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CANNAPHARMARX, INC.

Date Filed : May 14, 2021

S-11canna_s1.htmFORM S-1

Table of Contents

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM S-1

 

REGISTRATION STATEMENT UNDER THE SECURITIESACT OF 1933

 

CannaPharmaRx, Inc.

 

Delaware   2834   27-4635140
(State of Incorporation)   (PSIC Number)   (IRS EIN)

 

888 – 3rd Street SW

Suite 3600

Calgary, Alberta, CanadaT2P 5C5

949-652-6838

 

Please send copies of all communications to:

 

CannaPharmaRx, Inc.

888 – 3rd Street SW, Suite 3600

Calgary, Alberta, Canada T2P 5C5

Attn: Dominic Colvin
Tel. No. 949-652-6838

 

Approximate date of commencement of proposed sale to thepublic: As soon as practicable after the effective date of this Registration Statement.

 

If any of the securities being registered on thisForm are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.[X]

 

If this Form is filed to register additional securitiesfor an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registrationstatement number of the earlier effective registration statement for the same offering. [  ]

 

If this Form is a post-effective amendment filedpursuant to rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number ofthe earlier effective registration statement for the same offering. [  ]

 

If this Form is a post-effective amendment filedpursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number ofthe earlier effective registration statement for the same offering. [  ]

 

Indicate by check mark whether the registrantis a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.(Check one):

 

Large accelerated filer   Accelerated filer  
Non-accelerated filer   Smaller reporting company X
    Emerging Growth Company X

 

CALCULATION OF REGISTRATION FEE

 

Title of Each

Class of securities to be registered

Number of shares of common stock to be registered (1)

Proposed Maximum

Offering Price Per

Share (2)

Proposed Maximum

Aggregate Offering

Price

Amount of

Registration Fee (3)

Common (1)(4)(5) 125,000,000 Seventeen Cents ($0.17) $21,250,000 $2,318.38

Common

10,000,000 Seventeen Cents ($0.17) $1,700,000 $185.47
Total 135,000,000   $22,950,000 $2,503.85

 

(1) Pursuant to Rule 416 under the Securities Act of 1933, as amended, the shares being registered hereunder include such indeterminate number or similar transactions.
   
(2) The Offering price has been estimated solely for the purpose of calculatingthe registration fee in accordance with Rule 457(c) of the Securities Act and is based upon a Seventeen Cents ($0.17) per share priceon the OTC Market on May 6, 2021, the most recent day that the Registrant’s shares traded on the OTC Markets.

 

(3) The fee is calculated by multiplying the aggregate offering amount by 0.00009100, pursuant to Section 6(b) of the Securities Act of 1933. Calculated pursuant to Rule 457(a) based on an estimate of the proposed maximum aggregate offering price .

 

(4) Pursuant to Rule 416(a) of the Securities Act of 1933, as amended, this Registration Statement also covers any additional shares of common stock which may become issuable to prevent dilution from stock splits, stock dividends and similar events.

 

(5) Represents shares of common stock issuable upon the conversion of Series A Preferred Shares held by the selling securityholders.

 

The registrant hereby amends this registrationstatement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment whichspecifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the SecuritiesAct of 1933 or until the registration statement shall become effective on such date as the Commission acting pursuant to said Section8(a), may determine.

 

 

 

   

 

 

PROSPECTUS

 

CannaPharmaRx, Inc.

 

135,000,000 SHARES OF COMMON STOCK

 

This prospectus relates to the resale of sharesof our Common stock, par value $0.0001 per share (the “Common Stock”), of an aggregate of 135,000,000 Common Stock Sharesas follows: (a) up to 125,000,000 Common Stock Shares to holders of the Series A Preferred Stock shares pursuant to our certificate ofdesignations April 18, 2018; (b) 10,000,000 offered ; and (c) pursuant to Rule 416 under the Securities Act, an indeterminate number ofshares of common stock that are issuable upon stock splits, stock dividends, recapitalizations or other similar transactions affectingthe shares of the selling stockholder.; and (c) pursuant to Rule 416 under the Securities Act, an indeterminate number of shares of commonstock that are issuable upon stock splits, stock dividends, recapitalizations or other similar transactions affecting the shares of theselling stockholder.

 

The amount of shares of Common Stock which maybe converted pursuant to this Prospectus would constitute 238.37% of the Company’s issued and outstanding Common Stock as of May7, 2021, 135,000,000 divided by current outstanding of 55,649,656 plus 135,000,000 for a total of 177,438,895), and assuming that allone hundred thousand (100,000) shares of the Series A Preferred Stock shares are converted into Common Shares.

  

Our Common Stock is subject to quotation the OTC Bulletin Board aswell as the OTC Markets Pink Fully-Reporting Market under the symbol “CPMD”. On May 6, 2021, the last reported sales pricefor our Common Stock was Seventeen Cents ($0.17) per share. We urge prospective purchasers of our Common Stock to obtain current informationabout the market prices of our Common Stock. As a result of our shares being quoted on the OTC Bulletin Board in addition to the OTC MarketsPink Fully-Reporting Market, the common stock may be sold at prevailing market prices or privately negotiated prices or in transactionsthat are not in the public market. While we believe that upon the effective date of this registration statement our common stock willqualify for quotation on the OTCQB and we intend to pursue application for admission to the OTCQB, we cannot assure you that our commonstock will, in fact, be quoted on the OTCQB.

 

We will not receive proceeds from the sale ofshares of our Common Stock in the open market or negotiated prices by the Selling Stockholder. However, we will receive cash proceedsfrom the sale of the 10,000,000 shares pursuant to this prospectus. We will pay for all expenses of this Offering.

 

The prices at which a Selling Stockholder maysell the shares of Common Stock in this Offering will be determined by the prevailing market prices for the shares of Common Stock orin negotiated transactions.

 

Our independent registered public accounting firmhas expressed substantial doubt as to our ability to continue as going concern.

 

An investment in our common stock involves a highdegree of risk. You should purchase our common stock only if you can afford a complete loss of your purchase.

 

We urge you to read carefully the “Risk Factors” section beginning on page 7 where we describe specific risks associated with an investment in these securities before youmake your investment decision.

 

Prior to his Offering, there has been a limitedmarket for our securities. While our common stock is quoted on OTC Markets, there has been negligible trading volume, however, there hasbeen increased volume in August and September. There is no guarantee that an active trading market will develop in our securities.

 

This Offering is highly speculative, and thesesecurities involve a high degree of risk and should be considered only by persons who can afford the loss of their entire investment.Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determinedif this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

The date of this Prospectus is May 7, 2021.

 

 

 

   

 

 

 

Table of Contents

 

The following table of contents has been designedto help you find information contained in this Prospectus. We encourage you to read the entire prospectus.

 

  Page
Prospectus Summary 1
Summary of Financial Information 6
Risk Factors 7
Use of Proceeds 31
Determination of Offering Price 31
Dilution 31
Selling Security Holders 31
The Offering 36
Plan of Distribution 37
Description of Securities to be Registered 39
Market for Registrant’s Common Equity 53
Management’s Discussion and Analysis of Financial Conditions and Results of Operations 56
Shares Eligible for Future Sale 76
Consolidated Financial Statements and Notes F-1
Part II - Information Not Required in the Prospectus II-1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Financial Statements

 

Please read this Prospectus carefully and in itsentirety. This Prospectus contains disclosure regarding our business, our financial condition and results of operations and risk factorsrelated to our business and our Common Stock, among other material disclosure items. We have prepared this Prospectus so that you willhave the information necessary to make an informed investment decision.

 

You should rely only on information containedin this Prospectus. We have not authorized any other person to provide you with different information. This Prospectus is not an offerto sell, nor is it seeking an offer to buy, these securities in any state where the offer or sale is not permitted. The Selling Stockholdermay not sell the securities listed in this Prospectus until the Registration Statement filed with the Securities and Exchange Commissionis effective. The information in this Prospectus is complete and accurate as of the date on the front cover, but the information may havechanged since that date.

 

The Registration Statement containing this Prospectus,including the exhibits to the Registration Statement, provides additional information about us and our Common Stock offered under thisProspectus. The Registration Statement, including the exhibits and the documents incorporated herein by reference, can be read on theSecurities and Exchange Commission website or at the Securities and Exchange Commission offices mentioned under the heading “WhereYou Can Find More Information.”

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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PROSPECTUS SUMMARY

 

You should carefully read all information in theprospectus, including the financial statements and their explanatory notes under the Financial Statements prior to making an investmentdecision.

 

This summary highlights selected informationappearing elsewhere in this prospectus. While this summary highlights what we consider to be important information about us, you shouldcarefully read this entire prospectus before investing in our Common Stock, especially the risks and other information we discuss underthe headings “Risk Factors”, our “Management’s Discussion and Analysis of Financial Condition and Results of Operation”and our consolidated financial statements and related notes beginning on page F-1. Our fiscal year-end is December 31 and our auditedfinancial statements for fiscal years ended December 31, 2020 and 2019 are included by reference in this prospectus. Some of the statementsmade in this prospectus discuss future events and developments, including our future strategy and our ability to generate revenue. Theseforward- looking statements involve risks and uncertainties which could cause actual results to differ materially from those contemplatedin these forward-looking statements. See “Special Note Regarding Forward-Looking Statements” at page 7 of this Prospectus.

 

Except as otherwise required by the context,references in this prospectus to “we,” “our,” “us” refer to CannaPharmaRx, Inc.

 

This summary contains basic information aboutus and the offering. Because it is a summary, it does not contain all the information that you should consider before investing. You shouldread the entire prospectus carefully, including the risk factors and our financial statements and the related notes to those statementsincluded in this prospectus.

 

We have not authorized anyone to provide you withdifferent information and you must not rely on any unauthorized information or representation. We are not making an offer to sell thesesecurities in any jurisdiction where an offer or sale is not permitted. This document may only be used where it is legal to sell thesesecurities. You should assume that the information appearing in this prospectus is accurate only as of the date on the front of this prospectus,regardless of the time of delivery of this prospectus, or any sale of our common stock. Our business, financial condition and resultsof operations may have changed since the date on the front of this prospectus. We urge you to carefully read this prospectus before decidingwhether to invest in any of the common stock being offered.

 

Overview

 

Corporate History

 

The Company was originally incorporated in theState of Colorado in August 1998 under the name “Network Acquisitions, Inc.” It changed its 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 underChapter 11 of the United States Bankruptcy Code. In connection with the filing, on February 16, 2001, the Company sold its entire business,and all of its assets, for the benefit of its creditors. After the sale, the Company still had liabilities of $8.4 million and was subsequentlydismissed by the Court from the Chapter 11 reorganization, effective March 13, 2001, at which time the last of the Company’s thenremaining directors resigned. On March 13, 2001, the Company had no business or source of income, no assets, no employees or directors,outstanding liabilities of approximately $8.4 million, and had terminated its duty to file reports under securities law. In February 2008,after filing a Form 10 registration statement pursuant to the Securities Exchange Act of 1934, as amended, we were re-listed on the OTCBulletin Board.

 

In April 2010, the Company re-domiciled in Delawareunder the name CCVG, Inc. (“CCVG”). Effective December 31, 2010, the Company completed an Agreement and Plan of Merger andReorganization (the “Reorganization”) which provided for the merger of two of the Company’s wholly-owned subsidiaries.As a result of this reorganization, the Company’s name became “Golden Dragon Inc.,” which became the surviving publiclyquoted parent holding company.

 

 

 

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On May 9, 2014, the Company entered into a SharePurchase Agreement (the “Share Purchase Agreement”) with CannapharmaRx, Inc., a Colorado corporation (“CannaColorado”), 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 restricted shares of the Company’s common stock from Mr.Cutler and an additional 9,000,000 common shares directly from the Company.

 

In October 2014, the Company changed its legalname to “CannaPharmaRx, Inc.”

 

In April 2016, the Company ceased operations.As a result, the Company was then considered a “shell” company as defined under the Securities Exchange Act of 1934, as amended,as defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act.

 

Effective December 31, 2018, the Company and HanoverCPMD Acquisition Corp. (“CPMD Hanover”) a newly formed, wholly-owned subsidiary, entered into a Securities Purchase Agreementwith Alternative Medical Solutions, Inc., an Ontario, Canada corporation (“AMS”), its shareholders, wherein the Company acquiredall 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 inspectthe facility and relevant operating procedures to ensure it meets the standards that have been approved in the application. There canbe no assurances that the Company will receive this license.

 

The facility is a 48,750 square-foot marijuanagrow facility built on a 6.7-acre parcel of land located in Hanover, Ontario, Canada. To date, the exterior construction of the buildinghas been completed. However, no interior construction has begun. Upon full completion, the facility will contain up to twenty separategrowing rooms which we believe will provide an annual production capacity of 9,500 kilos of marijuana (20,900 lbs.). Completion of thebuild-out of the facility is expected to take an estimated 20 weeks. Together with the remaining equipment needed to complete the growfacility, the Company estimates that it will require approximately CAD$20.0 million in additional financing which it may seek to raisevia equity and debt. There can be no assurance that the Company will successfully raise the financing required to complete the constructionof the facility and begin cultivation.

 

As a result of the completion of the acquisitionof AMS on December 31, 2019, the Company no longer fits the definition of a “shell company,” as defined in Rule 405 of theSecurities Act and Rule 12b-2 of the Exchange Act. It filed the required disclosure on Form 8-K/A with the Securities and Exchange Commission(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 acquired3,712,500 shares and 2,500,000 Warrants to purchase 2,500,000 shares of Common Stock of GN Ventures, Ltd, Alberta, Canada, f/k/a GreatNorthern Cannabis, Ltd. (“GN”), in exchange for an aggregate of 7,988,963 shares of its Common Stock, from a former shareholderof GN who is now the Company’s President and CEO. In May 2020, the Company exchanged 5,507,400 of its shares for 3,671,597 sharesof GN. We estimate that these shares and warrants represent approximately 14.7% of the fully diluted issued and outstanding stock of GN.There can be no assurances that GN has not issued any Common Stock subsequent to May 2020. If they have issued Common Stock this woulddilute our ownership percentage below 14.7%. The Company believes these recent purchases and exchange of common stock represent the initialstep in its efforts to acquire all or a significant portion of the issued and outstanding stock of GN. However, there can be no assurances.

 

GN owns a 60,000 square-foot cannabis cultivationand grow facility located on 38 acres in Stevensville, Ontario, Canada. Because the Company is a minority shareholder of GN and GN isa privately held company, the Company cannot confirm that the information it currently has on GN’s operations is complete or fullyreliable. GN estimates annual total production capacity from the Stevensville facility of up to 12,500 kilograms of cannabis. GN believesthe Stevensville facility to be complete, and GN’s subsidiary, 9869247 Canada Limited, received a license to cultivate from theCanadian Ministry of Health on July 5, 2019. As a result, in October 2019, GN commenced cultivation activities and began generating revenuesduring the first calendar quarter of 2020. The Company expects that it will obtain additional information on the business activities ofGN as it has renewed discussions to acquire additional interests and is performing its due diligence procedures.

