This Annual Report on Form 10-K contains forward-looking statements that involve
substantial risks and uncertainties. All statements, other than statements of
historical fact, included in this report regarding our strategy, future
operations, future financial position, future revenues, projected costs,
prospects and plans and objectives of management are forward-looking statements.
The words "anticipates," "believes," "estimates," "expects," "intends," "may,"
"plans," "projects," "will," "would" and similar expressions are intended to
identify forward-looking statements, although not all forward-looking statements
contain these identifying words.
We have based these forward-looking statements on our current expectations and
projections about future events. Although we believe that the expectations
underlying our forward-looking statements are reasonable, these expectations may
prove to be incorrect, and all of these statements are subject to risks and
uncertainties. Therefore, you should not place undue reliance on our
forward-looking statements. We have included important risks and uncertainties
in the cautionary statements included in this report, particularly the section
titled "Risk Factors" incorporated by reference herein. We believe these risks
and uncertainties could cause actual results or events to differ materially from
the forward-looking statements that we make. Should one or more of these risks
and uncertainties materialize, or should underlying assumptions, projections or
expectations prove incorrect, actual results, performance or financial condition
may vary materially and adversely from those anticipated, estimated or expected.
Our forward-looking statements do not reflect the potential impact of future
acquisitions, mergers, dispositions, joint ventures or investments that we may
make. We do not assume any obligation to update any of the forward-looking
statements contained herein, whether as a result of new information, future
events or otherwise, except as required by law. In the light of these risks and
uncertainties, the forward-looking events and circumstances discussed in this
report may not occur, and actual results could differ materially from those
anticipated or implied in the 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.
44
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 canceled. 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.
In April 2016, we ceased operations. Our then management resigned their
respective positions with our Company, with the exception of Mr. Gary Herick,
who remained as one of our officers and directors until March 2019.
Effective December 31, 2018, the Company and Hanover CPMD Acquisition Corp.
("CPMD Hanover") a newly formed, wholly-owned subsidiary, entered into a
Securities Purchase Agreement with Alternative Medical Solutions, Inc., an
Ontario, Canada corporation ("AMS"), its shareholders, wherein the Company
acquired all of the issued and outstanding securities of AMS. AMS is a
corporation organized under the laws of the Province of Ontario, Canada. It is a
late-stage marijuana licensed producer applicant in Canada. It is currently in
the Pre-License Inspection and Licensing phase, which is Stage 5 of 6, with a
fully approved license. Upon completion of the final construction of the
facility, Health Canada will inspect the facility and relevant operating
procedures to ensure it meets the standards that have been approved in the
application. There can be no assurances that the Company will receive this
license.
The facility is a 48,750 square foot marijuana grow facility built on a 6.7-acre
parcel of land located in Hanover, Ontario Canada. To date, the exterior
construction of the building has been completed. However, no interior
construction has begun. Upon full completion, the facility will contain up to 20
separate growing rooms which we believe will provide an annual production
capacity of 9,500 kilos of marijuana (20,900 lbs.). Completion of the build-out
of the facility is expected to take an estimated 20 weeks. Together with the
remaining equipment needed to complete the grow the Company estimates that it
will require approximately CAD$20.0 million in additional financing which it may
seek to raise via equity and debt. There can be no assurances that the Company
will successfully raise the financing required to complete the construction of
the facility and begin cultivation.
As a result of the completion of the acquisition of AMS on December 31, 2019,
the Company no longer fits the definition of a "shell company," as defined in
Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act. It filed the
required disclosure on Form 8-K/A with the SEC on February 14, 2019, advising
that it was no longer a shell company pursuant to the aforesaid Rule.
