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 three month period ending March 31, 2021 the Company had no revenues
from operations. Loss from operations for the three months ended March 31, 2021
was $721,345 compared with a loss in the prior year of $2,570,009, for a net
income of $1,197,974 for the most recent quarter, compared with a prior year
loss of $4,214,818.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, or performance. Except as required by applicable law, including the
securities laws of the United States, we do not intend to update any of the
forward-looking statements to conform these statements to actual results.
Readers are urged to carefully review and consider the various disclosures made
by us in this report and in our other reports filed with the SEC. We undertake
no obligation to update or revise forward-looking statements to reflect changed
assumptions, the occurrence of unanticipated events or changes in the future
operating results over time except as required by law. We believe that our
assumptions are based upon reasonable data derived from and known about our
business and operations. No assurances are made that actual results of
operations or the results of our future activities will not differ materially
from our assumptions.
As used in this Quarterly Report on Form 10-Q and unless otherwise indicated,
the terms "CannaPharmaRx," "Company," "we," "us," and "our" refer to
CannaPharmaRx, Inc. and our wholly-owned subsidiaries. Unless otherwise
specified, all dollar amounts are expressed in United States dollars.
The following discussion should be read in conjunction with our financial
statements and notes thereto included herein. In connection with, and because we
desire to take advantage of, the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, we caution readers regarding certain
forward-looking statements in the following discussion and elsewhere in this
report and in any other statement made by, or on our behalf, whether or not in
future filings with the Securities and Exchange Commission. Forward looking
statements are statements not based on historical information and which relate
to future operations, strategies, financial results or other developments.
Forward looking statements are necessarily based upon estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond our control and many
of which, with respect to future business decisions, are subject to change.
These uncertainties and contingencies can affect actual results and could cause
actual results to differ materially from those expressed in any forward-looking
statements made by, or on our behalf. We disclaim any obligation to update
forward looking statements.
Overview and History
We were originally incorporated in the State of Colorado in August 1998 under
the name "Network Acquisitions, Inc." We changed our name to Cavion
Technologies, Inc. in February 1999 and subsequently to Concord Ventures, Inc.
in October 2006.
On December 21, 2000, we filed for protection under Chapter 11 of the United
States Bankruptcy Code. In connection with the filing, on February 16, 2001, we
sold our entire business, and all of our assets, for the benefit of our
creditors. After the sale, we still had liabilities of $8.4 million and were
subsequently dismissed by the Court from the Chapter 11 reorganization,
effective March 13, 2001, at which time the last of our remaining directors
resigned. On March 13, 2001, we had no business or other source of income, no
assets, no employees or directors, outstanding liabilities of approximately $8.4
million and had terminated our duty to file reports under securities law. In
February 2008, we were re-listed on the OTC Bulletin Board.
In April 2010, we re-domiciled in Delaware under the name CCVG, Inc. ("CCVG").
Effective December 31, 2010, CCVG completed an Agreement and Plan of Merger and
Reorganization (the "Reorganization") which provided for the merger of two of
our wholly owned subsidiaries. As a result of this reorganization our name was
changes to "Golden Dragon Inc.", which became the surviving publicly quoted
parent holding company.
On May 9, 2014, we entered into a Share Purchase Agreement (the "Share Purchase
Agreement") with CannaPharmaRX, Inc., a Colorado corporation ("Canna Colorado"),
and David Cutler, a former President, Chief Executive Officer, Chief Financial
Officer and director of our Company. Under the Share Purchase Agreement, Canna
Colorado purchased 1,421,120 shares of our common stock from Mr. Cutler and an
additional 9,000,000 restricted common shares directly from us.
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On May 15, 2014, as amended and effective January 29, 2015, we entered into an
Agreement and Plan of Merger (the "Merger") pursuant to which Canna Colorado
became a subsidiary of our Company. In October 2014, we changed our legal name
to "CannaPharmaRx, Inc."
Pursuant to the Merger, all of the shares of our common stock previously owned
by Canna Colorado were cancelled. As a result of the aforesaid transactions we
became an early-stage pharmaceutical company whose purpose was to advance
cannabinoid research and discovery using proprietary formulation and drug
delivery technology then under development.
Our executive offices are located at Suite 3600, 888 3rd Street SW, Calgary,
Alberta Canada, T2P 5C5 phone (949) 652-6838. Our website address is
www.cannapharmarx.com.
We have not generated any revenues during the past five years. Following is our
current Plan of Operation.