 

 

 

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Effective June 11, 2019, the Company entered intoa Securities Purchase Agreement with Sunniva, Inc, a British Columbia, Canada corporation (“Sunniva”) wherein the Companyagreed 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. Thesecompanies are the current owners of the Sunniva Canada Campus, which includes construction assets for a planned 759,000 square-foot greenhouselocated on an approximately 114-acre property in Okanagan Falls, British Columbia.

 

On June 8, 2020, the Company received a noticeof termination of this Purchase Agreement, as amended, from Sunniva. As a result, for the three-month interim period ended June 30, 2020,the Company incurred a charge of $1,881,126 due to the write-off of its deposit to Sunniva, banking fees and prepaid expenses associatedwith the failed acquisition of Sunniva. The Company is in discussions with Sunniva, as well as an investment banker who received depositsfrom the Company, about recovering all or a portion of its deposits, banking fees, and prepaid expenses. There can be no assurance thatthe Company will be successful in recovering any amounts. See Note 16, Subsequent Events, below. The accompanying financial statementsas of December 31, 2020, do not reflect, potential recovery amounts related to Sunniva and other parties, if any.

 

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, thepandemic 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.

 

Covid-19 and the U.S. response to the pandemicare significantly affecting the economy. There are no comparable events that provide guidance as to the effect the Covid-19 pandemic mayhave, and, as a result, the ultimate effect of the pandemic is highly uncertain and subject to change. We do not yet know the full extentof the effects on the economy, the markets we serve, our business, or our operations.

 

Genetic Sharing Agreement – KloneticsPlant Sciences

 

On August 6, 2020, CannaPharmaRx and Kloneticsentered into a Cooperation Agreement, intended for long-term cooperation to pursue business opportunities concerning the supply of cannabisgenetics, tissues, propagation, plantlet production, ready to flower production, cannabis flower production, flower extraction and cannabisinfused products. This agreement will expire on August 30, 2021, unless extended by mutual agreement of the parties at any time beforethe conclusion of the term.

 

The target markets are limited to Canada and USA, but additional marketscould be pursued upon mutual agreement and amended to the original agreements

 

CannaPharmaRx has subscribed for 83,333 commonshares of Klonetics for CAN$50,000 which represents approximately 30% of the issued and outstanding shares. Post funding and based onthe multiple closings, tranches, pricing and timing the transaction will create the synergies and financial alignment.

 

Upon CannaPharmaRx reaching a minimum of $500,000of the First Closing in the Klonetics Investment, CannaPharmaRx will have the following rights:

 

- right to buy its genetics from Kloneticsupon a sale of Klonetics for the time period specified in any offtake agreements;

 

- preferred pricing of Klonetics productsequal to or better on a per unit basis than any other of the Klonetics customers;

 

- right to purchase from the completeKlonetics genetics catalogue, subject to third party exclusivity, in Canada and USA; and

 

- preferred delivery of product: deliverytimes and availability equal to or better than any of the other Klonetics clients.

 

Upon the completion of the second closing CannaPharmaRxwill have the right to appoint one person to the Klonetics Board of Directors.

 

 

 

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Wholly-Owned Subsidiaries

 

Our wholly-owned subsidiaries are:

 

CannaPharmaRx Canada Corp. (Alberta). CannaPharmaRxCanada Corp. is a wholly owned subsidiary of the Company. This subsidiary’s sole purpose and business is to hold the shares of AlternativeMedical Solutions Inc. (Ontario).

 

Alternative Medical Solutions Inc. (Ontario).Alternative Medical Solutions Inc. (Ontario) is a wholly owned subsidiary of the CannaPharmaRx Canada Corp. This subsidiary’s solepurpose and business is to hold, develop and operate the Hannover Project.

 

Summary of Risk Factors

 

Our abilityto execute our business strategy is also subject to certain risks. The risks described under the heading “Risk Factors” includedelsewhere in this Prospectus may cause us not to realize the full benefits of our business plan and strategy or may cause us to be unableto successfully execute all or part of our strategy. Some of the most significant challenges and risks are:

 

  · Our operations and financial performance could be negatively impacted if the markets for our products do not develop and expand as we anticipate;

 

  · We will need substantial additional funding to continue our operations, which could result in dilution to our stockholders;

 

  · We may be unable to raise capital when needed, if at all, which could cause us to have insufficient funds to pursue our operations, or to delay, reduce or eliminate our development of new programs or commercialization efforts;

 

  · An investment in our shares is highly speculative;

 

  · We may not have access to the full amount in the Common Stock Purchase Agreement.

 

Before you invest in our Common Stock, you shouldcarefully consider all the information in this Prospectus, including matters set forth under the heading “Risk Factors.”

 

Where You Can Find Us

 

Our principal executive office and mailing addressis 888 – 3rd Street SW, Suite 3600, Calgary, Alberta, Canada T2P 5C5. Our principal executive office phone number is 949-652-6838.

 

 

 

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Our Filing Status as a “Smaller ReportingCompany”

 

We are a “smaller reporting company,”meaning that we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is nota smaller reporting company and have a public float of less than $75 million and annual revenues of less than $50 million during the mostrecently completed fiscal year. As a “smaller reporting company,” the disclosure we will be required to provide in our Securitiesand Exchange Commission (SEC) filings are less than it would be if we were not considered a “smaller reporting company.” Specifically,“smaller reporting companies” are able to provide simplified executive compensation disclosures in their filings; are exemptfrom the provisions of Section 404(b) of the Sarbanes-Oxley Act of 2002 requiring that independent registered public accounting firmsprovide an attestation report on the effectiveness of internal control over financial reporting; are not required to conduct say-on-payand frequency votes until annual meetings occurring on or after January 21, 2013; and have certain other decreased disclosure obligationsin their SEC filings, including, among other things, being permitted to provide two years of audited financial statements in annual reportsrather than three years. Decreased disclosures in our SEC filings due to our status as a “smaller reporting company” may makeit harder for investors to analyze our results of operations and financial prospects.

 

Our Filing Status as an “Emerging GrowthCompany”

 

Our company qualifies as an “emerging growthcompany,” as defined in Section 2(a)(19) of the Securities Act, it may choose to follow disclosure requirements that are scaledfor newly public companies.

 

A company qualifies as an emerging growth companyif it has total annual gross revenues of less than $1.07 billion during its most recently completed fiscal year and, as of December 8,2011, had not sold common equity securities under a registration statement. A company continues to be an emerging growth company for thefirst five fiscal years after it completes an IPO, unless one of the following occurs:

 

  · its total annual gross revenues are $1.07 billion or more;

 

  · it has issued more than $1 billion in non-convertible debt in the past three years or

 

  · it becomes a “large, accelerated filer,” as defined in Exchange Act Rule 12b-2

 

Emerging growth companies are permitted:

 

  · to include less extensive narrative disclosure than required of other reporting companies, particularly in the description of executive compensation;

 

  · to provide audited financial statements for two fiscal years, in contrast to other reporting companies, which must provide audited financial statements for three fiscal years;

 

  · not to provide an auditor attestation of internal control over financial reporting under Sarbanes-Oxley Act Section 404(b);

 

  · to defer complying with certain changes in accounting standards and

 

  · to use test-the-waters communications with qualified institutional buyers and institutional accredited investors

 

 

 

 

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SUMMARY OF FINANCIAL INFORMATION

 

The following summary financial data should beread in conjunction with “Management’s Discussion and Analysis,” and the Financial Statements and Notes thereto, includedelsewhere in this Prospectus. The Statement of Operations data is derived from our condensed financial statements for the periods endedDecember 31, 2020 and December 31, 2019.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Special Note Regarding Forward-Looking Statements

 

The information contained in this Prospectus,including in the documents incorporated by reference into this Prospectus, includes some statements that are not purely historical andthat are “forward-looking statements.” Such forward-looking statements include, but are not limited to, statements regardingour management’s expectations, hopes, beliefs, intentions and/or strategies regarding the future, including our financial conditionand results of operations. In addition, any statements that refer to projections, forecasts or other characterizations of future eventsor circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipates,” “believes,”“continue,” “could,” “estimates,” “expects,” “intends,” “may,”“might,” “plans,” “possible,” “potential,” “predicts,” “projects,”“seeks,” “should,” “would” and similar expressions, or the negatives of such terms, may identify forward-lookingstatements, but the absence of these words does not mean that a statement is not forward-looking.

 

The forward-looking statements contained in thisProspectus are based on current expectations and beliefs concerning future developments and the potential effects on the parties and thetransaction. There can be no assurance that future developments actually affecting us will be those anticipated. These that may causeactual results or performance to be materially different from those expressed or implied by these forward-looking statements, includingthe following forward-looking statements involve a number of risks, uncertainties (some of which are beyond the parties’ control)or other assumptions.

 

RISK FACTORS

 

As a smallerreporting company, we are not required to provide the information required by this Item. We note, however, that an investment in our commonstock involves a number of very significant risks. Investors should carefully consider the risk factors included in the “Risk Factors”section of our Annual Report on Form 10-K for our fiscal year ended December 31, 2020 filed with the SEC on April 14, 2021 and December31, 2019, as filed with SEC on May 27, 2020, as amended with SEC on June 22, 2020, in addition to other information contained in suchAnnual Report and in the subsequent Quarterly Reports for March 31, 2020, June 30, 2020 and September 30, 2020 reported on Form 10-Q filedon June 29, 2020, August 19, 2020, and November 12, 2020 respectively, in evaluating the Company and our business before purchasing sharesof our common stock. The Company’s business, operating results and financial condition could be adversely affected due to any ofthose risks.

 

You should carefully consider the risks describedbelow together with all of the other information included in our public filings before making an investment decision with regard to oursecurities. The statements contained in or incorporated into this document that are not historic facts are forward-looking statementsthat are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied byforward-looking statements.  If any of the following events described in these risk factors actually occurs, our business, financialcondition or results of operations could be harmed. In that case, the trading price of our common stock could decline, andyou may lose all or part of your investment. Moreover, additional risks not presently known to us or that we currently deemless significant also may impact our business, financial condition or results of operations, perhaps materially. For additionalinformation regarding risk factors, see Item 1 – “Forward-Looking Statements.”

 

Risks Related to Our Company

 

The Corporation is a Development Stage Companywith Little Operating History, a History of Losses and the Corporation Cannot Assure Profitability.

 

The Corporation’s business is comprisedof a recently-acquired subsidiary. The Corporation has been incurring operating losses and cash flow deficits since the inception of suchoperations, as it attempts to create an infrastructure to capitalize on the opportunity for value creation that is emerging from the relaxingof prohibitions on the cannabis industry nationwide in Canada. The Corporation’s lack of operating history, and the lack of historicalpro forma combined financial information for the Corporation and its acquired subsidiary, makes it difficult for investors to evaluatethe Corporation’s prospects for success. Prospective investors should consider the risks and difficulties the Corporation mightencounter, especially given the Corporation’s lack of an operating history or historical pro forma combined financial information,there is no assurance that the Corporation will be successful, and the likelihood of success must be considered in light of its relativelyearly stage of operations. As the Corporation has not begun to generate revenue, it is extremely difficult to make accurate predictionsand forecasts of its finances. This is compounded by the fact the Corporation intends to operate in the cannabis industry, which is rapidlytransforming. There is no guarantee that the Corporation’s products or services will be attractive to potential consumers.

 

 

 

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Substantial Doubt About the Corporation’sAbility to Continue as a Going Concern.

 

The Corporation is in the development stage andis currently seeking additional capital, mergers, acquisitions, joint ventures, partnerships and other business arrangements to expandits product offerings in the medical cannabis industry and grow its revenue. The Corporation’s ability to continue as a going concernis dependent upon its ability in the future to grow its revenue and achieve profitable operations and, in the meantime, to obtain thenecessary financing to meet its obligations and repay its liabilities when they become due. External financing, predominantly by the issuanceof equity and debt, will be sought to finance the operations of the Corporation; however, there can be no certainty that such funds willbe available at terms acceptable to the Corporation. These conditions indicate the existence of material uncertainties that may cast significantdoubt about the Corporation’s ability to continue as a going concern.

 

We have not generated any revenue or profit fromoperations since our inception. We expect that our operating expenses will increase over the next twelve months to continue our developmentactivities. Based on our average monthly expenses and current burn rate of $75,000 per month, we estimate that our cash on hand will notbe able to support our operations through the balance of this calendar year. This amount could increase if we encounter difficulties thatwe cannot anticipate at this time or if we acquire other businesses. Should this amount not be sufficient to support our continuing operations,we do not expect to be able to raise any additional capital through debt financing from traditional lending sources since we are not currentlygenerating a profit from operations. Therefore, we only expect to raise money through equity financing via the sale of our common stockor equity-linked securities such as convertible debt. We are currently in discussions with a number of institutional investors who couldprovide the capital required for our ongoing operations. If we cannot raise the money that we need in order to continue to operate ourbusiness beyond the period indicated above, we will be forced to delay, scale back or eliminate some or all of our proposed operations.If any of these were to occur, there is a substantial risk that our business would fail. If we are unsuccessful in raising additionalfinancing, we may need to curtail, discontinue, or cease operations.

 

The Corporation had Negative Cash Flow forthe Period Ending December 31, 2020

 

The Corporation had negative operating cash flowfor the year ending December 31, 2020. To the extent that the Corporation has negative operating cash flow in future periods, it may needto allocate a portion of its cash reserves to fund such negative cash flow. The Corporation may also be required to raise additional fundsthrough the issuance of equity or debt securities. There can be no assurance that the Corporation will be able to generate a positivecash flow from its operations, that additional capital or other types of financing will be available when needed or that these financingswill be on terms favorable to the Corporation. The Corporation’s actual financial position and results of operations may differmaterially from the expectations of the Corporation’s management.

 

The Corporation’s Actual FinancialPosition and Results of Operations May Differ Materially from Management’s Expectations.

 

The Corporation has experienced some changes inits operating plans and certain delays in its plans. As a result, the Corporation’s revenue, net income and cash flow may differmaterially from the Corporation’s projected revenue, net income and cash flow. The process for estimating the Corporation’srevenue, net income and cash flow requires the use of in determining the appropriate assumptions and estimates. These estimates and assumptionsmay be revised as additional information becomes available and as additional analyses are performed. In addition, the assumptions usedin planning may not prove to be accurate, and other factors may affect the Corporation’s financial condition or results of operations.

 

The Corporation expects to incur significant ongoingcosts and obligations related to its investment in infrastructure and growth and for regulatory compliance, which could have a materialadverse impact on the Corporation’s results of operations, financial condition and cash flows. In addition, future changes in regulations,more vigorous enforcement thereof or other unanticipated events could require extensive changes to the Corporation’s operations,increased compliance costs or give rise to material liabilities, which could have a material adverse effect on the business, results ofoperations and financial condition of the Corporation. Our efforts to grow our business may be costlier than we expect, and we may notbe able to increase our revenue enough to offset our higher operating expenses. We may incur significant losses in the future for a numberof reasons, including the other risks described in this Prospectus, and unforeseen expenses, difficulties, complications and delays, andother unknown events. If we are unable to achieve and sustain profitability, the market price of our Common Shares may significantly decrease.

