Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes a number of forward-looking
statements that reflect management's current views with respect to future events
and financial performance. Forward-looking statements are projections in respect
of future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "may," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential" or "continue" or the negative of these terms or other comparable
terminology. These statements include statements regarding the intent, belief or
current expectations of us and members of our management team, as well as the
assumptions on which such statements are based. Prospective investors are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve risk and uncertainties, and that actual results may
differ materially from those contemplated by such forward-looking statements.
These statements are only predictions and involve known and unknown risks,
uncertainties and other factors, including the risks set forth in the section
entitled "Risk Factors" in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2020 as filed with the U.S. Securities and Exchange
Commission (the "SEC") on April 14, 2021 any of which may cause our company's or
our industry's actual results, levels of activity, performance or achievements
to be materially different from any future results, levels of activity,
performance or achievements expressed or implied in our forward-looking
statements. These risks and factors include, by way of example and without
limitation:
· our ability to successfully commercialize our products and services on a
large enough scale to generate profitable operations;
· our ability to maintain and develop relationships with customers and
suppliers;
· our ability to successfully integrate acquired businesses or new brands;
· the impact of competitive products and pricing;
· supply constraints or difficulties;
· the retention and availability of key personnel;
· general economic and business conditions;
· substantial doubt about our ability to continue as a going concern;
· our need to raise additional funds in the future;
· our ability to successfully recruit and retain qualified personnel in
order to continue our operations;
· our ability to successfully implement our business plan;
· our ability to successfully acquire, develop or commercialize new products
and equipment;
· intellectual-property claims brought by third parties; and
· the impact of any industry regulation.
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During the nine-month period ending September 30, 2021, the Company had no
revenues from operations. Loss from operations for the nine-months ended
September 30, 2021 was $2,288,628 compared with a loss in the prior year of
$4,670,284, for a net loss of $1,497,040 for the most recent nine-month period,
compared with a prior year loss of $8,340,088.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, or performance. Except as required by applicable law, including the
securities laws of the United States, we do not intend to update any of the
forward-looking statements to conform these statements to actual results.
Readers are urged to carefully review and consider the various disclosures made
by us in this report and in our other reports filed with the SEC. We undertake
no obligation to update or revise forward-looking statements to reflect changed
assumptions, the occurrence of unanticipated events or changes in the future
operating results over time except as required by law. We believe that our
assumptions are based upon reasonable data derived from and known about our
business and operations. No assurances are made that actual results of
operations or the results of our future activities will not differ materially
from our assumptions.
As used in this Quarterly Report on Form 10-Q and unless otherwise indicated,
the terms "CannaPharmaRx," "Company," "we," "us," and "our" refer to
CannaPharmaRx, Inc. and our wholly-owned subsidiaries. Unless otherwise
specified, all dollar amounts are expressed in United States dollars.
The following discussion should be read in conjunction with our financial
statements and notes thereto included herein. In connection with, and because we
desire to take advantage of, the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, we caution readers regarding certain
forward-looking statements in the following discussion and elsewhere in this
report and in any other statement made by, or on our behalf, whether or not in
future filings with the Securities and Exchange Commission. Forward looking
statements are statements not based on historical information and which relate
to future operations, strategies, financial results or other developments.
Forward looking statements are necessarily based upon estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond our control and many
of which, with respect to future business decisions, are subject to change.
These uncertainties and contingencies can affect actual results and could cause
actual results to differ materially from those expressed in any forward-looking
statements made by, or on our behalf. We disclaim any obligation to update
forward looking statements.
Overview and History
We were originally incorporated in the State of Colorado in August 1998 under
the name "Network Acquisitions, Inc." We changed our name to Cavion
Technologies, Inc. in February 1999 and subsequently to Concord Ventures, Inc.
in October 2006.
On December 21, 2000, we filed for protection under Chapter 11 of the United
States Bankruptcy Code. In connection with the filing, on February 16, 2001, we
sold our entire business, and all of our assets, for the benefit of our
creditors. After the sale, we still had liabilities of $8.4 million and were
subsequently dismissed by the Court from the Chapter 11 reorganization,
effective March 13, 2001, at which time the last of our remaining directors
resigned. On March 13, 2001, we had no business or other source of income, no
assets, no employees or directors, outstanding liabilities of approximately $8.4
million and had terminated our duty to file reports under securities law. In
February 2008, we were re-listed on the OTC Bulletin Board.
In April 2010, we re-domiciled in Delaware under the name CCVG, Inc. ("CCVG").
Effective December 31, 2010, CCVG completed an Agreement and Plan of Merger and
Reorganization (the "Reorganization") which provided for the merger of two of
our wholly owned subsidiaries. As a result of this reorganization our name was
changed to "Golden Dragon Inc.," which became the surviving publicly quoted
parent holding company.