PLAN OF OPERATION
We are involved in the cannabis industry in Canada and are reviewing
opportunities in other jurisdictions where cannabis has been legalized,
including the US. Our principal business activities to date have been to
negotiate, acquire and develop various cannabis cultivation projects throughout
Canada. As of the date of this Report we do not own or operate any businesses in
the US.
Our activities to date have centered around three projects, including (i) the
Hanover Project; (ii) the Great Northern Project; (iii) and (iii) the
acquisition of Ramon Road Production Campus LLC
Following is a description of the projects we are pursuing as of the date of
this Report:
Hanover
Effective November 19, 2018, we entered into a Securities Purchase Agreement
with Alternative Medical Solutions, Inc., an Ontario, Canada corporation
("AMS"), its shareholders and Hanover CPMD Acquisition Corp., wherein we
acquired all of the issued and outstanding securities of AMS. As part of the
material terms of this transaction, we also agreed to acquire all of the
outstanding shareholder loans held by the principal shareholder of AMS. The
purchase price was CAD$12,700,000, of which CAD$1,012,982 was paid at closing
and we assumed debt of approximately CAD$650,000. The principal shareholders of
AMS elected to receive 971,765 shares of our Common Stock in lieu of CAD$985,000
in additional cash. We granted the holders of these shares "piggyback"
registration rights but we have not yet filed a registration statement to cause
us to register these shares with the SEC. The balance of approximately
CAD$10,000,000 is to be paid pursuant to the terms of a relevant subordinated
non-interest bearing promissory note, secured only by the shares acquired in AMS
Principal payments under the Promissory Note, are due quarterly and are computed
based upon 50% of AMS' cash flow, defined as EBITDA less all capital
expenditures, taxes incurred, non-recurring items and other non-cash items for
the relevant fiscal quarter, including the servicing of all senior debt payment
obligations of the company. The Promissory Note matures the earlier of two years
from the date AMS receives a license to cultivate or December 31, 2021. As of
the date of this report, we are not producing any cannabis on this property. We
are currently reviewing our proposed activities on this project.
On January 6, 2021, the Company executed an Agreement of Purchase and Sale
through its wholly owned subsidiary, Alternative Medical Solutions Inc. for the
sale of the lands and premises located at Hanover, Ontario, Canada. The price is
$2,000,000 CAD and the closing is expected to occur by the end of the second
quarter ending on June 30, 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 will be retired with the
proceeds from the sale. Should the transaction not close, the Company will
re-evaluate the potential to develop the property as originally planned in light
of current market conditions in the industry.
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Great Northern
In early 2019, we retained new members of management who are actively engaged in
the Canadian cannabis industry, including former management of GN Ventures, Ltd,
Alberta, Canada, f/k/a Great Northern Cannabis, Ltd. ("GN"). Not coincidentally,
effective February 25, 2019, we acquired 3,712,500 shares and 2,500,000 Warrants
to purchase 2,500,000 shares of Common Stock of GN in exchange for an aggregate
of 7,988,963 shares of our Common Stock, from our current CEO, who is a former
shareholder of GN. We believe this is the initial step in our efforts to acquire
all of the issued and outstanding stock of GN. Based upon various discussions
that have taken place we anticipate making additional purchases of stock from
other shareholders of GN during 2020 but there are no assurances this will
occur.
We cannot state any definitive information concerning Great Northern because it
is a privately held Canadian company who is keeping its business activities
confidential. We expect that we will obtain additional information on the
business activities of GN as we renew discussions to acquire additional
interests and can perform our due diligence.
Based on information currently available in the marketplace we believe that GN
owns a 60,000 square foot cannabis cultivation and grow facility located on 38
acres in Stevensville, Ontario, Canada. GN estimates annual total production
capacity from the Stevensville facility of up to 12,500 kilograms of cannabis.
GN advised that the Stevensville facility is complete, and GN's subsidiary,
9869247 Canada Limited, received a license to cultivate from the Canadian
Ministry of Health on July 5, 2019. As a result, in October 2019 GN commenced
cultivation activities, with the initial harvest in the first quarter of 2020.
Additionally, it is our current understanding that GN intends to increase
cannabis production by building additional cannabis cultivation facilities on
the excess land presently owned adjacent to the existing Stevensville facility,
provided that additional funding can be obtained on commercially reasonable
terms. Neither we nor GN have any firm commitment to provide any of the funds
necessary for expansion as of the date of this report..
