 each).
Rent
Effective February 1, 2023, the Company entered into a rental agreement granting it the right to use office space located at Suite 3600, 888 5th Avenue SW, Calgary, Alberta, Canada, T2P 3R7 for a monthly rent of $500 CAD per month. This space was provided by a company affiliated with Mr. Orman. During the three months ended March 31, 2025, the Company incurred rent expense of $1,045 (2024 - $1,112).
Security and royalty agreement
On March 17, 2025, the Company and its subsidiary, 2323414 Alberta Ltd. (the “subsidiary”), entered into a security and royalty agreement with Mr. Zemel, pursuant to which the Company agreed to pay a royalty of CAD $0.20 per gram on product sales from the preceding month, payable at the beginning of the following month. If the royalty is not paid as stipulated, the amount payable increases to CAD $0.40 per gram sold for the applicable month. There were no sales made after March 17, 2025, which is the effective date and therefore, for the three months ended March 31, 2025, royalty amount payable to Mr. Zemel was $nil (2024 - $nil).
Under the terms of the agreement, a default occurs if the subsidiary fails to make such payments or lease payments for three consecutive months or for any four months within any rolling six-month period. As collateral for the obligations under the agreement, the Company granted Mr. Zemel a security interest in all of its ownership interest in the subsidiary. The security interest will remain in place until all obligations are fully satisfied.
Critical accounting estimates
The Company’s financial statements and accompanying notes have been prepared in accordance with US GAAP. The preparation of these financial statements requires management to make estimates, judgments, and assumptions that affect reported amounts of assets, liabilities, revenues and expenses. We continually evaluate the accounting policies and estimates used to prepare the financial statements. The estimates are based on historical experience and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management.
Recently issued accounting pronouncements
Management have reviewed recently issued, but not yet effective, accounting pronouncements and do not believe the future adoption of any such pronouncements will have a material impact on our financial condition or the results of our operations.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is classified as a smaller reporting company and is not required to provide the information under this item pursuant to Regulation S-K.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure controls and procedures
Controls and procedures
Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this Report.
These controls are designed to ensure that information required to be disclosed in the reports we file or submit pursuant to the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our CEO/CFO to allow timely decisions regarding required disclosure.
Based on this evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were effective as of March 31, 2025, at reasonable assurance levels.
Inherent limitations
Our management, including our CEO and CFO, does 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 three months ended March 31, 2025, which were identified in conjunction with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) or 15d15(f) promulgated under the Exchange Act. Those rules define internal control over financial reporting as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
| · | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
| · | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and the receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and |
| · | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of March 31, 2025. In making this assessment, our management used the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO 2013).
Based on its assessment, management has concluded that as of March 31, 2025, our disclosure controls and procedures and internal control over financial reporting were not effective and that a material weakness existed in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Management has identified deficiencies in operating effectiveness that, in combination, represent a material weakness in internal control over financial reporting as follows:
· | Due to recent management and staff turnover, accurate information and records were not consistently maintained within our records and there were instances where documentation to support certain transactions was difficult to obtain or unobtainable. These deficiencies represent a material weakness in our internal control over financial reporting. |
Because of the material weakness identified, management has concluded that its internal control over financial reporting was not effective as of March 31, 2025. We are in the process of developing and implementing remediation plans to address the material weakness described above.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Ataraxia Canada, Inc.
As part of our acquisition of Alternative Medical Solutions Inc. (“AMS”) in 2018, we assumed an action filed against AMS by Ataraxia Canada, Inc. (“Ataraxia”), alleging breach of contract, specifically, breach of a non-binding term sheet providing for Ataraxia to acquire controlling interest in AMS. Ataraxia is seeking $15 million in damages. A Statement of Claim was prepared by Ataraxia, as plaintiff, and circulated to AMS, 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 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 at the date of this Report, but we do not believe that these situations present a probability of material risk and therefore a loss contingency is not reflected in our consolidated financial statements.
Bristol Capital Investors, LLC
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 CPMD breached the Amended and Restated Limited Liability Company Membership Purchase Agreement it had entered into with BCI to purchase BCI’s interest in Ramon Road Production Campus, LLC, 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. We intend to vigorously defend against BCI’s lawsuit. The parties conducted a court-ordered mediation and are engaging in on-going discussions.
We do not believe that these situations present a probability of material risk and therefore a loss contingency is not reflected in our consolidated financial statements.
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Deloitte LLP
On July 18, 2024, Deloitte LLP (“Deloitte”) filed a civil claim in the Alberta Court of Justice, alleging a breach of contract. Deloitte was engaged by us to assist with fiscal year 2022 Finance Backfill and Diagnostic services and in accordance with a signed engagement letter dated August 29, 2022, proceeded to perform the professional services. Deloitte pleads that it has discharged its responsibilities and delivered its accounts to us. We acknowledged the satisfactory completion of services and the debts rendered but made no further payment as agreed other than an instalment payment on April 18, 2024. Deloitte is seeking recovery of the amount owed.
Former Executives
In July 2024, two former executives of the Company, John Cassels and Andrew Steedman (collectively “plaintiffs”), filed a lawsuit against our Company in Calgary at the Court of King’s Bench of Alberta alleging wrongful termination with back pay due to them in the amount of $3 million, damages of an undisclosed monetary amount, and other claims of misconduct. We have engaged legal counsel to resolve these matters. In the meantime, we are working to settle the matters with the plaintiffs.
The Company has offered a full and final settlement of $400,000 CAD to each of the plaintiffs, which was pending to be accepted by them as of March 31, 2025. Management has assessed the likelihood of an unfavorable outcome as reasonably possible but not probable. The Company continues to maintain an accrual of approximately $887,000 in our financial statements for unpaid salaries to Mr. Cassels and Mr. Steedman for the period from April 2019 through June 2023. The Company actively monitors this matter and will update its assessment as additional information becomes available.
In 2019, we completed the filing of the Company's financial statements with the British Columbia Securities Commission and the Alberta Securities Commission, and we were in the process of completing an application to list our common stock on the Canadian Stock Exchange. We received a Failure-to-File Cease Trade Order (FFCTO) issued under National Policy 11-207. We are currently discussing the FFCTO with the British Columbia Securities Commission and received a new set of questions from the BC Securities commission on May 13, 2025.
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
There have been no material changes to the Company’s “Risk Factors” set forth in its Annual Report on Form 10-K for the year ended December 31, 2024.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
No equity transactions occurred during the three months ended March 31, 2025.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
ITEM 5. OTHER INFORMATION
During the three months ended March 31, 2025, no director or officer adopted or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement, as each term is defined in Item 408(a) of Regulation S-K.
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ITEM 6. EXHIBITS
2.1 |
| Amended and Restated Membership Interest Purchase Agreement, dated November 22, 2023 |
3.1 |
| Bylaws adopted 12/31/10 |
3.2 |
| Certificate of Amendment of Certificate of Incorporation dated 10/22/14 |
3.3 |
| Certificate of Designation of Preferences, Rights and Limitation of Series C Convertible Preferred Stock |
Security And Royalty Agreement between the Company and Koze Investments, LLC dated March 17, 2025 | ||
Transfer of 2323414 Alberta Ltd. to Elliot Zemel dated March 17, 2025 | ||
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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 May 16, 2025.
| CannaPharmaRx, Inc. |
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| By: | /s/ Constantine Nkafu |
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| Constantine Nkafu, |
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| Chief Executive Officer |
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| By: | /s/ Oliver Foeste |
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| Oliver Foeste, |
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| Chief Financial Officer |
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