 

 

 

 8 

 

 

Hanover Facility

 

Through its acquisition of all the issued andoutstanding shares of AMS, the Corporation has acquired the Hanover Land, and is expecting to complete the build-out of the Hanover Facility.It is intended that the Hanover Facility will allow the Corporation to obtain the Cultivation License and begin its Intended Business.However, no assurance can be given that Health Canada will approve the Hanover Facility and issue the Corporation’s CultivationLicense. If the Corporation is unable to secure the Licenses, the expectations of management with respect to its ability to begin theIntended Business may not be borne out, which would have a material adverse effect on the Corporation’s business, financial conditionand results of operations. Further, construction delays or cost over-runs in respect of the build-out of the Hanover Facility, howsoevercaused, could also have a material adverse effect on the Corporation’s ability to begin its Intended Business, as well as generalbusiness, financial condition and results of operations.

 

The Corporation is reliant on the successful constructionand operation of the Hanover Facility in order to begin its Intended Business. The Hanover Facility, once built-out and operational, willbe integral to the Corporation’s business and adverse changes or developments affecting either the construction or operation ofthe Hanover Facility may impact Corporation’s ability to begin its Intended Business, as well as its general financial conditionand prospects.

 

In the foreseeable future, the Corporation’sactivities and resources will be focused on obtaining the Licenses as well as the build-out of, and start of operations at the HanoverFacility. The Licenses will be specific to the Hanover Facility. Once the construction of the Hanover Facility is complete and the facilitybecomes operational, adverse changes or developments affecting it, including but not limited to a force majeure event or a breach of security,could have a material adverse effect on the Corporation’s business, financial condition and prospects. Any breach of the securitymeasures and other facility requirements, including any failure to comply with recommendations or requirements arising from inspectionsby Health Canada, could also have an impact on the Corporation’s ability to continue operating under the Licenses or the prospectof renewing the Licenses or would result in a revocation of the Licenses.

 

Construction Risk Factors

 

The Corporation’s growth strategy contemplatesbuilding the Hanover Facility. There is a risk that this will not be achieved on time, on budget, or at all, as it can be adversely affectedby a variety of factors, including some that are discussed elsewhere in these “Risk Factors” and the following:

 

  · the availability and performance of engineering and construction contractors, suppliers and consultants;

 

  · delays in obtaining, or conditions imposed by, regulatory approvals in connection with the construction of the Hanover Facility;

 

  · delay in the performance of any one or more of the contractors, suppliers, consultants or other persons on which the Corporation is dependent in connection with its construction activities;

 

  · failure in connection with the completion and successful operation of the operational elements in connection with construction;

 

  · start-up costs and ongoing operating costs being significantly higher than anticipated by the Corporation;

 

  · facility design errors;

 

  · environmental pollution; nonperformance by third party contractors; increases in materials or labor costs; construction performance falling below expected levels of output or efficiency;

 

 

 

 9 

 

 

  · breakdown, aging or failure of equipment or processes;

 

  · contractor or operator errors;

 

  · operational inefficiencies;

 

  · labor disputes, disruptions or declines in productivity; inability to attract sufficient numbers of qualified workers; disruption in the supply of energy and utilities; and

 

  · major incidents and/or catastrophic events such as fires, explosions or storms.

 

Any of the foregoing factors could adversely impactthe operations and financial condition of the Corporation.

 

There are Factors Which May Prevent theCorporation from the Realization of Growth Targets. The Corporation is Currently in the Expansion from Early Development Stage.

 

The Corporation’s growth strategy contemplatesbuilding the Hanover Facility. There is a risk that this will not be achieved on time, on budget, or at all, as it can be adversely affectedby a variety of factors, including some that are discussed elsewhere in these “Risk Factors” and the following:

 

  · delays in obtaining, or conditions imposed by, regulatory approvals;

 

  · facility design errors;

 

  · environmental pollution; nonperformance by third party contractors; increases in materials or labor costs; construction performance falling below expected levels of output or efficiency;

 

  · breakdown, aging or failure of equipment or processes;

 

  · contractor or operator errors;

 

  · operational inefficiencies;

 

  · labor disputes, disruptions or declines in productivity; inability to attract sufficient numbers of qualified workers; disruption in the supply of energy and utilities; and

 

  · major incidents and/or catastrophic events such as fires, explosions or storms.

 

Reliance on a Single Facility

 

As described under “Hanover Facility”,the Corporation is reliant on the successful construction and operation of the Hanover Facility in order to obtain the Cultivation Licenseand begin its Intended Business. For the foreseeable future, and until completion of the construction of the Hanover Facility, the Corporationwill devote significant efforts and resources to this project. Adverse changes or developments affecting the construction of, and startof operations at the Hanover Facility, including any of the risk factors described under “Construction Risk Factors”could have a material and adverse effect on the Corporation’s ability to begin its Intended Business, as well as its general financialcondition and prospects.

 

 

 

 10 

 

 

Probable Lack of Business Diversification.

 

The prospects for the Company’s successwill be dependent upon the future performance and market acceptance of the Hanover Facility. Unlike certain entities that have the resourcesto develop and explore numerous product lines, operating in multiple industries or multiple areas of a single industry, the Corporationdoes not anticipate the ability to immediately diversify or benefit from the possible spreading of risks or offsetting of losses. Again,the prospects for the Corporation’s success may become dependent upon the development or market acceptance of a very limited numberof facilities, products, processes or services.

 

Limited Recourse Against the AMS Shareholdersin AMS Acquisition.

 

Investors in the Corporation will not have a directstatutory right or any other rights against the shareholders of AMS, the vendor of all of the shares of AMS to the Corporation. The soleremedy of the investors against such vendor will be through the Corporation bringing an action for a breach of the representations andwarranties contained in the SPA. While the Corporation is indemnified for breaches of representations and warranties contained in theSPA, recourse for such breaches may be limited due to qualifications related to knowledge of the principal vendors, being Stephen Barber,John Ciotto, Joseph Groleau and Raymond Robertson, of the vendor (the “Principal Vendors”), contractual and time limitson recourse under applicable laws, and the ability of such Principal Vendors to satisfy third-party claims. In particular, most of therepresentations and warranties under the SPA survive for a period of only two years. The inability to recover fully any significant liabilitiesincurred with respect to breaches of representations and warranties under the SPA may have adverse effects on the Corporation’sfinancial position. In addition, the Principal Vendors have not made any representation to the Corporation, and are not making any representationto investors, as to the disclosure in this Prospectus constituting full, true and plain disclosure of all material facts related to theAMS Acquisition, or that this Prospectus does not contain a misrepresentation with respect to such AMS Acquisition. Accordingly, the PrincipalVendors will not have any liability to investors if the disclosure in this Prospectus relating to the AMS Acquisition does not meet suchstandard or contains a misrepresentation.

 

The Corporation is Reliant on the Obtentionof the Licenses to Produce Medical Cannabis Products in Canada.

 

The Corporation’s ability to grow, storeand sell medical marijuana and cannabis oil in Canada is dependent on securing the appropriate licenses with Health Canada. Failure tocomply with the requirements of any license application or failure to obtain the appropriate licenses with Health Canada would have amaterial adverse impact on the future business, financial condition and operating results of the Corporation. There can be no guaranteesthat Health Canada will issue the required Licenses.

 

If and when the Licenses are issued, they willhave to be periodically renewed by Health Canada. Although the Corporation believes it will meet the requirements of the Cannabis Actfor future renewals of the Licenses, there can be no guarantee that Health Canada will renew the Licenses or, if renewed, that they willbe renewed on the same or similar terms or that Health Canada will not revoke the Licenses. Should the Corporation fail to comply withthe requirements of the Licenses or should Health Canada not renew the Licenses when required, or renew the Licenses on different termsor revoke the Licenses, there would be a material adverse effect on the Corporation’s business, financial condition and resultsof operations.

 

Government licenses are currently, and in thefuture may be, required in connection with the Corporation’s operations, in addition to other unknown permits and approvals whichmay be required. To the extent such permits and approvals are required and not obtained, the Corporation may be prevented from operatingand/or expanding its business, which could have a material adverse effect on the Corporation’s business, financial condition andresults of operations.

 

The Corporation is Subject to Changes inCanadian Laws, Regulations and Guidelines Which Could Adversely Affect the Corporation’s Future Business, Financial Condition andResults of Operations.

 

On October 17, 2018, the Canadian federal governmentlegalized the production, distribution and sale of recreational cannabis for adult use under the Cannabis Act (see “Industryand Regulatory Overview”). No legal market previously existed for adult recreational use cannabis in Canada. For this reason,projections for both short and long-term market conditions for the retail of cannabis remain uncertain.

 

 

 

 11 

 

 

The Corporation’s operations will be subjectto various laws, regulations and guidelines relating to the manufacture, management, packaging/labeling, advertising, sale, transportation,storage and disposal of medical and recreational cannabis but also including laws and regulations relating to drugs, controlled substances,health and safety, the conduct of operations and the protection of the environment. Changes to such laws, regulations and guidelines dueto matters beyond the control of the Corporation may cause material adverse effects to the business, financial condition and results ofoperations of the Corporation. The Corporation endeavors to comply with all relevant laws, regulations and guidelines. To the best ofthe Corporation’s knowledge, the Corporation is in compliance or in the process of being assessed for compliance with all such laws,regulations and guidelines as described elsewhere in this Prospectus.

 

To date, only fresh cannabis, dried cannabis andcannabis oil products are permitted. Health Canada has given guidance that other transformed products (primarily edibles and beveragesinfused with cannabis) will be permitted for legal sale one year subsequent to the Cannabis Act coming into effect. However, thereis uncertainty regarding how and when certain regulatory changes will be implemented. Further, the general legislation framework pertainingto the Canadian recreational cannabis market is subject to significant provincial and territorial regulation, which varies across provincesand territories. Unfavorable regulatory changes, delays or both may therefore materially and adversely affect the future business, financialcondition and results of operations of the Corporation.

 

The Corporation May not Be Able to DevelopIts Brands, Products and Services, Which Could Prevent It from Ever Becoming Profitable.

 

If the Corporation cannot successfully develop,manufacture and distribute its products, or if the Corporation experiences difficulties in the development process, such as capacity constraints,quality control problems or other disruptions, the Corporation may not be able to develop market-ready commercial products at acceptablecosts, which would adversely affect the Corporation’s ability to effectively enter the market. A failure by the Corporation to achievea low-cost structure through economies of scale or improvements in cultivation and manufacturing processes would have a material adverseeffect on the Corporation’s commercialization plans and the Corporation’s business, prospects, results of operations and financialcondition.

 

There is No Assurance That the CorporationWill Turn a Profit or Generate Immediate Revenues.

 

There is no assurance as to whether the Corporationwill be profitable, earn revenues, or pay dividends. The Corporation has incurred and anticipates that it will continue to incur substantialexpenses relating to the development and initial operations of its business. The payment and amount of any future dividends will dependupon, among other things, the Corporation’s results of operations, cash flow, financial condition, and operating and capital requirements.

 

There is no assurance that future dividends willbe paid, and, if dividends are paid, there is no assurance with respect to the amount of any such dividends.

 

No Assurance of Sustainable Revenues.

 

There can be no assurance that our subsidiarieswill generate sufficient and sustainable revenues to enable us to operate at profitable levels or to generate positive cash flow. As aresult of our limited operating history and the nature of the markets in which we compete, we may not be able to accurately predict ourrevenues. Any failure by us to accurately make such predictions could have a material adverse effect on our business, results of operations,and financial condition. Further, our current and future expense levels are based largely on our investment plans and estimates of futurerevenues. We expect operating results to fluctuate significantly in the future as a result of a variety of factors, many of which areoutside of our control. Factors that may adversely affect our operating results include, among others, demand for our products and services,the budgeting cycles of potential customers, lack of enforcement of or changes in governmental regulations or laws, the amount and timingof capital expenditures and other costs relating to the expansion of our operations, the introduction of new or enhanced products andservices by us or our competitors, the timing and number of new hires, changes in our pricing policy or those of our competitors, themix of our products, increases in the cost of raw materials, technical difficulties with the products, incurrence of costs relating tofuture acquisitions, general economic conditions, and market acceptance of our products. As a strategic response to changes in the competitiveenvironment, we may, from time to time, make certain decisions regarding pricing, service, marketing or business combinations that couldhave a material adverse effect on our business, results of operations, and financial condition. Any seasonality is likely to cause quarterlyfluctuations in our operating results, and there can be no assurance that such patterns will not have a material adverse effect on ourbusiness, results of operations, and financial condition. We may be unable to adjust spending in a timely manner to compensate for anyunexpected revenue shortfall.

 

 

 

 12 

 

 

Operating results may fluctuate and may fallbelow expectations in any fiscal quarter.

 

Our operating results are difficult to predictand are expected to fluctuate from quarter to quarter due to a variety of factors, many of which are outside of our control. As a result,comparing our operating results on a period-to-period basis may not be meaningful, and investors should not rely on our past results oron predictions prepared by the Company to determine future performance. If our revenue or operating results fall in any period, the valueof our common stock would likely decline.

 

The Corporation May Not Be Able to EffectivelyManage Its Growth and Operations, Which Could Materially and Adversely Affect Its Business.

 

The Corporation has grown by acquisition. If theCorporation implements it business plan as intended, it may in the future experience rapid growth and development in a relatively shortperiod of time. The management of this growth will require, among other things, continued development of the Corporation’s financialand management controls and management information systems, stringent control of costs, the ability to attract and retain qualified managementpersonnel and the training of new personnel. The Corporation intends to utilize outsourced resources, and hire additional personnel, tomanage its expected growth and expansion. Failure to successfully manage its possible growth and development could have a material adverseeffect on the Corporation’s business and the value of the Common Shares.

 

While a major part of our business strategyis to pursue strategic acquisitions, we may not be able to identify businesses for which we can obtain necessary financing to acquireon acceptable terms, face risks due to additional indebtedness, and our acquisition strategy may incur significant costs or expose usto substantial risks inherent in the acquired business’s operations.

 

Our strategy of pursuing strategic acquisitionsmay be negatively impacted by several risks, including the following:

 

  · We may not successfully identify companies that have complementary product lines or technological competencies or that can diversify our revenue or enhance our ability to implement our business strategy;

 

  · We may not successfully acquire companies if we fail to obtain financing, if we fail to negotiate the acquisition on acceptable terms, or for other related reasons.

 

  · We may incur additional expenses due to acquisition due diligence, including legal, accounting, consulting, and other professional fees and disbursements. Such additional expenses may be material, will likely not be reimbursed, and would increase the aggregate cost of any acquisition.

 

  · Any acquired business will expose us to the acquired company’s liabilities and to risks inherent to its industry, and we may not be able to ascertain or assess all of the significant risks.

 

  · We may require additional financing in connection with any future acquisition, and such financing may adversely impact, or be restricted by, our capital structure.

 

  · Achieving the anticipated potential benefits of a strategic acquisition will depend in part on the successful integration of the operations, administrative infrastructures, and personnel of the acquired company or companies in a timely and efficient manner. Some of the challenges involved in such an integration include: (i) demonstrating to the customers of the acquired company that the consolidation will not result in adverse changes in quality, customer service standards, or business focus; (ii) preserving important relationships of the acquired company; (iii) coordinating sales and marketing efforts to effectively communicate the expanded capabilities of the combined company; and (iv) coordinating the supply chains.