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On May 9, 2014, we entered into a Share Purchase Agreement (the "Share Purchase
Agreement") with CannaPharmaRX, Inc., a Colorado corporation ("Canna Colorado"),
and David Cutler, a former President, Chief Executive Officer, Chief Financial
Officer and director of our Company. Under the Share Purchase Agreement, Canna
Colorado purchased 1,421,120 shares of our common stock from Mr. Cutler and an
additional 9,000,000 restricted common shares directly from us.
On May 15, 2014, as amended and effective January 29, 2015, we entered into an
Agreement and Plan of Merger (the "Merger") pursuant to which Canna Colorado
became a subsidiary of our Company. In October 2014, we changed our legal name
to "CannaPharmaRx, Inc."
Pursuant to the Merger, all of the shares of our common stock previously owned
by Canna Colorado were cancelled. As a result of the aforesaid transactions, we
became an early-stage pharmaceutical company whose purpose was to advance
cannabinoid research and discovery using proprietary formulation and drug
delivery technology then under development.
Our executive offices are located at Suite 3600, 888 3rd Street SW, Calgary,
Alberta Canada, T2P 5C5 phone (949) 652-6838. Our website address is
www.cannapharmarx.com.
We have not generated any revenues during the past five years. Following is our
current Plan of Operation.
PLAN OF OPERATION
We are involved in the cannabis industry in Canada and are reviewing
opportunities in other jurisdictions where cannabis has been legalized,
including the US. Our principal business activities to date have been to
negotiate, acquire and develop various cannabis cultivation projects throughout
Canada. As of the date of this Report, we do not own or operate any businesses
in the US.
Our activities to date have centered around three projects, including (i) the
Hanover Project; (ii) the Great Northern Project; and (iii) the acquisition of
Ramon Road Production Campus LLC.
Following is a description of the projects we are pursuing as of the date of
this Report:
Hanover
Effective November 19, 2018, we entered into a Securities Purchase Agreement
with Alternative Medical Solutions, Inc., an Ontario, Canada corporation
("AMS"), its shareholders and Hanover CPMD Acquisition Corp., wherein we
acquired all of the issued and outstanding securities of AMS. As part of the
material terms of this transaction, we also agreed to acquire all of the
outstanding shareholder loans held by the principal shareholder of AMS. The
purchase price was CAD$12,700,000, of which CAD$1,012,982 was paid at closing
and we assumed debt of approximately CAD$650,000. The principal shareholders of
AMS elected to receive 971,765 shares of our Common Stock in lieu of CAD$985,000
in additional cash. We granted the holders of these shares "piggyback"
registration rights but we have not yet filed a registration statement to cause
us to register these shares with the SEC. The balance of approximately
CAD$10,000,000 is to be paid pursuant to the terms of a relevant subordinated
non-interest bearing promissory note, secured only by the shares acquired in AMS
Principal payments under the Promissory Note, are due quarterly and are computed
based upon 50% of AMS' cash flow, defined as EBITDA less all capital
expenditures, taxes incurred, non-recurring items and other non-cash items for
the relevant fiscal quarter, including the servicing of all senior debt payment
obligations of the company. The Promissory Note matures the earlier of two years
from the date AMS receives a license to cultivate or December 31, 2021.
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On January 6, 2021, the Company executed an Agreement of Purchase and Sale
through its wholly owned subsidiary, Alternative Medical Solutions Inc. for the
sale of the lands and premises located at Hanover, Ontario, Canada. The price is
$2,000,000 CAD and the closing of this transaction occurred on July 9, 2021. As
a result, and in anticipation of the closing, the Company recorded an impairment
of goodwill and fixed assets relating to the property of $7,962,694 during the
year ended December 31, 2020. This property is security for a $1,000,000 US Note
with Koze Investments, LLC by way of a first-ranking charge. At closing, the
Note was retired with the proceeds from the sale by repayment of the principal
of $1,000,000, accrued interest of $124,735 and penalties of $475,265. The note
was discharged on July 13, 2021.
Great Northern
In early 2019, we retained new members of management who are actively engaged in
the Canadian cannabis industry, including former management of GN Ventures, Ltd,
Alberta, Canada, f/k/a Great Northern Cannabis, Ltd. ("GN"). Not coincidentally,
effective February 25, 2019, we acquired 3,712,500 shares and 2,500,000 Warrants
to purchase 2,500,000 shares of Common Stock of GN in exchange for an aggregate
of 7,988,963 shares of our Common Stock, from our current CEO, who is a former
shareholder of GN. We believe this is the initial step in our efforts to acquire
all of the issued and outstanding stock of GN.
