Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes a number of forward-looking
statements that reflect management's current views with respect to future events
and financial performance. Forward-looking statements are projections in respect
of future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "may," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential" or "continue" or the negative of these terms or other comparable
terminology. These statements include statements regarding the intent, belief or
current expectations of us and members of our management team, as well as the
assumptions on which such statements are based. Prospective investors are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve risk and uncertainties, and that actual results may
differ materially from those contemplated by such forward-looking statements.
These statements are only predictions and involve known and unknown risks,
uncertainties and other factors, including the risks set forth in the section
entitled "Risk Factors" in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2021 as filed with the U.S. Securities and Exchange
Commission (the "SEC") on April 14, 2021 any of which may cause our company's or
our industry's actual results, levels of activity, performance or achievements
to be materially different from any future results, levels of activity,
performance or achievements expressed or implied in our forward-looking
statements. These risks and factors include, by way of example and without
limitation:
· our ability to successfully commercialize our products and services on a
large enough scale to generate profitable operations;
· our ability to maintain and develop relationships with customers and suppliers;
· our ability to successfully integrate acquired businesses or new brands;
· the impact of competitive products and pricing;
· supply constraints or difficulties;
· the retention and availability of key personnel;
· general economic and business conditions;
· substantial doubt about our ability to continue as a going concern;
· our need to raise additional funds in the future;
· our ability to successfully recruit and retain qualified personnel in order
to continue our operations;
· our ability to successfully implement our business plan;
· our ability to successfully acquire, develop or commercialize new products
and equipment;
· intellectual-property claims brought by third parties; and
· the impact of any industry regulation.
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Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, or performance. Except as required by applicable law, including the
securities laws of the United States, we do not intend to update any of the
forward-looking statements to conform these statements to actual results.
Readers are urged to carefully review and consider the various disclosures made
by us in this report and in our other reports filed with the SEC. We undertake
no obligation to update or revise forward-looking statements to reflect changed
assumptions, the occurrence of unanticipated events or changes in the future
operating results over time except as required by law. We believe that our
assumptions are based upon reasonable data derived from and known about our
business and operations. No assurances are made that actual results of
operations or the results of our future activities will not differ materially
from our assumptions.
As used in this Quarterly Report on Form 10-Q and unless otherwise indicated,
the terms "CannaPharmaRx," "Company," "we," "us," and "our" refer to
CannaPharmaRx, Inc. and our wholly-owned subsidiaries. Unless otherwise
specified, all dollar amounts are expressed in United States dollars.
The following discussion should be read in conjunction with our financial
statements and notes thereto included herein. In connection with, and because we
desire to take advantage of, the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, we caution readers regarding certain
forward-looking statements in the following discussion and elsewhere in this
report and in any other statement made by, or on our behalf, whether or not in
future filings with the Securities and Exchange Commission. Forward looking
statements are statements not based on historical information and which relate
to future operations, strategies, financial results or other developments.
Forward looking statements are necessarily based upon estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond our control and many
of which, with respect to future business decisions, are subject to change.
These uncertainties and contingencies can affect actual results and could cause
actual results to differ materially from those expressed in any forward-looking
statements made by, or on our behalf. We disclaim any obligation to update
forward looking statements.
Overview and History
The Company was originally incorporated in the State of Colorado in August 1998
under the name "Network Acquisitions, Inc." The Company changed our name to
Cavion Technologies, Inc. in February 1999 and subsequently to Concord Ventures,
Inc. in October 2006.
On December 21, 2000, the Company filed for protection under Chapter 11 of the
United States Bankruptcy Code. In connection with the filing, on February 16,
2001, the Company sold our entire business, and all of our assets, for the
benefit of our creditors. After the sale, the Company still had liabilities of
$8.4 million and were subsequently dismissed by the Court from the Chapter 11
reorganization, effective March 13, 2001, at which time the last of the
Company's remaining directors resigned. On March 13, 2001, the Company had no
business or other source of income, no assets, no employees or directors,
outstanding liabilities of approximately $8.4 million and had terminated their
duty to file reports under securities law. In February 2008, the Company was
re-listed on the OTC Bulletin Board.
In April 2010, the Company re-domiciled in Delaware under the name CCVG, Inc.