 

 

 

 13 

 

 

Any Future Acquisitions Could Disrupt Business.

 

If we are successful in consummating acquisitions,those acquisitions could subject us to a number of risks, including that:

 

  · the purchase price we pay could significantly deplete our cash reserves or result in dilution to our existing stockholders;

 

  · we may find that the acquired company or assets do not improve our customer offerings or market position as planned;

 

  · we may have difficulty integrating the operations and personnel of the acquired company;

 

  · key personnel and customers of the acquired company may terminate their relationships with the acquired company as a result of the acquisition;

 

  · we may experience additional financial and accounting challenges and complexities in areas such as tax planning and financial reporting;

 

  · we may assume or be held liable for risks and liabilities as a result of our acquisitions, some of which we may not discover during our due diligence or adequately adjust for in our acquisition arrangements;

 

  · we may incur one-time write-offs or restructuring charges in connection with the acquisition;

 

  · we may acquire goodwill and other intangible assets that are subject to amortization or impairment tests, which could result in future charges to earnings; and

 

  · we may not be able to realize the cost-savings or other financial benefits we anticipated.

 

These factors could have a material adverse effecton our business, financial condition, and operating results.

 

The Corporation May not Be Able to Identifyand/or Consummate Acquisitions with Strategic Targets.

 

As part of its corporate strategy, the Corporationintends to continue a focus on the acquisition of additional companies operating in jurisdictions where cannabis is legal on a nationalbasis. The Corporation’s focus is initially on Canadian Licensed Producers of marijuana but may extend to other cannabis-relatedproducts. If and when cannabis becomes legal in other foreign jurisdictions the Corporation will research acquisition or development opportunities.The Corporation intends to target opportunities which are revenue generating or will be in the immediate future, low-cost producers andeither profitable or nearing profitability. There can be no guarantee that the Corporation will identify such opportunities, or once identified,consummate such transactions.

 

The Corporation is presently in discussion withother companies operating in the cannabis industry regarding a potential acquisition or other form of partnership. Relevant thereto, theCorporation has signed a non-binding letter of intent to acquire GN, acquired 3,712,500 common shares and 2,500,000 warrants to purchase2,500,000 common shares of GN and entered into the SMI SPA. However, there can be no assurance that the Corporation will be successfulconsummating any additional acquisitions in the future, nor can there be any assurance it will have access available to equity and debtfinancing required to consummate any transaction in the future.

 

 

 

 14 

 

 

The Corporation May Be Unable to AdequatelyProtect Its Proprietary and Intellectual Property Rights.

 

The Company currently has no proprietary or intellectualproperty. The Corporation’s ability to compete may depend on the superiority, uniqueness and value of any intellectual propertyand technology that it may develop in the future. To the extent the Corporation is able to do so, to protect any proprietary rights ofthe Corporation, the Corporation intends to rely on a combination of patent, trademark, copyright and trade secret laws, confidentialityagreements with its employees and third parties, and protective contractual provisions. Despite these efforts, any of the following occurrencesmay reduce the value of any of the Corporation’s intellectual property:

 

  · the market for the Corporation’s products and services may depend to a significant extent upon the goodwill associated with its trademarks and trade names, and its ability to register its intellectual property under U.S. federal and state law is impaired by the illegality of cannabis under U.S. federal law.

 

  · patents in the cannabis industry involve complex legal and scientific questions and patent protection may not be available for some or any products.

 

  · the Corporation’s applications for trademarks and copyrights relating to its business may not be granted and, if granted, may be challenged or invalidated.

 

  · issued patents, trademarks and registered copyrights may not provide the Corporation with competitive advantages.

 

  · the Corporation’s efforts to protect its intellectual property rights may not be effective in preventing misappropriation of any its products or intellectual property.

 

  · the Corporation’s efforts may not prevent the development and design by others of products similar to or competitive with, or superior to those the Corporation develops.

 

  · another party may obtain a blocking patent and the Corporation would need to either obtain a license or design around the patent in order to continue to offer the contested feature or service in its products.

 

  · the expiration of patent or other intellectual property protections for any assets owned by the Corporation could result in significant competition, potentially at any time and without notice, resulting in a significant reduction in sales. The effect of the loss of these protections on the Corporation and its financial results will depend, among other things, upon the nature of the market and the position of the Corporation’s products in the market from time to time, the growth of the market, the complexities and economics of manufacturing a competitive product and regulatory approval requirements but the impact could be material and adverse. The Corporation may be forced to litigate to defend its intellectual property rights, or to defend against claims by third parties against the Corporation relating to intellectual property rights.

 

We may not be able to protect intellectualproperty that we hope to acquire, which could adversely affect our business.

 

The companies that we hope to acquire may relyon patent, trademark, trade secret, and copyright protection to protect their technology. We believe that technological leadership canbe achieved through additional factors such as the technological and creative skills of our personnel, new product developments, frequentproduct enhancements, name recognition, and reliable product maintenance. Nevertheless, our ability to compete effectively depends inpart on our ability to develop and maintain proprietary aspects of our technology, such as patents. We may not secure future patents;and patents that we may secure may become invalid or may not provide meaningful protection for our product innovations. In addition, thelaws of some foreign countries do not protect intellectual property rights to the same extent as the United States. Furthermore, therecan be no assurance that competitors will not independently develop similar products, "reverse engineer" our products, or, ifpatents are issued to us, design around such patents. We also expect to rely upon a combination of copyright, trademark, trade secret,and other intellectual property laws to protect our proprietary rights by entering into confidentiality agreements with our employees,consultants, and vendors, and by controlling access to and distribution of our technology, documentation and other proprietary information.There can be no assurance, however, that the steps to be taken by us will not be challenged, invalidated, or circumvented, or that therights granted thereunder will provide a competitive advantage to us. Any such circumstance could have a material adverse effect on ourbusiness, financial condition and results of operations. While we are not currently engaged in any intellectual property litigation orproceedings, there can be no assurance that we will not become so involved in the future or that our products do not infringe any intellectualproperty or other proprietary right of any third party. Such litigation could result in substantial costs, the diversion of resourcesand personnel, and significant liabilities to third parties, any of which could have a material adverse effect on our business.

 

 

 

 15 

 

 

We may not be able to protect our tradenames and domain names.

 

We may not be able to protect our trade namesand domain names against all infringers, which could decrease the value of our brand name and proprietary rights. We currently hold theInternet domain name CannaPharmaRx.com Domain names generally are regulated by Internet regulatory bodies are subject to change, and insome cases, may be superseded, in some cases by-laws, rules and regulations governing the registration of trade names and trademarks withthe United States Patent and Trademark Office as well as ascertain other common law rights. If the domain registrars are changed, if newones are created, or if we are deemed to be infringing upon another's trade name or trademark, we may be unable to prevent third partiesfrom acquiring or using, as the case may be, our domain name, trade names or trademarks, which could adversely affect our brand name andother proprietary rights.

 

The Corporation May Be Forced to Litigateto Enforce or Defend Its Intellectual Property Rights, to Protect Its Trade Secrets or to Determine the Validity and Scope of Other Parties’Proprietary Rights.

 

Any such litigation could be very costly and coulddistract its management from focusing on operating the Corporation’s business. The existence and/or outcome of any such litigationcould harm the Corporation’s business. Further, because the content of much of the Corporation’s intellectual property concernscannabis and other activities that are not legal in some state jurisdictions or under U.S. federal law, the Corporation may face additionaldifficulties in defending its intellectual property rights. The Corporation may become subject to litigation, including for possible productliability claims, which may have a material adverse effect on the Corporation’s reputation, business, results from operations, andfinancial condition. The Corporation may be named as a defendant in a lawsuit or regulatory action. The Corporation may also incur uninsuredlosses for liabilities which arise in the ordinary course of business, or which are unforeseen, including, but not limited to, employmentliability and business loss claims. Any such losses could have a material adverse effect on the Corporation’s business, resultsof operations, sales, cash flow or financial condition. Further, the administration of medical substances to humans can result in productliability claims by consumers. Product liability claims can be expensive, difficult to defend and may result in large judgments or settlementsagainst the Corporation. The Corporation may not be able to obtain or maintain adequate insurance or other protection against potentialliabilities arising from product sales. Product liability claims could also result in negative perception of the Corporation’s productsor other reputational damage which could have a material adverse effect on the Corporation’s business, results of operations, sales,cash flow or financial condition.

 

The Corporation’s Operations are Subjectto Environmental Regulation in the Various Jurisdictions in Which It Operates.

 

These regulations mandate, among other things,the maintenance of air and water quality standards and land reclamation. They also set forth limitations on the generation, transportation,storage and disposal of solid and hazardous waste. Environmental legislation is evolving in a manner which will require stricter standardsand enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and aheightened degree of responsibility for companies and their officers, directors and employees. There is no assurance that future changesin environmental regulation, if any, will not adversely affect the Corporation’s operations. Government environmental approvalsand permits are currently, and may in the future be required in connection with the Corporation’s operations. To the extent suchapprovals are required and not obtained, the Corporation may be curtailed or prohibited from its proposed business activities or fromproceeding with the development of its operations as currently proposed. Failure to comply with applicable environmental laws, regulationsand permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authoritiescausing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additionalequipment, or remedial actions. The Corporation may be required to compensate those suffering loss or damage due to its operations andmay have civil or criminal fines or penalties imposed for violations of applicable laws or regulations.

 

 

 

 16 

 

 

The Corporation Faces Competition from OtherCompanies Where It Will Conduct Business That May Have Higher Capitalization, More Experienced Management or May Be More Mature as a Business.

 

An increase in the companies competing in thisindustry could limit the ability of the Corporation to expand its operations. Current and new competitors may be better capitalized, alonger operating history, more expertise and able to develop higher quality equipment or products, at the same or a lower cost. The Corporationcannot provide assurances that it will be able to compete successfully against current and future competitors. Competitive pressures facedby the Corporation could have a material adverse effect on its business, operating results and financial condition. In addition, despiteCanadian federal and state-level legalization of marijuana, illicit or “black-market” operations remain abundant and presentsubstantial competition to the Corporation. In particular, illicit operations, despite being largely clandestine, are not required tocomply with the extensive regulations that the Corporation must comply with to conduct business, and accordingly may have significantlylower costs of operation.

 

If the Corporation is Unable to Attractand Retain Key Personnel, It May not Be Able to Compete Effectively in the Cannabis Market.

 

The Corporation’s success has depended andcontinues to depend upon its ability to attract and retain key management, including the Corporation’s President/CEO, technicalexperts and sales personnel. The Corporation will attempt to enhance its management and technical expertise by continuing to recruit qualifiedindividuals who possess desired skills and experience in certain targeted areas. The Corporation’s inability to retain employeesand attract and retain sufficient additional employees or engineering and technical support resources could have a material adverse effecton the Corporation’s business, results of operations, sales, cash flow or financial condition. Shortages in qualified personnelor the loss of key personnel could adversely affect the financial condition of the Corporation, results of operations of the businessand could limit the Corporation’s ability to develop and market its cannabis-related products. The loss of any of the Corporation’ssenior management or key employees could materially adversely affect the Corporation’s ability to execute our business plan andstrategy, and the Corporation may not be able to find adequate replacements on a timely basis, or at all.

 

If we are unable to keep up with technologicaldevelopments, our business could be negatively affected.

 

The markets for our products and services areexpected to be characterized by rapid technological change and be highly competitive with respect to timely innovations. Accordingly,we believe that our ability to succeed in the sale of our products and services will depend significantly upon the technological qualityof our products and services relative to those of our competitors, and upon our ability to continue to develop and introduce new and enhancedproducts and services at competitive prices and in a timely and cost-effective manner. In order to develop such new products and services,we will depend upon close relationships with existing customers and our ability to continue to develop and introduce new and enhancedproducts and services at competitive prices and in a timely and cost-effective manner. There can be no assurance that we will be ableto develop and market our products and services successfully or respond effectively to the technological changes or new product and serviceofferings of our potential competitors. We may not be able to develop the required technologies, products, and services on a cost-effectiveand timely basis, and any inability to do so could have a material adverse effect on our business, financial condition, and results ofoperations.

 

There is No Assurance That the CorporationWill Obtain and Retain the Licenses.

 

The Corporation’s ability to grow, storeand sell cannabis in Canada is dependent on the ability of the Corporation to obtain the licenses to do so from Health Canada. The Corporationdoes not currently hold a License from Health Canada and there can be no assurance that the Corporation will receive such a License ina timely manner, or at all. The Licenses, once issued, are subject to ongoing compliance and reporting requirements. Failure to complywith the requirements would have a material adverse impact on the business, financial condition and operating results of the Corporation.

 

If and when the Licenses are issued, they willhave to be periodically renewed by Health Canada. Although the Corporation believes it will meet the requirements of the Cannabis Actfor future renewals of the Licenses, there can be no guarantee that Health Canada will renew the Licenses or, if renewed, that they willbe renewed on the same or similar terms or that Health Canada will not revoke the Licenses. Should the Corporation fail to comply withthe requirements of the Licenses or should Health Canada not renew the Licenses when required, or renew the Licenses on different termsor revoke the Licenses, there would be a material adverse effect on the Corporation’s business, financial condition and resultsof operations.

 

 

 

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Government licenses are currently, and in thefuture may be, required in connection with the Corporation’s operations, in addition to other unknown permits and approvals whichmay be required. To the extent such permits and approvals are required and not obtained, the Corporation may be prevented from operatingand/or expanding its business, which could have a material adverse effect on the Corporation’s business, financial condition andresults of operations.

 

Failure to Successfully Integrate AcquiredBusinesses, Its Products and Other Assets into the Corporation, or If Integrated, Failure to Further the Corporation’s BusinessStrategy, May Result in the Corporation’s Inability to Realize Any Benefit from Such Acquisition.

 

The Corporation has grown by acquiring AMS. Theconsummation and integration of any acquired business, product or other assets into the Corporation may be complex and time-consumingand, if such businesses and assets are not successfully integrated, the Corporation may not achieve the anticipated benefits, cost-savingsor growth opportunities. Furthermore, these acquisitions and other arrangements, even if successfully integrated, may fail to furtherthe Corporation’s business strategy as anticipated, expose the Corporation to increased competition or other challenges with respectto the Corporation’s products or geographic markets, and expose the Corporation to additional liabilities associated with an acquiredbusiness, technology or other asset or arrangement. When the Corporation acquires cannabis businesses, it may obtain the rights to applicationsfor licenses as well as licenses; however, the procurement of such applications for licenses and licenses generally will be subject togovernmental and regulatory approval. There are no guarantees that the Corporation will successfully consummate such acquisitions, andeven if the Corporation consummates such acquisitions, the procurement of applications for licenses may never result in the grant of alicense by any state or local governmental or regulatory agency and the transfer of any rights to licenses may never be approved by theapplicable state and/or local governmental or regulatory agency.