We cannot state any definitive information concerning Great Northern because it
is a privately held Canadian company which is keeping its business activities
confidential. We expect that we will obtain additional information on the
business activities of GN as we renew discussions to acquire additional
interests and can perform our due diligence.
Based on information currently available in the marketplace, we believe that GN
owns a 60,000 square foot cannabis cultivation and grow facility located on 38
acres in Stevensville, Ontario, Canada. GN estimates annual total production
capacity from the Stevensville facility of up to 12,500 kilograms of cannabis.
GN advised that the Stevensville facility is complete, and GN's subsidiary,
9869247 Canada Limited, received a license to cultivate from the Canadian
Ministry of Health on July 5, 2019. As a result, in October 2019 GN commenced
cultivation activities, with the initial harvest in the first quarter of 2020.
Additionally, it is our current understanding that GN intends to increase
cannabis production by building additional cannabis cultivation facilities on
the excess land presently owned adjacent to the existing Stevensville facility,
provided that additional funding can be obtained on commercially reasonable
terms.
On May 8, 2020, we agreed to acquire an additional 3,671,597 shares of GN common
stock in exchange for an aggregate of 5,507,400 shares of our Common Stock. We
presently own 7,384,097 shares of GN common stock which we believe, based on
information provided by the management of GN, equals approximately 10% of the
total issued and outstanding shares of GN common stock. Additionally, we own
Warrants to purchase an additional 2,500,000 shares of GN common stock with each
Warrant having an exercise price of CAD$1.00 per share. We intend to continue to
acquire the common stock of GN in one or multiple additional transactions.
Sunniva
Effective June 11, 2019, the Company entered into a Securities Purchase
Agreement with Sunniva, Inc, a British Columbia, Canada corporation ("Sunniva")
wherein the Company agreed to acquire all of the issued and outstanding
securities of Sunniva's wholly-owned subsidiaries Sunniva Medical Inc. ("SMI")
and 1167025 B.C. LTD ("1167025") for CAD $16.0 million in cash and a note in the
principal amount of CAD $4.0 million. These companies are the current owners of
the Sunniva Canada Campus, which includes construction assets for a planned
759,000 square-foot greenhouse located on an approximately 114-acre property in
Okanagan Falls, British Columbia.
On June 8, 2020, the Company received a notice of termination of this Purchase
Agreement, as amended, from Sunniva. As a result, the Company incurred a charge
of $1,881,126 due to the write-off of its deposit to Sunniva, banking fees and
prepaid expenses associated with the failed acquisition of Sunniva. The Company
is in discussions with Sunniva, as well as an investment banker who received
deposits from the Company, about recovering all or a portion of its deposits,
banking fees, and prepaid expenses.
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Other
On March 29, 2021, the Company received the acceptance of our Offer to Purchase
certain assets and facilities located in Cremona, Alberta, Canada. The purchase
price is $12,550,000 CAD. The Company has paid a $200,000 CAD deposit. The
55,200 square foot facility is capable of producing 5,200 kilograms of cannabis
biomass per year. The facility previously held Health Canada licenses for
cultivation and sales of medical dried flower, as well as extract and edible
sales. After closing of the transaction, the Company intends to apply for new
Health Canada licenses. Funding for this acquisition is in the due diligence
phase.
Results of Operations
The Company does not currently sell or market any products and did not have any
sales in the nine-months ended September 30, 2021 or 2020. The Company will
commence actively marketing products after the products have been cleared or
approved by Health Canada, but there can be no assurance, however, that we will
be successful in obtaining Health Canada clearance or approval for our products.
Costs of Goods Sold
The Company did not have sales for the nine-months ended September 30, 2021 or
2020 and, accordingly, there were no cost of goods sold.
Gross Profit and Gross Margin
For the nine-month period ended September 30, 2021 and 2020, the Company had no
gross profit or gross margin.
Operating Expenses
Our operating expenses consist primarily of general and administrative expenses,
which include salaries, stock-based compensation expense and legal and
professional fees associated with the costs for services or employees in
finance, accounting, sales, administrative activities and the formation and
compliance of a public company.
Operating expenses for the three months ended September 30, 2021 was $771,203
compared to the same quarter in the prior year of $1,312,790, with a decrease to
all areas, offset partially by an increase to acquisition expenses due to the
write off of prepaid financing charges.
Operating expenses in the nine-months ended September 30, 2021 was $2,288,628
compared to $4,670,284 for the nine months ended September 30, 2020, a decrease
of $2,381,656. The decrease in the 2021 period is primarily attributable to
acquisition expenses and stock-based compensation expenses.
Other income (expense) for the three months ended September 30, 2021 was
$258,402 compared to the prior year quarter of $1,340,000, a decrease of
$1,081,598 due to lower interest expense, the change in the fair value of
derivative liability and other income from the recovery from the settlement of
the Koze note.