("CCVG"). Effective December 31, 2010, CCVG completed an Agreement and Plan of
Merger and Reorganization (the "Reorganization") which provided for the merger
of two of their wholly-owned subsidiaries. As a result of this reorganization,
the Company's name was changed to "Golden Dragon Inc.", which became the
surviving publicly quoted parent holding company.
On May 9, 2014, the Company entered into a Share Purchase Agreement (the "Share
Purchase Agreement") with CannaPharmaRx, Inc., a Colorado corporation ("Canna
Colorado"), and David Cutler, a former President, Chief Executive Officer, Chief
Financial Officer and director of the Company. Under the Share Purchase
Agreement, Canna Colorado purchased 1,421,120 shares of our common stock from
Mr. Cutler and an additional 9,000,000 restricted common shares directly from
the Company.
On May 15, 2014, as amended and effective January 29, 2015, the Company entered
into an Agreement and Plan of Merger (the "Merger") pursuant to which Canna
Colorado became a subsidiary of our Company.
In October 2014, the Company changed their legal name to "CannaPharmaRx, Inc."
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Pursuant to the Merger all of the shares of the Company's common stock
previously owned by Canna Colorado were canceled. As a result of the aforesaid
transactions, the Company became an early-stage pharmaceutical company whose
purpose was to advance cannabinoid research and discovery using proprietary
formulation and drug delivery technology then under development.
In April 2016, we ceased operations. The Company's then management resigned
their respective positions with our Company with the exception of Mr. Gary
Herick, who remained one of the Company's officers and directors until April 23,
2019.
Effective December 31, 2018, the Company and Hanover CPMD Acquisition Corp.
("CPMD Hanover") a newly formed, wholly-owned subsidiary, entered into a
Securities Purchase Agreement with Alternative Medical Solutions, Inc., an
Ontario, Canada corporation ("AMS"), its shareholders, wherein the Company
acquired all of the issued and outstanding securities of AMS. AMS is a
corporation organized under the laws of the Province of Ontario, Canada.
As a result of the completion of the acquisition of AMS on December 31, 2019,
the Company no longer fit the definition of a "shell company," as defined in
Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act. It filed the
required disclosure on Form 8-K/A with the SEC on February 14, 2019, advising
that it was no longer a shell company pursuant to the aforesaid Rule.
On January 6, 2021, the Company executed an Agreement of Purchase and Sale
through its wholly-owned subsidiary, Alternative Medical Solutions Inc for the
sale of the lands and premises located at Hanover, Ontario, Canada. The price
was $2,000,000 CAD. As a result, and in anticipation of the closing, the Company
recorded an impairment of goodwill and fixed assets relating to the property of
$7,962,694 at December 31, 2020. This property was security for a $1,000,000 US
Note with Koze Investments LLC by way of a first ranking charge. This
transaction closed on July 9, 2021 and the note was repaid in full as principal
of $1,000,000 plus accrued interest of $124,735 and penalties of $475,265. The
note was discharged accordingly.
Effective February 25, 2019, the Company acquired 3,936,500 shares and 2,500,000
Warrants to purchase 2,500,000 shares of Common Stock of GN Ventures, Ltd,
Alberta, Canada, f/k/a Great Northern Cannabis, Ltd. ("GN"), in exchange for an
aggregate of 7,988,963 shares of its Common Stock, from a former shareholder of
GN who is now the Company's President and CEO. While no assurances can be
provided, the Company believes this is the initial step in its efforts to
acquire all or a significant portion of the issued and outstanding stock of GN.
In May 2020, the Company exchanged 5,507,400 of its shares for 3,671,597 shares
of GN.
GN owns a 60,000 square foot cannabis cultivation and grow facility located on
38 acres in Stevensville, Ontario, Canada. Because the Company is a minority
shareholder of GN and GN is a privately held company, the Company cannot confirm
that the information it currently has on GN's operations is complete or fully
reliable. GN estimates annual total production capacity from the Stevensville
facility of up to 5,000 kilograms of cannabis. GN believes the Stevensville
facility to be complete, and GN's subsidiary, 9869247 Canada Limited, received a
license to cultivate from the Canadian Ministry of Health on July 5, 2019. As a
result, in October 2019, GN commenced cultivation activities and began
generating revenues during the first calendar quarter of 2020.