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 Acquisition
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 our Offer to Purchase
certain assets and facilities located in Cremona, Alberta, Canada. The purchase
price is $12,550,000 CAD. The Company has paid a $200,000 CAD deposit and
closing is expected on April 29, 2021. The 55,200 square foot facility is
capable of producing 5,200 kilograms of cannabis biomass per year. The facility
previously held Health Canada licenses for cultivation and sales of medical
dried flower, as well as extract and edible sales. After closing of the
transaction, the Company intends to apply for new Health Canada licenses.
Funding for this acquisition is in the due diligence phase.
Results of Operations
The Company does not currently sell or market any products and did not have any
sales in the three months ended March 31, 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 three months ended March 31, 2021 or 2020
and, accordingly, there were no cost of goods sold.
Gross Profit and Gross Margin
For the fiscal years ended March 31, 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.
Overall operating expenses in three months ended March 31 2021 was $721,345
compared to $2,570,009 for the three months ended March 31, 2020, a decrease of
1,848,664. The decrease in the 2021 period is primarily attributable to
acquisition expenses of $1,881,126 in the 2020 with zero acquisition expenses
during the three months ended March 31, 2021.
Other income (expense)
Other income was $1,919,319 for the three months ended March 31, 2021, compared
to other expense of $1,644,809, an improvement of $3,564,128. The increase in
other income is primarily attributable to a reduction in the derivative
liability of $2,630,480 in the 2021 period compared to zero in the prior year,
and a reduction in interest expense in in three months ended March 31, 2021 of
$290,453 compared to the 2020 period due to a reduction in amortization of note
discount.
Net Income (Loss)
As a result of the foregoing, the Company had a net profit of 1,197,974, and a
net loss of $4,214,818, for the periods ended March 31, 2021, and March 31,
2020, respectively.
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LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2021, we had $30,078 in cash as compared to $334,969 at December
31, 2020.
Cash flows from operating activities
The Company used $779,251 in operating activities for the first three months
ended March 31, 2021 as compared to $365,680 during the prior year comparable
quarter. During the first quarter ended March 31, 2021 the Company had net
income of $1,197,974, stock based compensation expense of $96,700, amortization
of debt discount of $287,544, loss on the extinguishment of debt of $282,289,
change in the fair value of derivatives of $2,630,480, an increase to prepaid
assets of $277,582 and an increase to payables and accruals of $243,896. During
the prior year quarter ended March 31, 2020 the Company had a net loss of
$4,214,818, stock based compensation expense of $206,579, amortization of
intangible assets and debt discount of $666,042, change in fair value of
derivatives of $925,484, a decrease to prepaid expenses of $1,839,953 and an
increase to accounts payable and accruals of $210,696.
Cash flows from investing activities
The Company used $45,804 during the first three months ended March 31, 2021 in
investing activities as compared to $1,676 during the three month period ended
March 31, 2020. This included the purchase of office equipment and a further
investment in Klonetics.
Cash flows from financing activities
During the three months ended March 31, 2021, $496,723 was provided from
financing activities, including $292,060 from convertible loans and notes
payable, $244,104 from the sale of Common Stock, offset by $39,441 from the sale
of Preferred Stock. During the prior year quarter the Company received $438,000
from the sale of Preferred Stock, offset by $95,000 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 April 14, 2021, the Company issued $53,500 in new convertible debentures to a
secured investor, bearing interest at 10%, for net proceeds of $50,000, maturing
April 14, 2022. This debenture is convertible into common shares at any time
after 180 days at 61% of market price during the previous 20 day trading period.
This debenture is elibible for repayment between 0 - 180 days between 115% and
135%. In the event of default interest increases to 22%.
On April 22, 2021, the Company issued $45,500 in new convertible debentures to a
secured investor, bearing interest at 5%, for net proceeds of $40,000. This
debenture matures April 22, 2022. This debenture is convertible into common
shares at any time at 39% discount to the lowest trading price in the prior 20
days. Repayment authorized between 0 - 180 days between 110% and 135%. In
addition, 25,000 commitment shares are to be granted.
On May 6, 2021, the Company issued 400,000 Common Shares to an accredited
investor at $0.15 per share for gross proceeds of $60,000, less fees of $13,040,
for net proceeds of $46,960. The Company filed an S-1which was declared
effective.
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 three-month period ended March 31, 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. The following represents a summary of our critical
accounting policies, defined as those policies that we believe are the most
important to the portrayal of our financial condition and results of operations
and that require management's most difficult, subjective or complex judgments,
often as a result of the need to make estimates about the effects of matters
that are inherently uncertain.
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