 

The Size of the Corporation’s TargetMarket is Difficult to Quantify and Investors Will Be Reliant on Their Own Estimates on the Accuracy of Market Data.

 

Because the cannabis industry is in a nascentstage with uncertain boundaries, there is a lack of information about comparable companies available for potential investors to reviewin deciding about whether to invest in the Corporation and, few, if any, established companies whose business model the Corporation canfollow or upon whose success the Corporation can build. Accordingly, investors will have to rely on their own estimates in deciding aboutwhether to invest in the Corporation. There can be no assurance that the Corporation’s estimates are accurate or that the marketsize is sufficiently large for its business to grow as projected, which may negatively impact its financial results.

 

The Corporation’s Industry is ExperiencingRapid Growth and Consolidation That May Cause the Corporation to Lose Key Relationships and Intensify Competition.

 

The cannabis industry is undergoing rapid growthand substantial change, which has resulted in an increase in competitors, consolidation and formation of strategic relationships. Acquisitionsor other consolidating transactions could harm the Corporation in a number of ways, including by losing strategic partners if they areacquired by or enter into relationships with a competitor, losing customers, revenue and market share, or forcing the Corporation to expendgreater resources to meet new or additional competitive threats, all of which could harm the Corporation’s operating results. Ascompetitors enter the market and become increasingly sophisticated, competition in the Corporation’s industry may intensify andplace downward pressure on retail prices for its products and services, which could negatively impact its profitability.

 

The Corporation Will Require AdditionalFinancing and There is No Assurance That Additional Financing Will Be Available When Required.

 

The Corporation will require additional capitalin the future and plans to achieve this additional financing through equity and/ or debt financing. However, there is no assurance thatthis financing will be available when required. Specifically, there is no assurance that the Corporation will be able to raise any additionalequity financing through its shares given the viability of the Hanover facility will not be demonstrated until after construction is complete.In addition, there is no assurance that the Corporation will be able to secure debt financing given its low asset base and its currentlack of revenues.

 

 

 

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Existing Shareholders May Be Diluted tothe Extent That the Company Raises Additional Funds Through Additional Equity Financings.

 

The Corporation continues to sell shares for cashto fund operations, capital expansion, mergers and acquisitions that will dilute the current shareholders. There is no guarantee thatthe Corporation will be able to achieve its business objectives. The continued development of the Corporation will require additionalfinancing. The failure to raise such capital could result in the delay or indefinite postponement of current business objectives or theCorporation going out of business. There can be no assurance that additional capital or other types of financing will be available ifneeded or that, if available, the terms of such financing will be favorable to the Corporation.

 

If additional funds are raised through issuancesof equity or convertible debt securities, existing shareholders could suffer significant dilution, and any new equity securities issuedcould have rights, preferences and privileges superior to those of holders of Common Shares. The Corporation’s articles permit theissuance of 300,000,000 Common Shares, and shareholders will have no preemptive rights in connection with such further issuance. The directorsof the Corporation have discretion to determine the price and the terms of further issuances. In addition, from time-to-time, the Corporationmay enter into transactions to acquire assets or the shares of other companies. These transactions may be financed wholly or partiallywith debt, which may temporarily increase the Corporation’s debt levels above industry standards. Any debt financing secured inthe future could involve restrictive covenants relating to capital raising activities and other financial and operational matters, whichmay make it more difficult for the Corporation to obtain additional capital and to pursue business opportunities, including potentialacquisitions. The Corporation may require additional financing to fund its operations to the point where it is generating positive cashflow. Negative cash flow may restrict the Corporation’s ability to pursue its business objectives.

 

If you purchase shares of our Common Shares inan offering, you will experience substantial and immediate dilution, because the price that you pay will be substantially greater thanthe net tangible book value per share of the Common Shares that you acquire. This dilution is due in large part to the fact that our earlierinvestors will have paid substantially less than a public offering price when they purchased their Common Shares.

 

The Corporation Operates Within the CannabisIndustry, Which Might Result in Additional Difficulties and Complexities Associated with Obtaining Adequate Insurance Coverage.

 

At the date of this Prospectus, the Corporationand its subsidiaries have secured insurance coverage with respect to builder’s risk, general liability and property. The Corporationhas not yet secured insurance coverage with respect to workers’ compensation, directors’ and officers’ insurance, fireand other similar policies customarily obtained for businesses to the extent commercially appropriate; and, because the Corporation isengaged in and operates within the cannabis industry, there might be exclusions and additional difficulties and complexities associatedwith obtaining such insurance coverage that could cause the Corporation to suffer uninsured losses, which could adversely affect the Corporation’sbusiness, results of operations, and profitability. There is no assurance that the Corporation will be able to obtain and utilize suchinsurance coverage, if necessary.

 

The Cultivation of Cannabis Includes RisksInherent in an Agricultural Business Including the Risk of Crop Loss, Sudden Changes in Environmental Conditions, Equipment Failure, ProductRecalls and Others.

 

The Corporation’s future business involvesthe growing of medical marijuana, an agricultural product. Such business will be subject to the risks inherent in the agricultural business,such as insects, plant diseases and similar agricultural risks. Although the Corporation expects that any such growing will be completedindoors under climate controlled conditions, there can be no assurance that natural elements will not have a material adverse effect onany such future production. The Corporation is reliant on a single location. Adverse changes affecting the Hanover Facility, developmentproject could materially affect the Corporation’s plans.

 

The Cultivation of Cannabis Involves a Relianceon Third Party Transportation Which Could Result in Supply Delays, Reliability of Delivery and Other Related Risks.

 

In order for customers of the Corporation to receivetheir product, the Corporation may rely on third party transportation services. This can cause logistical problems with and delays inpatients obtaining their orders and cannot be directly controlled by the Corporation. Any delay by third party transportation servicesmay adversely affect the Corporation’s financial performance.

 

 

 

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Moreover, security of the product during transportationto and from the Corporation’s facilities is critical due to the nature of the product. A breach of security during transport couldhave material adverse effects on the Corporation’s business, financials and prospects. Any such breach could impact the Corporation’sfuture ability to continue operating under its licenses or the prospect of renewing its licenses.

 

The Corporation May Be Subject to ProductRecalls for Product Defects Self-imposed or Imposed by Regulators.

 

Manufacturers and distributors of products aresometimes subject to the recall or return of their products for a variety of reasons, including product defects, such as contamination,unintended harmful side effects or interactions with other substances, packaging safety and inadequate or inaccurate labeling disclosure.If any of the Corporation’s products are recalled due to an alleged product defect or for any other reason, the Corporation couldbe required to incur the unexpected expense of the recall and any legal proceedings that might arise in connection with the recall. TheCorporation may lose a significant amount of sales and may not be able to replace those sales at an acceptable margin or at all. In addition,a product recall may require significant management attention. Although the Corporation has detailed procedures in place for testing itsproducts, there can be no assurance that any quality, potency or contamination problems will be detected in time to avoid unforeseen productrecalls, regulatory action or lawsuits. Additionally, if one of the Corporation’s significant brands were subject to recall, theimage of that brand and the Corporation could be harmed. A recall for any of the foregoing reasons could lead to decreased demand forthe Corporation’s products and could have a material adverse effect on the results of operations and financial condition of theCorporation. Additionally, product recalls may lead to increased scrutiny of the Corporation’s operations by Health Canada or otherregulatory agencies, requiring further management attention and potential legal fees and other expenses.

 

The Corporation is Reliant on Key Inputs,such as Water and Utilities, and Any Interruption of These Services Could Have a Material Adverse Effect on the Corporation’s Financesand Operation Results.

 

The Corporation’s business is dependenton a number of key inputs and their related costs including raw materials and supplies related to its growing operations, as well as electricity,water and other local utilities. Any significant interruption or negative change in the availability or economics of the supply chainfor key inputs could materially impact the business, financial condition and operating results of the Corporation. Any inability to securerequired supplies and services or to do so on appropriate terms could have a materially adverse impact on the business, financial conditionand operating results of the Corporation.

 

The Expansion of the Medical Cannabis IndustryMay Require New Clinical Research into Effective Medical Therapies, When Such Research has Been Restricted in the U.S. and is New to Canada.

 

Research in Canada, the U.S. and internationallyregarding the medical benefits, viability, safety, efficacy, dosing and social acceptance of cannabis or isolated cannabinoids remainsin early stages. There have been relatively few clinical trials on the benefits of cannabis or isolated cannabinoids. Although the Corporationbelieves that the articles, reports and studies support its beliefs regarding the medical benefits, viability, safety, efficacy, dosingand social acceptance of cannabis, future research and clinical trials may prove such statements to be incorrect, or could raise concernsregarding, and perceptions relating to, cannabis. Given these risks, uncertainties and assumptions, investors should not place undue relianceon such articles and reports. Future research studies and clinical trials may draw opposing conclusions to those stated in this Prospectusor reach negative conclusions regarding the medical benefits, viability, safety, efficacy, dosing, social acceptance or other facts andperceptions related to medical cannabis, which could have a material adverse effect on the demand for the Corporation’s productswith the potential to lead to a material adverse effect on the Corporation’s business, financial condition and results of operations.

 

Under Canadian Regulations, a Licensed Producerof Cannabis May Have Restrictions on the Type and Form of Marketing It Can Undertake Which Could Materially Impact Sales Performance.

 

The development of the Corporation’s futurebusiness and operating results may be hindered by applicable restrictions on sales and marketing activities imposed by Health Canada orU.S. regulatory authorities. The regulatory environment in Canada limits the Corporation’s ability to compete for market share ina manner similar to other industries. If the Corporation is unable to effectively market its products and compete for market share, orif the costs of compliance with government legislation and regulation cannot be absorbed through increased selling prices for its products,the Corporation’s sales and operating results could be adversely affected.

 

 

 

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The Corporation Could Be Liable for Fraudulentor Illegal Activity by its Employees, Contractors and Consultants Resulting in Significant Financial Losses to Claims Against the Corporation.

 

The Corporation is exposed to the risk that itsemployees, independent contractors and consultants may engage in fraudulent or other illegal activity. Misconduct by these parties couldinclude intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to the Corporation that violates: (i)government regulations; (ii) manufacturing standards; (iii) federal and provincial healthcare fraud and abuse laws and regulations; or(iv) laws that require the true, complete and accurate reporting of financial information or data. It is not always possible for the Corporationto identify and deter misconduct by its employees and other third parties, and the precautions taken by the Corporation to detect andprevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting the Corporation from governmentalinvestigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actionsare instituted against the Corporation, and it is not successful in defending itself or asserting its rights, those actions could havea significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines,contractual damages, reputational harm, diminished profits and future earnings, and curtailment of the Corporation’s operations,any of which could have a material adverse effect on the Corporation’s business, financial condition and results of operations.

 

The Corporation will be reliant on InformationTechnology Systems and may be Subject to Damaging Cyber-attacks.

 

The Corporation has entered into agreements withthird parties for hardware, software, telecommunications and other information technology (“IT”) services in connectionwith its operations]. The Corporation’s operations depend, in part, on how well it and its suppliers protect networks, equipment,IT systems and software against damage from a number of threats, including, but not limited to, cable cuts, damage to physical plants,natural disasters, intentional damage and destruction, fire, power loss, hacking, computer viruses, vandalism and theft. The Corporation’soperations also depend on the timely maintenance, upgrade and replacement of networks, equipment, IT systems and software, as well aspreemptive expenses to mitigate the risks of failures. Any of these and other events could result in information system failures, delaysand/or increase in capital expenditures. The failure of information systems or a component of information systems could, depending onthe nature of any such failure, adversely impact the Corporation’s reputation and results of operations.

 

The Corporation has not experienced any materiallosses to date relating to cyber-attacks or other information security breaches, but there can be no assurance that the Corporation willnot incur such losses in the future. The Corporation’s risk and exposure to these matters cannot be fully mitigated because of,among other things, the evolving nature of these threats. As a result, cyber security and the continued development and enhancement ofcontrols, processes and practices designed to protect systems, computers, software, data and networks from attack, damage or unauthorizedaccess is a priority. As cyber threats continue to evolve, the Corporation may be required to expend additional resources to continueto modify or enhance protective measures or to investigate and remediate any security vulnerabilities.

 

The Corporation may be Subject to Breachesof Security at its Facilities, or in Respect of Electronic Documents and Data Storage and May Face Risks Related to Breaches of ApplicablePrivacy Laws.

 

Given the nature of the Corporation’s productand its lack of legal availability outside of channels approved by the Government of Canada, as well as the concentration of inventoryin its facilities, despite meeting or exceeding Health Canada’s security requirements, there remains a risk of shrinkage as wellas theft. A security breach at one of the Corporation’s facilities could expose the Corporation to additional liability and to potentiallycostly litigation, increase expenses relating to the resolution and future prevention of these breaches and may deter potential patientsfrom choosing the Corporation’s products.

 

A privacy breach may occur through proceduralor process failure, information technology malfunction, or deliberate unauthorized intrusions. Theft of data for competitive purposes,particularly patient lists and preferences, is an ongoing risk whether perpetrated via employee collusion or negligence or through deliberatecyber-attack. Any such theft or privacy breach would have a material adverse effect on the Corporation’s business, financial conditionand results of operations.

 

 

 

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In addition, there are a number of federal andprovincial laws protecting the confidentiality of certain patient health information, including patient records, and restricting the useand disclosure of that protected information. In particular, the privacy rules under the Personal Information Protection and ElectronicsDocuments Act (Canada) (“PIPEDA”), protect medical records and other personal health information by limiting theiruse and disclosure of health information to the minimum level reasonably necessary to accomplish the intended purpose. If the Corporationwas found to be in violation of the privacy or security rules under PIPEDA or other laws protecting the confidentiality of patient healthinformation, it could be subject to sanctions and civil or criminal penalties, which could increase its liabilities, harm its reputationand have a material adverse effect on the business, results of operations and financial condition of the Corporation.

 

The Corporation’s Officers and Directorsmay be Engaged in a Range of Business Activities Resulting in Conflicts of Interest.

 

The Corporation may be subject to various potentialconflicts of interest because some of its officers and directors may be engaged in a range of business activities. In addition, the Corporation’sexecutive officers and directors may devote time to their outside business interests, so long as such activities do not materially oradversely interfere with their duties to the Corporation. In some cases, the Corporation’s executive officers and directors mayhave fiduciary obligations associated with these business interests that interfere with their ability to devote time to the Corporation’sbusiness and affairs and that could adversely affect the Corporation’s operations. These business interests could require significanttime and attention of the Corporation’s executive officers and directors. In addition, the Corporation may also become involvedin other transactions which conflict with the interests of its directors and the officers who may from time to time deal with persons,firms, institutions or Companies with which the Corporation may be dealing, or which may be seeking investments similar to those desiredby it. The interests of these persons could conflict with those of the Corporation.

 

In addition, from time to time, these personsmay be competing with the Corporation for available investment opportunities. Conflicts of interest, if any, will be subject to the proceduresand remedies provided under applicable laws. In particular, if such a conflict of interest arises at a meeting of the Corporation’sdirectors, a director who has such a conflict will abstain from voting for or against the approval of such participation or such terms.In accordance with applicable laws, the directors of the Corporation are required to act honestly, in good faith and in the best interestsof the Corporation.