On January 1, 2022, the Company entered into a 20 year finance lease with
Formosa Mountain Ltd., for a cannabis production facility in Cremona, Alberta,
Canada. The facility is a 55,000 square foot, 6,000 kg per year plant, built in
2015. The licensing process is currently underway, and production and sales are
anticipated in Q4, 2022.
COVID-19
On March 11, 2020, the World Health Organization ("WHO") declared the Covid-19
outbreak to be a global pandemic. In addition to the devastating effects on
human life, the pandemic is having a negative ripple effect on the global
economy, leading to disruptions and volatility in the global financial markets.
Most U.S. states and many countries have issued policies intended to stop or
slow the further spread of the disease.
The global pandemic related to an outbreak of the novel coronavirus disease
("COVID-19") has cast uncertainty on each of these assumptions. There can be no
assurance that they continue to be valid. The situation is dynamic and the
ultimate duration and magnitude of the impact of COVID-19 on the economy and the
financial effect on our business remain unknown at this time. These impacts
could include, amongst others, an impact on our ability to obtain debt or equity
financing, impairment of investments, net realizable value of inventory,
impairments in the value of our long-lived assets, or potential future decreases
in revenue or profitability of our ongoing operations.
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Wholly-Owned Subsidiaries
Our wholly-owned subsidiaries are:
CannaPharmaRx Canada Corp. (Alberta). CannaPharmaRx Canada Corp. is a wholly
owned subsidiary of the Company. This subsidiary's sole purpose and business is
to hold the shares of Alternative Medical Solutions Inc. (Ontario).
Alternative Medical Solutions Inc. (Ontario). Alternative Medical Solutions Inc.
(Ontario) is a wholly owned subsidiary of the CannaPharmaRx Canada Corp.
2323414 Alberta Ltd is a wholly owned subsidiary of CannaPharmaRx Inc. This
subsidiary's role is the business and operations of our Cremona, Alberta,
Canada, production facility, currently being readied for operations anticipated
in Q4 of 2022.
Our executive offices are located at Suite 3600, 888 3rd Street SW, Calgary,
Alberta Canada, T2P 5C5 phone (949) 652-6838. Our website address is
www.cannapharmarx.com.
We have not generated any revenues during the past five years. Following is our
current Plan of Operation.
PLAN OF OPERATION
We are involved in the cannabis industry in Canada and are reviewing
opportunities in other jurisdictions where cannabis has been legalized,
including the US. Our principal business activities to date have been to
negotiate, acquire and develop various cannabis cultivation projects throughout
Canada. As of the date of this Report we do not own or operate any businesses in
the US.
Following is a description of the projects we are pursuing as of the date of
this Report:
Cremona
On January 1, 2022, the Company entered into a 20 year finance lease with
Formosa Mountain Ltd for a cannabis production facility in Cremona, Alberta,
Canada. The facility is a 55,000 square foot, 6,000 Kg per year plant, built in
2015 as a state of the art facility. Retooling of the facility is currently
underway, as is the licensing process. Production and sales are anticipated in
Q4 of 2022.
Results of Operations
The Company does not currently sell or market any products and did not have any
sales in the three or nine months ended September 30, 2022 or 2021. The Company
will commence actively marketing products after the products have been cleared
or approved by Health Canada, but there can be no assurance, however, that we
will be successful in obtaining Health Canada clearance or approval for our
products.
Costs of Goods Sold
The Company did not have sales for the three or nine months ended September 30,
2022 or 2021 and, accordingly, there were no cost of goods sold.
Gross Profit and Gross Margin
For the three and nine month periods ended September 30, 2022 and 2021, the
Company had no gross profit or gross margin.
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Operating Expenses
Our operating expenses consist primarily of general and administrative expenses,
which include salaries, stock-based compensation expense and legal and
professional fees associated with the costs for services or employees in
finance, accounting, sales, administrative activities and the formation and
compliance of a public company.