Other income was $791,588 for the nine-months ended September 30, 2021, compared
to other expense of $3,669,804, an improvement of $4,461,392. The increase in
other income is primarily attributable to a reduction in the derivative
liability of $2,694,220 in the 2021 period compared to an expense of $1,748,237
in the prior year, a reduction in interest expense in nine-months ended
September 30, 2021 of $420,825 compared to the 2020 period due to a reduction in
amortization of note discount, other income of $622,683 during the current year,
offset slightly by an increase to the loss on extinguishment of debt of
$1,024,573.
Net Income (Loss)
As a result of the foregoing, for the three-month period ended September 30,
2021, the Company had a net loss of $1,029,605, and a net loss of $2,652,790 for
the prior year quarter. For the nine-month period ended September 30, 2021, and
September 30, 2020, respectively, the Company had a net loss of $1,497,040 and a
net loss of $8,340,088 from the prior year.
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LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2021, we had $112,822 in cash as compared to $334,969 at
December 31, 2020.
Cash flows from operating activities
The Company used $2,087,367 in operating activities for the nine-months ended
September 30, 2021, as compared to $832,322 during the prior year comparable
nine-month period. During the nine months ended September 30, 2021 the Company
had a net loss of $1,497,040, stock based compensation expense of $290,099,
advertising expense of $211,200, common stock issued in connection with
financing of $51,010, amortization of debt discount of $954,024, loss on the
extinguishment of debt of $1,226,489, change in the fair value of derivatives of
$2,694,220, an increase to prepaid assets of $35,170 and an increase to payables
and accruals of $595,706. During the prior year nine months ended September 30,
2020, the Company had a net loss of $8,340,088, stock-based compensation expense
of $617,758, amortization of intangible assets of $98,304, stock issued for
advertising expenses of $554,000, common stock issued for finance expenses of
$1,704,907, change in fair value of derivatives of $1,748,237, a decrease to
prepaid expenses of $1,824,558 and an increase to accounts payable and accruals
of $958,856.
Cash flows from investing activities
The Company received $493,654 during the nine-months ended September 30, 2021
from investing activities, primarily from the sale of AMS assets, as compared to
net cash provided of $95,681 during the nine-month period ended September 30,
2020. This included the purchase of office equipment and a further investment in
Klonetics.
Cash flows from financing activities
During the nine-months ended September 30, 2021, $1,111,709 was provided from
financing activities, including $410,000 from the sale of Preferred Stock,
$665,646 from convertible loans and notes payable, $291,064 from the sale of
Common Stock, offset by $255,001 from repayment of related party loans. During
the prior year nine-month period the Company received $941,434 from convertible
debentures, offset by $15,158 from the repayment of related party loans.
In general, based on historical losses, the Company will be required to continue
raising operating capital through debt and equity.
Currently, we have no committed source for any funds to allow us to complete any
of our proposed acquisitions or projects. No representation is made that any
funds will be available when needed. In the event funds cannot be raised if and
when needed, we may not be able to carry out our business plan. Our inability to
obtain funding for our projects will have a negative impact on our anticipated
results of operations.
SUBSEQUENT EVENTS
On October 18, 2021, a debenture dated April 14, 2021 was converted into
4,458,333, in the amount of $53,500 plus interest of $2,675 at $0.0126.
On October 18, 2021, a holder of Preferred A shares converted 3,795 Preferred A
shares into 4,458,333 Common shares.
On November 8, 2021, the Company issued 4,801 Preferred A shares to an
accredited investor at $15.62 per share for net proceeds of $75,000.
On November 9, 2021, the Company entered into a convertible debenture with an
accredited investor in the amount of $55,000. This debenture bears interest of
10% and is convertible into common shares at 61% of the lowest closing price
during the previous 20 trading days to the date of conversion. Prepayment of
this note is authorized at 115% - 135% up to 180 days. In the event of default
interest increases to 22%.
On November 10, 2021, a holder of Preferred A shares converted 454 Preferred A
shares into 567,500 Common shares.
Inflation
Although our operations are influenced by general economic conditions, we do not
believe that inflation had a material effect on our results of operations during
the nine-month period ended September 30, 2021.
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Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations
are based upon our financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States. The
preparation of these financial statements requires us to make estimates and
judgments that affect the amounts of assets, liabilities, revenues and expenses,
and related disclosure of contingent assets and liabilities. On an on-going
basis, we evaluate our estimates based on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions. A comprehensive summary of our critical accounting
policies can be found on Form 10-K, dated December 31, 2020, and filed on April
14, 2021. That Report contains policies that we believe are the most important
to the portrayal of our financial condition and results of operations and that
require management's most difficult, subjective or complex judgments, often as a
result of the need to make estimates about the effects of matters that are
inherently uncertain.
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