 

In Certain Circumstances, the Corporation’sReputation could be Damaged.

 

Damage to the Corporation’s reputation canbe the result of the actual or perceived occurrence of any number of events, and could include any negative publicity, whether true ornot. The increased usage of social media and other web-based tools used to generate, publish and discuss user-generated content and toconnect with other users has made it increasingly easier for individuals and groups to communicate and share opinions and views regardingthe Corporation and its activities, whether true or not. Although the Corporation believes that it operates in a manner that is respectfulto all stakeholders and that it takes care in protecting its image and reputation, the Corporation does not ultimately have direct controlover how it is perceived by others. Reputation loss may result in decreased investor confidence, increased challenges in developing andmaintaining community relations and an impediment to the Corporation’s overall ability to advance its projects, thereby having amaterial adverse impact on financial performance, financial condition, cash flows and growth prospects.

 

Regulatory Scrutiny of the Corporation’sIndustry may Negatively Impact its Ability to Raise Additional Capital.

 

The Corporation’s business activities relyon newly established and/or developing laws and regulations in Canada. These laws and regulations are rapidly evolving and subject tochange with minimal notice. Regulatory changes may adversely affect the Corporation’s profitability or cause it to cease operationsentirely. The cannabis industry may come under the scrutiny or further scrutiny by Health Canada or the Canadian Securities Exchange.It is impossible to determine the extent of the impact of any new laws, regulations or initiatives that may be proposed, or whether anyproposals will become law. The regulatory uncertainty surrounding the Corporation’s industry may adversely affect the business andoperations of the Corporation, including without limitation, the costs to remain compliant with applicable laws and the impairment ofits ability to raise additional capital, which could reduce, delay or eliminate any return on investment in the Corporation.

 

 

 

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Publicity or Consumer Perception.

 

The Corporation believes the recreational andmedical cannabis industries are highly dependent upon consumer perception regarding the safety, efficacy and quality of the cannabis produced.Consumer perception of the Corporation’s products can be significantly influenced by scientific research or findings, regulatoryinvestigations, litigation, media attention and other publicity regarding the consumption of cannabis products.

 

There can be no assurance that future scientificresearch, findings, regulatory proceedings, litigation, media attention or other research findings or publicity will be favorable to thecannabis market generally, any particular product or consistent with earlier publicity. Future research reports, findings, regulatoryproceedings, litigation, media attention or other publicity that are perceived as less favorable than, or that question, earlier researchreports, findings or publicity could have a material adverse effect on the demand for the Corporation’s products and the business,results of operations, financial condition and the Corporation’s cash flows. The Corporation’s dependence upon consumer perceptionsmeans that adverse scientific research reports, findings, regulatory proceedings, litigation, media attention or other publicity, whetheror not accurate or with merit, could have a material adverse effect on the Corporation, the demand for the Corporation’s products,and the business, results of operations, financial condition and cash flows of the Corporation. Further, adverse publicity reports orother media attention regarding the safety, efficacy and quality of medical cannabis in general, or the Corporation’s products specifically,or associating the consumption of cannabis with illness or other negative effects or events, could have such a material adverse effect.Such adverse publicity reports or other media attention could arise even if the adverse effects associated with such products resultedfrom consumers’ failure to consume such products appropriately or as directed.

 

Currency Fluctuations

 

The Corporation’s revenues and expensesare expected to be primarily denominated in Canadian dollars, and therefore may be exposed to significant currency exchange fluctuations.Recent events in the global financial markets have been coupled with increased volatility in the currency markets. Fluctuations in theexchange rate between the U.S. dollar and the Canadian dollar may have a material adverse effect on the Corporation’s business,financial condition and operating results. The Corporation may, in the future, establish a program to hedge a portion of its foreign currencyexposure with the objective of minimizing the impact of adverse foreign currency exchange movements. However, even if the Corporationdevelops a hedging program, there can be no assurance that it will effectively mitigate currency risks.

 

We may need to raise additional funds inthe future that may not be available on acceptable terms or available at all.

 

We may consider issuing additional debt or equitysecurities in the future to fund our business plan, for potential investment acquisitions, or general corporate purposes. If we issueequity or convertible debt securities to raise additional funds, our existing stockholders may experience dilution, and the new equityor debt securities may have rights, preferences, and privileges senior to those of our existing stockholders. If we incur additional debt,it may increase our leverage relative to our earnings or to our equity capitalization, requiring us to pay additional interest expenses.We may not be able to obtain financing on favorable terms, or at all, in which case, we may not be able to develop or enhance our products,execute our business plan, take advantage of future opportunities, or respond to competitive pressures.

 

We may be subject to liability claims fordamages and other expenses not covered by insurance that could reduce our earnings and cash flows.

 

Our business, profitability, and growth prospectscould suffer if we pay damages or defense costs in connection with a liability claim that is outside the scope of any applicable insurancecoverage. We intend to maintain, but do not yet have, general and product liability insurance. There is no assurance that we will be ableto obtain insurance in amounts, or for a price, that will permit us to purchase desired amounts of insurance. Additionally, if our costsof insurance and claims increase, then our earnings could decline. Further, market rates for insurance premiums and deductibles have beensteadily increasing, which may prevent us from being adequately insured. A product liability or negligence action in excess of insurancecoverage could harm our profitability and liquidity.

 

 

 

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Insurance and contractual protections maynot always cover lost revenue.

 

We possess insurance and warranties from suppliers,and our subcontractors make contractual obligations to meet certain performance levels. We also attempt, where feasible, to pass riskswe cannot control to our customers. The proceeds of such insurance, warranties, performance guarantees, and risk-sharing arrangementsmay not be adequate to cover lost revenue, increased expenses, or liquidated damages payments that may be required in the future.

 

We currently carry customary insurance for businessliability. Certain losses of a catastrophic nature, such as from floods, tornadoes, thunderstorms, and earthquakes, are uninsurable ornot economically insurable. Such “Acts of God,” work stoppages, regulatory actions, or other causes, could interrupt operationsand adversely affect our business.

 

We Rely on Outside Consultants and Employees.

 

We will rely on the experience of outside consultantsand employees. In the event that one or more of these consultants or employees terminates employment with the Company, or becomes unavailable,suitable replacements will need to be retained, and there is no assurance that such employees or consultants could be identified underconditions favorable to us.

 

Our financial and operating performance is adversely affectedby the coronavirus pandemic.

 

The recent outbreak of a strain of coronavirus(COVID-19) in the U.S. has had an unfavorable impact on our business operations.  Mandatory closures of businesses imposed bythe federal, state and local governments to control the spread of the virus is disrupting the operations of our management, business andfinance teams. In addition, the COVID-19 outbreak has adversely affected the U.S. economy and financial markets, which may result in along-term economic downturn that could negatively affect future performance.  The extent to which COVID-19 will impact our businessand our consolidated financial results will depend on future developments which are highly uncertain and cannot be predicted at the timeof the filing of this Form 10-K, but is expected to result in a material adverse impact on our business, results of operations and financialcondition.

 

We operate in a highly competitive industryand competitors may compete more effectively.

 

The industries in which we operate are highlycompetitive, with many companies of varying size and business models, many of which have their own proprietary technologies, competingfor the same business as we do. Many of our competitors have longer operating histories and greater resources than us, and they coulduse their substantial financial resources to develop a competing business model, develop products or services that are more attractiveto potential customers than those we offer, or convince our potential customers that they require financing arrangements that are impracticalfor smaller companies to offer. Our competitors may also offer similar products and services at prices below cost, devote significantsales forces to competing with us, or attempt to recruit our key personnel by increasing compensation, any of which could improve theircompetitive positions. Any of these competitive factors could make it more difficult for us to attract and retain customers, cause usto lower our prices in order to compete or reduce our market share and revenue, any of which could have a material adverse effect on ourfinancial condition and operating results. We can provide no assurance that we will continue to compete effectively against our currentcompetitors or additional companies that may enter our markets. We also expect to encounter competition from customers who elect to developsolutions or perform services internally rather than engaging an outside provider such as us.

 

 

 

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Risks Related to Our Financial Condition

 

Dependence on financing and losses for theforeseeable future.

 

Our independent registered public accounting firmhas issued its audit opinion on our consolidated financial statements appearing in this Annual Report on Form 10-K, including an explanatoryparagraph as to substantial doubt with respect to our ability to continue as a going concern. The accompanying consolidated financialstatements have been prepared in conformity with accounting principles generally accepted in the United States of America, assuming wewill continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course ofbusiness. For the fiscal year-ended December 31, 2020, our net loss was $19,890,272. As of December 31, 2020, we had an accumulated deficitof $8,801,599 and a working capital deficit of $17,081,639. These factors raise substantial doubt about our ability to continue as a goingconcern which is dependent on our ability to raise the required additional capital or debt financing to meet short- and long-term operatingrequirements. We may also encounter business endeavors that require significant cash commitments or unanticipated problems or expensesthat could result in a need for additional cash. If we raise additional funds through the issuance of equity or convertible debt securities,the percentage ownership of our current shareholders could be reduced, and such securities might have rights, preferences, or privilegessenior to our common stock. Additional financing may not be available upon acceptable terms, or available at all. If adequate funds arenot available on acceptable terms, we may not be able to take advantage of prospective business endeavors or opportunities, which couldsignificantly and materially restrict our operations. If we are unable to obtain necessary capital, we may have to cease operations. Foradditional information, see Management’s Discussion and Analysis of Financial Condition and Results of Operations – “GoingConcern.”

 

Dependence on financing and losses for theforeseeable future

 

As of December 31, 2020, we had current liabilitiesof $17,549,190 and current assets of $467,551. We had a working capital deficiency of $17,081,639. Our ability to continue as a goingconcern is dependent upon raising capital from financing transactions. To stay in business, we will need to raise additional capital throughpublic or private sales of our securities or debt financing. In the past, we have financed our operations by issuing secured and unsecuredconvertible debt and equity securities in private placements, in some cases with equity incentives for the investor in the form of warrantsto purchase our common stock, and we have borrowed from related parties. We have sought, and will continue to seek, various sources offinancing. There are no additional commitments from anyone to provide us with financing. We can provide no assurance as to whether ourcapital raising efforts will be successful or as to when, or if, we will be profitable in the future. Even if the Company achieves profitability,it may not be able to sustain such profitability. If we are unable to obtain financing or achieve and sustain profitability, we may haveto suspend operations or sell assets, making us unable to execute our business plan. Failure to become and remain profitable may adverselyaffect the market price of our common stock and our ability to raise capital and continue operations.

 

Our ability to generate positive cash flowis uncertain.

 

To develop and expand our business, we will needto make significant up-front investments in our manufacturing capacity and incur research and development, sales and marketing, and generaland administrative expenses. In addition, our growth will require a significant investment in working capital. Our business will requiresignificant amounts of working capital to meet our project requirements and support our growth. We cannot provide any assurance that wewill be able to raise the capital necessary to meet these requirements. If adequate funds are not available or are not available on satisfactoryterms, we may be required to significantly curtail our operations and may not be able to fund our current production requirements, letalone fund expansion, take advantage of unanticipated acquisition opportunities, develop or enhance our products, and respond to competitivepressures. Any failure to obtain such additional financing could have a material adverse effect on our business, results of operations,and financial condition.

 

Because we may never have net income fromour operations, our business may fail.

 

We have no history of profitability from operations.There can be no assurance that we will ever operate profitably. Our success is significantly dependent on uncertain events, includingsuccessful developing our products, establishing satisfactory manufacturing arrangements and processes, and distributing and selling ourproducts. If we are unable to generate significant revenues from sales of our products, we will not be able to earn profits or continueoperations. We can provide no assurance that we will generate any revenues or ever achieve profitability. If we are unsuccessful in addressingthese risks, our business will fail, and investors may lose all of their investment in our Company.

 

 

 

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We need to raise additional funds, and suchfunds may not be available on acceptable terms.

 

We may consider issuing additional debt or equitysecurities in the future to fund our business plan, for general corporate purposes or for potential acquisitions or investments. If weissue equity or convertible debt securities to raise additional funds, our existing stockholders may experience dilution, and the newequity or debt securities may have rights, preferences, and privileges senior to those of our existing stockholders. If we incur additionaldebt, it may increase our leverage relative to our earnings or to our equity capitalization, requiring us to pay additional interest expenses.We may not be able to obtain financing on favorable terms, in which case, we may not be able to develop or enhance our products, executeour business plan, take advantage of future opportunities, or respond to competitive pressures.

 

Risks Related to Our Common Stock and ItsMarket Value

 

We have limited capitalization and may requirefinancing, which may not be available.

 

We have limited capitalization, which increasesour vulnerability to general adverse economic and industry conditions, limits our flexibility in planning for and reacting to changesin our business and industry, and may place us at a competitive disadvantage to competitors with sufficient capitalization. If we areunable to obtain sufficient financing on satisfactory terms and conditions, we will be forced to curtail or abandon our plans or operations.Our ability to obtain financing will depend upon a number of factors, many of which are beyond our control.

 

A limited public trading market exists forour common stock, which makes it difficult for our stockholders to sell their common stock on the public markets. Any trading in our sharesmay have a significant effect on our stock prices.

 

Although our common stock is listed for quotationon the OTC Markets Pink Fully-Reporting, under the symbol “CPMD,” the trading activity of our common stock is volatile andmay not develop or be sustained. As a result, any trading price of our common stock may not be an accurate indicator of the valuationof our common stock. Any trading in our shares could have a significant effect on our stock price. If a more liquid public market forour common stock does not develop, then investors may not be able to resell the shares of our common stock that they have purchased andmay lose all of their investment. No assurance can be given that an active market will develop or that a stockholder will ever be ableto liquidate its shares of common stock without considerable delay, if at all. Many brokerage firms may not be willing to affect transactionsin the securities. Even if an investor finds a broker willing to affect a transaction in our securities, the combination of brokeragecommissions, state transfer taxes, if any, and any other selling costs may exceed the selling price. Furthermore, our stock price maybe impacted by factors that are unrelated or disproportionate to our operating performance. These market fluctuations, as well as generaleconomic, political, and market conditions, such as recessions, interest rates, and international currency fluctuations, may adverselyaffect the market price and liquidity of our common stock.

 

Our stock price has undergone a great dealof volatility, including a significant decrease over the past few years. The volatility may mean that, at times, our stockholders maybe unable to resell their shares at or above the price at which they acquired them.

 

From January 1, 2018 through the date of thisreport, the price per share of our common stock has ranged from a high of $4.00 to a low of $0.033. The price of our common stock hasbeen, and may continue to be, highly volatile and subject to wide fluctuations. The market value of our common stock has declined in thepast, due in part to our operating performance and to conversions of dilutive debt instruments that we have issued to fund operations.In the future, broad market and industry factors may decrease the market price of our common stock, regardless of our actual operatingperformance. Recent declines in the market price of our common stock have and could continue to affect our access to capital, and may,if they continue, impact our ability to continue operations at the current level. In addition, any continuation of the recent declinesin the price of our common stock may curtail investment opportunities presented to us and negatively impact other aspects of our business,including our ability to fund our operations. As a result of any such declines, many stockholders have been or may become unable to reselltheir shares at or above the price at which they acquired them.