Overall operating expenses in three months ended September 30, 2022 was $588,475
compared to $771,203 for the three months ended September 30, 2021, a decrease
of $182,728. The decrease in the 2022 period is primarily attributable
acquisition expenses of $209,500 in the 2021 period compared to the 2022 period,
significant decreases in professional fees in the 2022, offset by a significant
increase in payroll as ramp up is underway for Cremona.
Overall operating expenses in the nine month period ended September 30, 2022 was
$2,008,173 compared to $2,288,628 in the prior year for a decrease of $280,455.
This decrease is due to a material reduction in general and administrative
expenses, stock based compensation expense, acquisition expenses and
professional fees in the 2022 period, offset by a material increase in payroll
for Cremona and a increase in amortization and depreciation .
Other expense was $724,773 for the three months ended September 30, 2022,
compared to other expense of $258,402, an increase of $466,371. The decrease is
primarily attributable to other income of $622,683 in the 2021 period compared
to zero in the 2022 period, an increase in interest expense in the 2022 period
offset by the change in fair value of the derivative liability.
Other expense for the nine months ended September 30, 2022 was $2,883,386
compared to other income in the comparable prior year period of $791,588. The
increase is other expense is primarily attributable to the change in the
derivative liability due to the change in fair value derivative liability.
Net Income (Loss)
As a result of the foregoing, the Company had a net loss of $1,313,248 for the
three months ended September 30, 2022, and a net loss of $1,029,605 for the
comparable prior year period. Further, the Company had a net loss of $4,891,559
for the nine month period ended September 30, 2022 as compared to a net loss of
$1,497,040 for the comparable prior year period.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2022, we had $7,502 in cash as compared to $27,767 at
December 31, 2021.
Cash flows from operating activities
The Company used $1,023,863 in operating activities for the first nine months
ended September 30, 2022 as compared to $2,087,367 during the prior year
comparable quarter. The decrease in the net cash used in operating losses for
the 2022 period is primarily attributable to change in the fair value of the
derivates offset by higher operating losses and changes in operating assets and
liabilities in 2022.
Cash flows from investing activities
The Company used $106,886 during the first nine months ended September 30, 2022
in investing activities as compared to providing $493,654 during the nine month
period ended September 30, 2021. The decrease in cash flows from investing
activities is attributable to the net impact of the sale of the AMS building in
the 2022 period which generated $539,376.
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Cash flows from financing activities
During the nine months ended September 30, 2022 the Company had net cash
provided from financing activities of $1,309,667 compared to $1,111,709 in the
comparable period in 2021. The increase is primarily attributable to additional
proceeds from convertible loans and proceeds from the sale of common stock.
In general, based on historical losses, the Company will be required to continue
raising operating capital through debt and equity.
Currently, we have no committed source for any funds to allow us to complete any
of our proposed acquisitions or projects. No representation is made that any
funds will be available when needed. In the event funds cannot be raised, if and
when needed, we may not be able to carry out our business plan. Our inability to
obtain funding for our projects will have a negative impact on our anticipated
results of operations.
On April 28, 2022, the Company entered into a $5,000,000 equity line of credit
with Tysadco Partners, LLC, with a two-year term. The Company may draw down
between $50,000 and $1,000,000. Settlement is common shares up to 9.99% after
which preferred shares would be purchased. Purchase price is 75% of the average
of the two lowest daily traded VWAP (volume weighted average price) prices
during the valuation period. To date the Company has raised $500,000 on its line
of credit and expects to continue using this line of credit in the future
although there can be no assurance that it can continue to do so.
In general, based on historical losses, the Company will be required to continue
raising operating capital through debt and equity.
Inflation
Although our operations are influenced by general economic conditions, we do not
believe that inflation had a material effect on our results of operations during
the nine-month period ended September 30, 2022.
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations
are based upon our financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States. The
preparation of these financial statements requires us to make estimates and
judgments that affect the amounts of assets, liabilities, revenues and expenses,
and related disclosure of contingent assets and liabilities. On an on-going
basis, we evaluate our estimates based on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions. The following represents a summary of our critical
accounting policies, defined as those policies that we believe are the most
important to the portrayal of our financial condition and results of operations
and that require management's most difficult, subjective or complex judgments,
often as a result of the need to make estimates about the effects of matters
that are inherently uncertain.
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