Effective February 25, 2019, the Company acquired 3,936,500 shares and 2,500,000
Warrants to purchase 2,500,000 shares of Common Stock of GN Ventures, Ltd,
Alberta, Canada, f/k/a Great Northern Cannabis, Ltd. ("GN"), in exchange for an
aggregate of 7,988,963 shares of its Common Stock, from a former shareholder of
GN who is now the Company's President and CEO. While no assurances can be
provided, the Company believes this is the initial step in its efforts to
acquire all or a significant portion of the issued and outstanding stock of GN.
In May 2020, the Company exchanged 5,507,400 of its shares for 3,671,597 shares
of GN.
GN owns a 60,000 square foot cannabis cultivation and grow facility located on
38 acres in Stevensville, Ontario, Canada. Because the Company is a minority
shareholder of GN and GN is a privately held company, the Company cannot confirm
that the information it currently has on GN's operations is complete or fully
reliable. GN estimates annual total production capacity from the Stevensville
facility of up to 12,500 kilograms of cannabis. GN believes the Stevensville
facility to be complete, and GN's subsidiary, 9869247 Canada Limited, received a
license to cultivate from the Canadian Ministry of Health on July 5, 2019. As a
result, in October 2019, GN commenced cultivation activities and began
generating revenues during the first calendar quarter of 2020. The Company
expects that it will obtain additional information on the business activities of
GN as it has renewed discussions to acquire additional interests and is
performing its due diligence procedures.
45
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. The accompanying financial statements as of
December 31 , 2020, do not reflect potential recovery amounts related to Sunniva
and other parties, if any.
Our principal place of business is located at 3600 888-3rd Street SW, Calgary,
Alberta, Canada, phone 949-652-6838. Our website address is
www.cannapharmarx.com.
Because we have not generated any revenues during our prior two years, the
following is our Plan of Operation.
PLAN OF OPERATION
See "Part 1, Item 1, Business," above for a detailed discussion of our current
business activities and plan of operation, the contents of which are
incorporated herein as if set forth.
Recent Funding
Between January 8, 2020 and December 30, 2020 the Company issued $1,543,000 new
convertible debentures to accredited investors with 12 month terms to maturity
and interest rates between 8% and 10%. As of December 31, 2020 $174,000 of these
notes have been converted into Common Shares.
On November 30, 2020 the Company entered into an unsecured promissory note with
an accredited investor. This note bears interest at 10% with no fixed maturity
date.
On December 29, 2020 the Company received an additional $20,000 CAD loan from
the Government of Canada under the Canada Emergency Business Account program
(CEBA). This loan, now with a total balance of $60,000 is interest free until
December 31, 2022, at which time the loan converts to a 3 year term loan with an
interest rate of 5%. If the loan is repaid prior to December 31, 2022, 33%, or
$20,000 will be forgiven.
For additional information, see Note 15 Subsequent Events included in Item 8. of
this Form 10-K.
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. The Company did not have any revenues for the years ended
December 31, 2020 and 2019. The Company's operating deficit of $14,486,172 as of
December 31, 2020 indicates 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.
46
Results of Operations
The Company does not currently sell or market any products and did not have any
sales in the fiscal years ended December 31, 2020 or 2019. 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 fiscal years ended December 31, 2020 or
2019 and, accordingly, there were no cost of goods sold.
Gross Profit and Gross Margin
For the fiscal years ended December 31, 2020 and 2019, 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 fiscal 2020 was $14,486,172 compared to fiscal
2019 of $15,977,943, lower by $1,491,771. General and Administrative expenses
are higher by $1,657,188 which included a write up of a promissory note due of
$890,570 and an accounts payable amount of $312,371 which are both currently in
dispute. Acquisition expenses are lower by $4,041,424. Professional fees have
increased by $413,566. The current year includes an impairment of goodwill and
fixed assets of $7,962,694. The prior year includes an investment write-down of
$7,070,841.
Interest expense
Interest expense was $2,293,858 and $4,473,137 for the years ended December 31,
2020 and 2019, respectively. The decrease in interest expense in fiscal 2020
compared to fiscal 2019 was attributable to a decrease in the average
outstanding balance of notes payable and the amortization of debt discounts.
