The following discussion should be read in conjunction with our audited
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.
17
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.
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.
As a result, until February 2019 we were classified as a "shell" company as
defined by Rule 12b-2 under the Securities Exchange Act of 1934, as amended. In
February 2019 we filed a report on Form 8-K/A advising that we had taken all
steps necessary and disclosed all required information with the SEC so as to
allow us to no longer be considered a "shell" company. Pursuant to SEC rules,
our Common Stock is now eligible for the exemption from registration provided by
Rule 144, effective February 13, 2020.
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.
18
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.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2019, we had $1,547 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 "Part
I, Item 1, Business", above and Note 4 "Investment". 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. This offering closed in January 2019.
19
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 1,550,000 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. If we are successful in
closing the Sunniva acquisitions discussed herein we may elect to complete the
development of this project. While no decision whether to proceed or not has
been made, if we close Sunniva we will either elect to sell this property, or if
it makes economic sense, develop an extraction facility.
In addition, as disclosed above, in June 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.
We had previously reported that we had received a commitment from HB Partners
48, Inc., Toronto, Canada for this financing. However, as a result of several
factors unrelated to our business, including the Coronavirus pandemic, they
elected not to proceed.
We are also working to arrange other construction financing facilities for the
continued development of the properties we intend to acquire from Sunniva, which
facility will be converted to a permanent financing facility upon the completion
of the Sunniva site improvements. However, while we believe we will be able to
obtain such financing, as of the date of this Report we do not have any
agreement to provide this construction financing and there are no assurances
that we will obtain this financing on reasonable terms, or at all. Failure to
obtain this financing will have a negative impact on our ability to implement
our business plan described herein.
20
On July 3, 2019, we entered into a 12% $1,000,000 Loan Agreement with Koze
Investments LLC ("Koze"), payable in full on June 27, 2020. Under the terms of
the 12% Note, Koze took a first security interest against our Hanover, Ontario
cannabis facility in progress and required the us to pay off the existing
mortgage of approximately CAD $650,000. Additionally, we agreed to pay a 3%
origination fee, prepay six months of interest ($60,000) and to issue to Koze
five-year warrants to purchase 1,001,000 shares of our Common Stock at an
exercise price $1.00 per share. After paying the origination fees, the
prepayment and paying off the original mortgage, we used a portion of the
remaining proceeds as payment against the SMI purchase price of CAD $1,000,000.
In May 2019, a director loaned us the principal amount of $75,000. In October
2019, our Chief Executive Officer extended a loan to us in the principal amount
of $250,000. Both of these loans are non-interest bearing and are due upon
demand.
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 8, 2020, we issued two $100,000 Senior OID Convertible Promissory
Notes ("OID Notes) to two accredited investors ("Holders") and received $190,000
in proceeds. Under the provisions of the OID Notes, each Holder was granted the
right are their sole discretion to fund up to another $150,000 each under the
same terms. The maturity date for each additional tranche of this OID Note
funded shall be twelve (12) months from the date of funding.
These Notes were issued with a one-year maturity date, an 8% interest rate. The
OID Notes are convertible into our Common Stock at a price equivalent to; the
lower of $1.25/share at any time after 180 days, or 75% times the lowest closing
price of Common Stock for 20 consecutive trading days prior to conversion. In
the event of a change of control, the conversion price is 75% of the closing
price. We have the right to redeem these Notes at any time prior to maturity at
110% multiplied by the principal plus accrued interest plus outstanding accrued
interest plus default interest if any. These OID Notes which also include
anti-dilution features are senior obligations with priority over future debt,
excluding mortgage debt.
On February 27, 2020, we issued another OID Note for $160,000 to a third
accredited investor under comparable terms and received proceeds of $152,000.
This Note is convertible into shares of our Common Stock at a price equivalent
to; the lower of $1.25/share for the first 180 days from issuance, seventy-five
percent (75%) of the lowest closing price of our Common Stock during the twenty
(20) trading days immediately preceding Conversion Date. At issuance, we
delivered a stock certificate representing half the purchase price in a
restricted form (the "Returnable Shares") in the name of the investor (153,940
shares based on the low closing price of $0.812). The Returnable Shares will
only be returned to our treasury if the Note is prepaid in full within the
initial 180 days after issuance.
On March 31, 2020, we issued an additional OID Note for $78,000 to an accredited
investor under comparable terms stated above and received proceeds of $75,000.
On May 22, 2020, we received a Letter of Interest from InSpire Capital and its
assigns wherein they have agreed to loan us the principal sum of CAD $6.5
million to purchase the Sunniva property. The loan will be for a term of one
year and accrues interest at the rate of 12% per annum, with a requirement that
we make monthly interest payments of CAD $64,000. We are also obligated to pay a
Lender Fee and Brokerage Fee of CAD $455,000 each at closing, along with a
co-broker fee of CAD $260,000 and legal fees. We paid a fee of CAD $30,000 upon
execution. We borrowed CAD $20,000 of this fee from two of our officers on an
interest free basis.
21
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 year ended December 31, 2019.
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.
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CANNAPHARMARX, INC. 