 

 

 

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The volatility of the market price of our commonstock could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:

 

  · our stock being held by a small number of persons whose sales (or lack of sales) could result in positive or negative pricing pressure on the market price for our common stock;
     
  · actual or anticipated variations in our quarterly operating results;
     
  · changes in our earnings estimates;
     
  · our ability to obtain adequate working capital financing;
     
  · changes in market valuations of similar companies;
     
  · publication (or lack of publication) of research reports about us;
     
  · changes in applicable laws or regulations, court rulings, enforcement, and legal actions;
     
  · loss of any strategic relationships;
     
  · additions or departures of key management personnel;
     
  · actions by our stockholders (including transactions in our shares);
     
  · speculation in the press or investment community;
     
  · increases in market interest rates, which may increase our cost of capital;
     
  · changes in our industry;
     
  · competitive pricing pressures;
     
  · our ability to execute our business plan; and
     
  · economic and other external factors.

 

In addition, the securities markets have fromtime to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies.These market fluctuations may also materially and adversely affect the market price of our common stock.

  

 

 

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Our common stock may never be listed ona national exchange and is subject to being removed from the OTC Pink Marketplace.

 

Our common stock is quoted for trading on theOTC Pink Marketplace (“OTC Pink”). We still will be unable to list our stock on the OTC Markets Pink Fully-Reporting if wedo not meet the eligibility standards for listing under the OTC Markets Pink Fully-Reporting per OTC Markets guidelines. Should we continueto fail to satisfy the eligibility standards of OTC Markets for the OTC Markets Pink Fully-Reporting, the trading price of our commonstock could continue to suffer and the trading market for our common stock may be less liquid and our common stock price may be subjectto increased volatility.

 

Our stock is categorized as a penny stock.Trading of our stock may be restricted by the SEC’s penny stock regulations which may limit a stockholder’s ability to buyand sell our stock.

 

Our stock is categorized as a “penny stock”,as that term is defined in SEC Rule 3a51-1, which generally provides that a “penny stock”, is any equity security that hasa market price (as defined) less than U.S. $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stockrules, including Rule 15g-9, which imposes additional sales practice requirements on broker-dealers who sell to persons other than establishedcustomers and accredited investors. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwiseexempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information aboutpenny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with currentbid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthlyaccount statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, andthe broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting thetransaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stockrules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a specialwritten determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreementto the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary marketfor the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealersto trade our securities and reduce the number of potential investors. We believe that the penny stock rules discourage investor interestin and limit the marketability of our common stock.

 

According to SEC Release No. 34-29093, the marketfor “penny stocks” has suffered in recent years from patterns of fraud and abuse. Such patterns include: (1) control of themarket for the security by one or a few broker-dealers that are often related to the promoter or issuer; (2) manipulation of prices throughprearranged matching of purchases and sales and through false and misleading press releases; (3) boiler-room practices involving high-pressuresales tactics and unrealistic price projections by inexperienced salespersons; (4) excessive and undisclosed bid-ask differentials andmarkups by selling broker-dealers; and (5) the wholesale dumping of the same securities by promoters and broker-dealers after prices havebeen manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses.The occurrence of these patterns or practices could increase the future volatility of our share price.

 

FINRA sales practice requirements may alsolimit a stockholder’s ability to buy and sell our stock.

 

In addition to the “penny stock” rulesdescribed above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonablegrounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to theirnoninstitutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status,tax status, investment objectives, and other information. Under interpretations of these rules, FINRA believes that there is a high probabilitythat speculative low-priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficultfor broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock andhave an adverse effect on the market for our shares.

 

 

 

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To date, we have not paid any cash dividends,and no cash dividends will be paid in the foreseeable future.

 

We do not anticipate paying cash dividends onour common stock in the foreseeable future and we may not have sufficient funds legally available to pay dividends. Even if the fundsare legally available for distribution, we may nevertheless decide not to pay any dividends. We currently intend to retain all earningsfor our operations.

 

If we fail to develop or maintain an effectivesystem of internal controls, we may not be able to accurately to report our financial results or prevent financial fraud. As a result,current and potential stockholders could lose confidence in our financial reporting.

 

We are subject to the risk that sometime in thefuture our independent registered public accounting firm could communicate to the board of directors that we have deficiencies in ourinternal control structure that they consider to be “significant deficiencies.” A “significant deficiency” isdefined as a deficiency, or a combination of deficiencies, in internal controls over financial reporting such that there is more thana remote likelihood that a material misstatement of the entity’s financial statements will not be prevented or detected by the entity’sinternal controls.

 

Effective internal controls are necessary forus to provide reliable financial reports and effectively prevent fraud. If we cannot provide reliable financial reports or prevent fraud,we could be subject to regulatory action or other litigation and our operating results could be harmed. We are required to document andtest our internal control procedures to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-OxleyAct,” or “SOX”), which requires our management to annually assess the effectiveness of our internal control over financialreporting.

 

We currently are not an “accelerated filer”as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended. Section 404 of the Sarbanes-Oxley Act of 2002 (“Section404”) requires us to include an internal control report with our Annual Report on Form 10-K. That report must include management’sassessment of the effectiveness of our internal control over financial reporting as of the end of the fiscal year. This report must alsoinclude disclosure of any material weaknesses in internal control over financial reporting that we have identified. As of December 31,2019, the management of the Company assessed the effectiveness of the Company’s internal control over financial reporting basedon SEC guidance on conducting such assessments and on the criteria for effective internal control over financial reporting establishedin Internal Control and Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).Management concluded, during the year ended December 31, 2019, that the Company’s internal controls and procedures were not effectiveto detect the inappropriate application of U.S. GAAP rules. Management realized there were deficiencies in the design or operation ofthe Company’s internal control that adversely affected the Company’s internal controls, which management considers to be materialweaknesses. A material weakness in the effectiveness of our internal controls over financial reporting may increase the chance of fraudand the loss of customers, reduce our ability to obtain financing, and require additional expenditures to comply with these requirements.Any of these consequences could have a material adverse effect on our business, results of operations and financial condition. For additionalinformation, see Item 9A – Controls and Procedures.

 

It may be time-consuming, difficult, and costlyfor us to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act. We may need to hireadditional financial reporting, internal controls, and other finance personnel in order to develop and implement appropriate internalcontrols and reporting procedures. If we are unable to comply with the internal controls requirements of the Sarbanes-Oxley Act, thenwe may not be able to obtain the independent accountant certifications required by such act, which may preclude us from keeping our filingswith the SEC current.

 

If we are unable to maintain the adequacy of ourinternal controls, as those standards are modified, supplemented, or amended from time to time, we may not be able to ensure that we mayconclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. Failureto achieve and maintain an effective internal control environment could cause us to face regulatory action and cause investors to loseconfidence in our reported financial information, either of which could adversely affect the value of our common stock.

 

 

 

 29 

 

 

Because our current directors, executiveofficers, and preferred stockholders beneficially hold Sixty-Seven and One Half Percent (67.5%) of our common stock, they can exert significantcontrol over our business and affairs and have actual or potential interests that may depart from those of subscribers in our privateplacements.

 

Our current directors, our executive officers,and 5% or more stockholders beneficially own or control approximately Sixty-Seven and One Half Percent (67.5%) of our issued andoutstanding shares of common stock as of December 31, 2020. Additionally, the holdings of our directors, and executive officers, and preferredstockholders may increase in the future upon vesting or other maturation of exercise rights under any of the restricted stock grants,options, or warrants they may hold or in the future be granted, or if they otherwise acquire additional shares of our common stock. Theinterests of such persons may differ from the interests of our other stockholders. As a result, in addition to their board seats and offices,such persons, irrespective of how the Company’s other stockholders vote, may have significant influence over and may control corporateactions requiring stockholder approval, including the following actions:

 

  · electing or defeating the election our directors;

 

  · to amending or preventing the amendment of our Certificate of Incorporation or By-laws;

 

  · effecting or preventing a transaction, sale of assets, or other corporate transaction; and

 

  · controlling the outcome of any other matter submitted to our stockholders for vote.

 

Such persons' stock ownership may discourage apotential acquirer from making a tender offer or otherwise attempting to obtain control of the Company, which in turn could reduce ourstock price or prevent our stockholders from realizing a premium over our stock price.

 

Our certificate of incorporation allowsour board to create new series of preferred stock without approval by our stockholders, which could adversely affect the rights of theholders of our common stock.

 

Our board of directors has the authority to fixand determine the relative rights and preferences of preferred stock. Our board of directors also has the authority to issue preferredstock without stockholder approval. As a result, our board of directors could authorize the issuance of a series of preferred stock grantingholders a preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to theholders of common stock, and the right to redemption of the shares, together with a premium prior to the redemption of our common stock.In addition, our board of directors could authorize the issuance of a series of preferred stock that has greater voting power than ourcommon stock or that is convertible into our common stock, which could decrease the relative voting power of our common stock or resultin dilution to our existing stockholders.

 

Cautionary Note

 

We have sought to identify what we believe tobe the most significant risks to our business, but we cannot predict whether, or to what extent, any of such risks may be realized norcan we guarantee that we have identified all possible risks that might arise. Investors should carefully consider all of such risk factorsbefore making an investment decision with respect to our common stock.

 

 

 

 

 

 

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USE OF PROCEEDS

 

We will not receive any proceeds from the dispositionand/or resale of the shares of common stock by the holders of the Series A Preferred Stock We will receive cash proceeds from the saleof the shares to the select accredited, which we, while we retain broad discretion on the use of proceeds, we intend to use for workingcapital and to fund general corporate purposes including, but not limited to, the retirement of certain outstanding debt obligations aswell as working capital purposes.

 

DETERMINATION OF OFFERING PRICE

 

In determining the offering price of the sharespursuant to the Common Stock Purchase Agreement, we considered several factors including the following:

 

  · prevailing market conditions, including the history and prospects for the industry in which we compete;

 

  · our future prospects; and

 

  · our capital structures.

 

Therefore, the offering price of the shares doesnot necessarily bear any relationship to established valuation criteria and may not be indicative of prices that may prevail at any timeor from time to time in the public market for the common stock.

 

DILUTION

 

The Shares registered under this registrationstatement are being offered for purchase.

 

SELLING SECURITY HOLDERS

 

Selling Stockholder Table

 

The shares of common stock being offered by theselling stockholders are those outstanding in the hands of the selling stockholders and those issuable to the selling stockholders uponconversion of Series A Preferred Stock shares. For additional information regarding the issuances of the common stock, the convertiblenotes and the warrants, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations –Recent Events.” We are registering the shares of common stock underlying the Series A Preferred Stock shares in order to permitthe selling stockholders to offer the shares for resale from time to time upon the conversion of the Series A Preferred Stock shares.

 

The following table sets forth for each sellingstockholder, the name, the number and percentage of shares of common stock beneficially owned as of May 7, 2021, the maximum number ofshares of common stock that may be offered pursuant to this prospectus and the number and percentage of shares of common stock that wouldbe beneficially owned after the sale of the maximum number of shares of common stock, and is based upon information provided to us byeach selling stockholder for use in this prospectus. The information presented in the table is based on 55,649,656 shares of our commonstock outstanding on May 7, 2021.

 

 

 

 

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Beneficial ownership is determined in accordancewith the rules of the SEC and generally includes voting or investment power with respect to securities. Unless otherwise indicated below,to our knowledge, the persons and entities named in the table have sole voting and investment power with respect to all shares beneficiallyowned, subject to community property laws where applicable. For purposes of the table below, shares of common stock issuable pursuantto Series A Preferred Stock shares held by a selling stockholder that can be acquired within sixty (60) days of May 7, 2021, are deemedto be outstanding and to be beneficially owned by the selling stockholder holding the securities but are not treated as outstanding forthe purpose of computing the percentage ownership of any other selling stockholder.

 

Under the terms of the Series A Preferred Stockshares, the number of shares in the third column does not reflect this limitation. The selling stockholders may sell all, some or noneof their shares in this offering. See “Plan of Distribution.”

 

This prospectus covers an aggregate of up to 125,000,000shares of our common stock that may be sold or otherwise disposed of by the holders of the Series A Preferred Stock shares after the conversionof the shares into Common Shares. Such shares were received in private placement transactions and as compensation for services in connectionwith such transaction and the related registered direct offering of shares of our common stock, as described herein.

 

When we refer to the selling stockholders in thisprospectus, we mean those persons listed in the table below, as well as the permitted transferees, pledgees, donees, assignees, successorsand others who later come to hold any of the selling stockholders’ interests other than through a public sale.

 

The selling stockholders may from time to timeoffer and sell pursuant to this prospectus any or all of the shares of common stock set forth in the following table. There is no requirementfor the selling stockholders to sell their shares, and we do not know when, or if, or in what amount the selling stockholders may offerthe shares of common stock for sale pursuant to this prospectus.

 

The selling stockholders identified below mayhave sold, transferred or otherwise disposed of some or all of their shares since the date on which the information in the following tableis presented in transactions exempt from or not subject to the registration requirements of the Securities Act. Information concerningthe selling stockholders may change from time to time and, if necessary, we will supplement this prospectus accordingly. We are unableto confirm whether the selling stockholders will in fact sell any or all of their shares of common stock.

 

To our knowledge and except as noted below, noneof the selling stockholders has, or within the past three years has had, any material relationships with us or any of our affiliates.Each selling stockholder who is also an affiliate of a broker dealer, as noted below, has represented that: (1) the selling stockholderpurchased in the ordinary course of business; and (2) at the time of purchase of the securities being registered for resale, theselling stockholder had no agreements or understandings, directly or indirectly, with any person to distribute the securities.