Net Loss
Net loss decreased $560,808, or 2.7%, in fiscal 2020 compared to fiscal 2019,
primarily as a result of the decrease in operating expenses and interest
expense, partially offset by the fair value of derivative liability.
Cash Flows
The following table sets forth the primary sources and uses of cash and cash
equivalents:
Year Ended Year Ended
2020 2019
Net cash used in operating activities $ (563,573 ) $ (3,794,771 )
Net cash provided by Investing activities $ (0 ) $ (46,937 )
Net cash provided by financing activities $ 824,573 $ 3,266,445
47
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2020, we had $334,969 in cash.
In April 2018, we issued 60,000 shares of our Series A Convertible Preferred
Stock at a price of $1.00 per share. Each share of Series A Convertible
Preferred Stock is convertible into 1,250 shares of common stock and vote on an
as-converted basis. The rights and designations of these Preferred Shares
include the following:
· entitles the holder thereof to 1,250 votes on all matters submitted to a
vote of the shareholders;
· The holders of outstanding Series A Convertible Preferred Stock shall only
be entitled to receive dividends upon declaration by the Board of
Directors of a dividend payable on our Common Stock whereupon the holders
of the Series A Convertible Preferred Stock shall receive a dividend on
the number of shares of Common Stock in to which each share of Series A
Convertible Preferred Stock is convertible;
· Each Series A Preferred Share is convertible into 1,250 shares of Common
Stock; and
· not redeemable.
During 2018 we conducted a private offering of 12% Convertible Debentures where
we accepted subscriptions in the aggregate amount of $2,072,000 from 35
accredited investors, as that term is defined in Rule 501 of Regulation D. Each
Convertible Debenture is convertible into shares of our Common Stock at the
lesser of $0.40 or a 50% of the closing market price on the date a business
combination valued at greater than $5,000,000 is completed. We relied upon the
exemption from registration provided by Rule 506 of Regulation D to issue the
Convertible Debentures. We used the proceeds from this offering for the purchase
of AMS, as well as working capital, including costs associated with the
preparation of over three years of reports that had not been filed with the SEC.
During the initial calendar quarter of 2019 we entered into a Qualified
Financing with our minority purchase of GN stock and warrants described in Note
6, "Investment" to our Notes to our Financial Statements include herein. This
offering closed in January 2019. On March 31, 2019, the convertible notes
amounting to $2,072,000 along with $130,212 of accrued interest were converted,
pursuant to the automatic conversion terms included in the Convertible
Debentures, to shares of our Common Stock at a price of $0.40 per share, or a
total of 5,505,530 shares.
In the first quarter of 2019 we commenced a private offering of Units to
accredited investors only at a price of $1.00 per Unit, each Unit consisting of
one share of Series B Convertible Preferred Stock convertible into one share of
our Common Stock and one Common Stock Purchase Warrant exercisable to purchase
one share of our Common Stock at an exercise price of $2.00. In August 2019 we
closed this offering after accepting aggregate subscriptions totaling $475,000.
The Units were offered in reliance upon the exemption from registration provided
by Rule 506 of Regulation D. We use these funds for working capital purposes.
On July 8, 2019, we commenced a private offering of Units at a price of $50,000
per Unit, each Unit consisting of 50,000 shares of our Common Stock and one
$50,000 unsecured Convertible Note (a "Convertible Note"), which mature one year
from the date of issuance and accrue interest at 5% per annum. These Convertible
Notes are convertible into shares of our Common Stock at a conversion price of
$1.00 per share. During the year ended December 31, 2019, we issued 31 Units in
this Offering for net proceeds of $1,550,000 to six accredited investors. Since
our stock price exceeded the conversion feature of the Convertible Notes and was
immediately exercisable, we recorded a beneficial conversion feature ("BCF") and
expense of $1,550,000 which was charged to interest expense with an offset to
paid-in capital.
The 5,505,530 million shares of Common Stock included in the Units were valued
at $5,075,000. The excess above the $1,550,000 face value of the Convertible
Notes, or $3,525,000, was charged to interest expense with an offset to paid-in
capital. The remaining $1,550,000 was recorded as a Note discount of $1,550,000
to be amortized over the three year period from the date of the Note to the
maturity date. We recorded $552,602 in interest expense related to the
amortization of note discount during the year ended December 31, 2019.
We estimate that in order to complete development of the cultivation facilities
we presently own located in Hanover, Ontario, we would require approximately CAD
$20 million However, our ability to arrange such financing has been
significantly impaired by the collapse of the cannabis sector in late 2019 in
addition to the arrival of the COVD19 Pandemic in 2020. While no decision
whether to proceed or not has been made, we will either elect to sell this
property, or if it makes economic sense, develop an extraction facility.
As disclosed above, in June 2019 we executed an SPA with Sunniva in
consideration for the payment of CAD $20 million. In order to fully develop this
property we would need to raise both the purchase price, plus approximately CAD
$225 million to complete the development of this property.
48
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 January 15, 2021 the Company increased its investment in Klonetics Plant
Science, Inc by an additional $50,000 CAD in exchange for 83,333 Class A Common
Shares at $0.60 CAD per share.
On January 28, 2021 the Company issued 360,000 common shares to an accredited
investor at $0.2664 for gross proceeds of $95,904.00 less fees of $24,209.20 for
net proceeds of $71,694.80.
On February 22, 2021 the Company issued 500,000 common shares to an accredited
investor at $0.2964 for gross proceeds of $148,200 less fees of $10,587.00 for
net proceeds of $137,613.00.
On February 24, 2021 an investor converted 200 Preferred A Shares at a 1250
conversion factor into 250,000 Common Shares.
From January 19 to March 24, 2021 the Company issued 1,442,101 Common Shares on
conversion of convertible debentures retiring $272,400.00 of principal
debentures outstanding and $4,324.96 of interest at prices between $0.1434 to
$0.132.
On March 10, 2021 the Company issued $53,500 in new convertible debentures with
an accredited investor bearing interest of 10% per annum for proceeds of
$50,000, 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
eligible for repayment from 0 - 180 days between 115% and 135%.
Effective December 31, 2020 James Samuelson and Matt Nicosia resigned as
directors of CannaPharmaRx, Inc.
On February 17, 2021 the Company entered into a settlement and lockup agreement
with the Herick parties settling an outstanding claim filed by the Company.
On March 10, 2021 the Company repaid a promissory note in favor of James
Samuelson in the amount of $75,000.
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. A
description of the property is detailed in Note 1. of these financial
statements. The purchase price is $2,000,000 CAN and the closing of the
transaction is expected to be on May 28, 2021. As a result, and in anticipation
of the closing, the Company has recorded an impairment of goodwill and fixed
assets relating to the property of $7,962,694 at December 31, 2020. This
property is the 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 for the sale. Should the transaction not close, the Company will
re-evaluate the potential to develop the property as originally planned when it
was acquired in light of current market conditions in the industry.
49
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.
Inflation
Inflation generally will cause suppliers to increase their rates. In connection
with such rate increases, we may or may not be able to increase our pricing to
consumers. Inflation could cause both our investment and cost of goods sold to
increase, thereby lowering our return on investment and depressing our gross
margins. We believe that inflation did not have a material impact on our
business and results of operations during the years being reported on.
Critical Accounting Policies and Estimates
Critical Accounting Estimates
Our financial statements and accompanying notes have been prepared in accordance
with U.S. 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 has reviewed all other recently issued, but not yet effective,
accounting pronouncements and do not believe the future adoption of any such
pronouncements may be expected to cause 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.
50
© Edgar Online, source Glimpses
CANNAPHARMARX, INC. 