 

1.2098378 Alberta Ltd. 4,000,000 Shares of our Common Stock to be converted by 2098378 Alberta Ltd. pursuantto Certificate of Designations designating the conversion rights of the Series A Preferred Stock dated April 18, 2018, registered forresale herein, and would represent 0% of our issued and outstanding shares of common stock as of April 27, 2021;

 

2.Richard & Susan Barnes IRR Trust 615,000 Shares of our Common Stockto be converted by Richard & Susan Barnes IRR Trust. pursuant to Certificate of Designations designating the conversion rights ofthe Series A Preferred Stock dated April 18, 2018, registered for resale herein, and would represent 0% of our issued and outstandingshares of common stock as of April 27, 2021;    

 

3.Bradley Scott Barnes 260,000 Shares of our Common Stock to be convertedby Bradley Scott Barnes pursuant to Certificate of Designations designating the conversion rights of the Series A Preferred Stock datedApril 18, 2018, registered for resale herein, and would represent 0% of our issued and outstanding shares of common stock as of April27, 2021;    

 

 

 

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4.Phillip Gregory Barnes 60,000 Shares of our Common Stock to be convertedby Phillip Gregory Barnes pursuant to Certificate of Designations designating the conversion rights of the Series A Preferred Stock datedApril 18, 2018, registered for resale herein, and would represent 0% of our issued and outstanding shares of common stock as of April27, 2021;    

 

5.John M. Bates 187,500 Shares of our Common Stock to be converted by JohnM. Bates pursuant to Certificate of Designations designating the conversion rights of the Series A Preferred Stock dated April 18, 2018,registered for resale herein, and would represent 0% of our issued and outstanding shares of common stock as of April 27, 2021;   

 

6.Calvary Church of Laguna Beach 150,000 Shares of our Common Stock to beconverted by Calvary Church of Laguna Beach pursuant to Certificate of Designations designating the conversion rights of the Series APreferred Stock dated April 18, 2018, registered for resale herein, and would represent 0% of our issued and outstanding shares of commonstock as of April 27, 2021;    

 

7.John H. Cassels 5,000,000 Shares of our Common Stock to be converted byJohn H.Cassels pursuant to Certificate of Designations designating the conversion rights of the Series A Preferred Stock dated April 18,2018, registered for resale herein, and would represent 0% of our issued and outstanding shares of common stock as of April 27, 2021;   

 

8.Fischer Family Trust 100,000 Shares of our Common Stock to be convertedby Fischer Family Trust pursuant to Certificate of Designations designating the conversion rights of the Series A Preferred Stock datedApril 18, 2018, registered for resale herein, and would represent 0% of our issued and outstanding shares of common stock as of April27, 2021;   

 

9.Brad M. Fischer 50,000 Shares of our Common Stock to be converted by BradM. Fischer pursuant to Certificate of Designations designating the conversion rights of the Series A Preferred Stock dated April 18, 2018,registered for resale herein, and would represent 0% of our issued and outstanding shares of common stock as of April 27, 2021;   

 

10.GH Revocable Trust 625,000 Shares of our Common Stock to be converted byGH Revocable Trust pursuant to Certificate of Designations designating the conversion rights of the Series A Preferred Stock dated April18, 2018, registered for resale herein, and would represent 0% of our issued and outstanding shares of common stock as of April 27, 2021;   

 

11.Jonathan Greco 312,500 Shares of our Common Stock to be converted by JonathanGreco pursuant to Certificate of Designations designating the conversion rights of the Series A Preferred Stock dated April 18, 2018,registered for resale herein, and would represent 0% of our issued and outstanding shares of common stock as of April 27, 2021;   

 

12.Jaime L. Huttrer 2,500,000 Shares of our Common Stock to be converted byJaime L. Huttrer pursuant to Certificate of Designations designating the conversion rights of the Series A Preferred Stock dated April18, 2018, registered for resale herein, and would represent 0% of our issued and outstanding shares of common stock as of April 27, 2021;   

 

13.David McGuiness 300,000 Shares of our Common Stock to be converted by DavidMcGuiness pursuant to Certificate of Designations designating the conversion rights of the Series A Preferred Stock dated April 18, 2018,registered for resale herein, and would represent 0% of our issued and outstanding shares of common stock as of April 27, 2021;   

 

14.Katie Mucino 22,500 Shares of our Common Stock to be converted by KatieMucino pursuant to Certificate of Designations designating the conversion rights of the Series A Preferred Stock dated April 18, 2018,registered for resale herein, and would represent 0% of our issued and outstanding shares of common stock as of April 27, 2021;   

 

 

 

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15.Matthew Nicosia 5,312,500 Shares of our Common Stock to be converted byMatthew Nicosia pursuant to Certificate of Designations designating the conversion rights of the Series A Preferred Stock dated April18, 2018, registered for resale herein, and would represent 0% of our issued and outstanding shares of common stock as of April 27, 2021;   

 

16.OCIFG, Inc. 20,000,000 Shares of our Common Stock to be converted by OCIFG,Inc. pursuant to Certificate of Designations designating the conversion rights of the Series A Preferred Stock dated April 18, 2018, registeredfor resale herein, and would represent 0% of our issued and outstanding shares of common stock as of April 27, 2021;    

 

17.James Samuelson 23,812,500 Shares of our Common Stock to be converted byJames Samuelson pursuant to Certificate of Designations designating the conversion rights of the Series A Preferred Stock dated April18, 2018, registered for resale herein, and would represent 0% of our issued and outstanding shares of common stock as of April 27, 2021;   

 

18.Andrew C. Steedman 5,000,000 Shares of our Common Stock to be convertedby Andrew C. Steedman pursuant to Certificate of Designations designating the conversion rights of the Series A Preferred Stock datedApril 18, 2018, registered for resale herein, and would represent 0% of our issued and outstanding shares of common stock as of April27, 2021;    

 

19.Andrew I. Telsey 1,500,000 Shares of our Common Stock to be converted byAndrew I. Telsey pursuant to Certificate of Designations designating the conversion rights of the Series A Preferred Stock dated April18, 2018, registered for resale herein, and would represent 0% of our issued and outstanding shares of common stock as of April 27, 2021;   

 

20.Christine Tryder 50,000 Shares of our Common Stock to be converted by ChristineTryder pursuant to Certificate of Designations designating the conversion rights of the Series A Preferred Stock dated April 18, 2018,registered for resale herein, and would represent 0% of our issued and outstanding shares of common stock as of April 27, 2021;and

 

21.Zero RMW, LLC 3,017,500 Shares of our Common Stock to be converted by Zero RMW, LLC pursuant to Certificateof Designations designating the conversion rights of the Series A Preferred Stock dated April 18, 2018, registered for resale herein,and would represent 0% of our issued and outstanding shares of common stock as of April 27, 2021.

 

We may require the selling security holders tosuspend the sales of the shares of our common stock being offered pursuant to this prospectus upon the occurrence of any event that makesany statement in this prospectus or the related registration statement untrue in any material respect or that requires the changing ofstatements in those documents in order to make statements in those documents not misleading.

 

The selling security holders identified in thetable below may from time to time offer and sell under this prospectus any or all of the shares of common stock described under the column“Shares of Common Stock Being Offered” in the table below.

  

We cannot give an estimate as to the number ofshares of common stock that will actually be held by the Selling Stockholder upon termination of this offering, because each selling securityholder may offer some or all of the common stock being registered on their individual behalf under the offering contemplated by this prospectusor acquire additional shares of common stock. The total number of shares that may be sold hereunder will not exceed the number of sharesoffered hereby. Please read the section entitled “Plan of Distribution” in this prospectus.

 

The manner in which the Selling Stockholder acquiredor will acquire shares of our common stock is discussed below under “The Offering.”

 

 

 

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The following table sets forth the name of theselling stockholder, the number of shares of our common stock beneficially owned by such stockholder before this offering, the numberof shares to be offered for such stockholders’ account and the number and (if one percent or more) the percentage of the class tobe beneficially owned by such stockholders after completion of the offering. The number of shares owned are those beneficially owned,as determined under the rules of the SEC, and such information is not necessarily indicative of beneficial ownership for any other purpose.Under such rules, beneficial ownership includes any shares of our common stock as to which a person has sole or shared voting power orinvestment power and any shares of common stock which the person has the right to acquire within 60 days of the date as of which the informationis provided, through the exercise of any option, warrant or right, through conversion of any security or pursuant to the automatic terminationof a power of attorney or revocation of a trust, discretionary account or similar arrangement, and such shares are deemed to be beneficiallyowned and outstanding for computing the share ownership and percentage of the person holding such options, warrants or other rights, butare not deemed outstanding for computing the percentage of any other person. Beneficial ownership percentages are calculated based on55,649,656 shares of our common stock outstanding as of May 7, 2021.

 

Unless otherwise set forth below, (a) the personsand entities named in the table have sole voting and sole investment power with respect to the shares set forth opposite the selling stockholder’sname, subject to community property laws, where applicable, and (b) no selling stockholders had any position, office or other materialrelationship within the past three years, with us or with any of our predecessors or affiliates. The number of shares of common stockshown as beneficially owned before the offering is based on information furnished to us or otherwise based on information available tous at the timing of the filing of the registration statement of which this prospectus forms a part.

 

 

Shares Beneficially

Owned

Maximum

Number of

Shares to be

Sold

Shares Beneficially

Owned After the

Sale of the

Maximum Number

of Shares

Name of Selling Stockholder Number Percentage Hereunder Number Percentage
           
2098378 Alberta Ltd. 4,000,000 7.63% 4,000,000 0 0
Richard & Susan Barnes IRR Trust 615,000 1.17% 615,000 0 0
Bradley Scott Barnes 260,000 0.50% 260,000 0 0
Phillip Gregory Barnes 60,000 0.11% 60,000 0 0
John M. Bates 187,500 0.36% 187,500 0 0
Calgary Church of Laguna Beach 150,000 0.29% 150,000 0 0
John H. Cassels 5,000,000 9.53% 5,000,000 0 0
Fischer Family Trust 100,000 0.19% 100,000 0 0
Brad M. Fischer 50,000 0.10% 50,000 0 0
GH Revocable Trust 625,000 1.19% 625,000 0 0
Jonathan Greco 312,500 0.60% 312,500 0 0
Jaime L. Huttrer 2,500,000 4.77% 2,500,000 0 0
David McGuiness 300,000 0.57% 300,000 0 0
Katie Mucino 22,500 0.04% 22,500 0 0
Matthew Nicosia 5,312,500 10.13% 5,312,500 0 0
OCIFG, Inc. 20,000,00 38.14% 20,000,000 0 0
James Samuelson 23,812,50 45.41% 23,812,500 0 0
Andrew C. Steedman 5,000,000 9.53% 5,000,000 0 0
Andrew I. Telsey 1,500,000 2.86% 1,500,000 0 0
Christine Tryder 50,000 0.10% 50,000 0 0
Zero RMW, LLC. 3,017,500 5.75% 3,017,500 0 0

 

 

 

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THE OFFERING

 

Summary of the Offering

 

Shares currently outstanding: 55,649,656
   
Shares being offered: 135,000,000 shares of common stock that may be issued on conversion of the Series A Preferred Shares by the Selling Shareholders.
   
Offering Price per share: The Selling Stockholder may sell all or a portion of the shares being offered pursuant to this prospectus at fixed prices, at prevailing market prices at the time of sale, at varying prices, or at negotiated prices.
   
Use of Proceeds: We will not receive any proceeds from the sale of the shares of our common stock by the Selling Stockholder.
   
OTC Markets Symbol: CPMD
   
Risk Factors: See “Risk Factors” beginning on page 7 and the other information in this prospectus for a discussion of the factors you should consider before deciding to invest in shares of our common stock.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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PLAN OF DISTRIBUTION

 

The Selling Security Holders may, from time totime, sell any or all of its shares of our common stock on otcmarkets.com or any other stock exchange, market or trading facility on whichthe shares of our common stock are traded, or in private transactions. These sales may be at fixed prices, prevailing market prices atthe time of sale, at varying prices, or at negotiated prices. The selling stockholder may use any one or more of the following methodswhen selling shares:

 

  · Ordinary brokerage transactions and transactions in which the broker-dealer solicits purchases;

 

  · Block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

 

  · Purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

 

  · Privately negotiated transactions;

 

  · Broker-dealers may agree with the Selling Stockholder to see a specified number of such shares at a stipulated price per share; or

 

  · A combination of any such methods of sale.

 

Additionally, broker-dealers engaged by the SellingSecurity Holders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts fromthe selling stockholder (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated,but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary brokeragecommissions in compliance with FINRA Rule 2440; and in the case of a principal transaction, a mark-up or mark-down in compliance withFINRA IM-2440. Broker-dealers may agree with the selling stockholder to sell a specified number of shares at a stipulated price per share,and, to the extent such a broker-dealer is unable to do so acting as agent for the selling stockholder, to purchase as principal any unsoldshares at the price required to fulfill the broker-dealer commitment to the selling stockholder. Broker-dealers who acquire shares asprincipal may thereafter resell such shares from time to time in one or more transactions (which may involve crosses and block transactionsand which may involve sales to and through other broker- dealers, including transactions of the nature described above and pursuant tothe one or more of the methods described above) at fixed prices, at prevailing market prices at the time of the sale, at varying pricesdetermined at the time of sale, or at negotiated prices, and in connection with such resales may pay to or receive from the purchasersof such shares commissions computed as described above. To the extent required under the Securities Act, an amendment to this prospectusor a supplemental prospectus will be filed, disclosing:

 

  · the name of any such broker-dealers;

 

  · the number of shares involved;

 

  · the price at which such shares are to be sold;

 

  · the commission paid or discounts or concessions allowed to such broker-dealers, where applicable;

 

  · that such broker-dealers did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus, as supplemented; and

 

  · other facts material to the transaction.

 

 

 

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There can be no assurance that the selling stockholderwill sell any or all of the shares of common stock registered pursuant to the registration statement, of which this prospectus forms apart.

 

The Selling Security Holders are underwriterswithin the meaning of the Securities Act of 1933, as amended (“Securities Act”) and any broker-dealers or agents that areinvolved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act of 1933 in connectionwith such sales. Any commissions received by such broker-dealers or agents, and any profit on the resale of the shares purchased by them,may be deemed to be underwriting commissions or discounts under the Securities Act of 1933. Pursuant to a requirement by FINRA, the maximumcommission or discount to be received by any FINRA member or independent broker-dealer may not be greater than 8% of the gross proceedsreceived by us for the sale of any securities being registered pursuant to Rule 415 promulgated under the Securities Act.

 

Discounts, concessions, commissions and similarselling expenses, if any, attributable to the sale of shares will be borne by the Selling Stockholder. The Selling Stockholder may agreeto indemnify any agent, dealer, or broker-dealer that participates in transactions involving sales of the shares if liabilities are imposedon that person under the Securities Act.

 

We are required to pay certain fees and expensesincurred by us incident to the registration of the shares covered by this prospectus. We have agreed to indemnify the Selling Stockholderagainst certain losses, claims, damages and liabilities, including liabilities under the Securities Act. We will not receive any proceedsfrom the resale of any of the shares of our common stock by the Selling Security Holders.

  

The resale shares will be sold only through registeredor licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares maynot be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualificationrequirement is available and is complied with.

 

Under applicable rules and regulations under theSecurities Exchange Act of 1934, as amended (“Exchange Act”) any person engaged in the distribution of the resale shares maynot simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as definedin Regulation M, prior to the commencement of the distribution. In addition, the selling stockholders will be subject to applicable provisionsof the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and salesof shares of the common stock by the selling stockholder or any other person. We will make copies of this prospectus available to theSelling Stockholder.

 

We have agreed to pay all expenses of the registrationof the shares of common stock pursuant to the registration rights agreement, estimated to be $83,071.25 in total, including, withoutlimitation, SEC filing fees and expenses of compliance with state securities or “Blue Sky” laws.

 

At any time, a particular offer of the sharesof common stock is made by the selling stockholder, a revised prospectus or prospectus supplement, if required, will be distributed. Suchprospectus supplement or post-effective amendment will be filed with the Commission to reflect the disclosure of any required additionalinformation with respect to the distribution of the shares of common stock. We may suspend the sale of shares by the selling stockholderpursuant to this prospectus for certain periods of time for certain reasons, including if the prospectus is required to be supplementedor amended to include additional material information

 

Our common stock is quoted on the Over the Counter (OTCPINK) exchangeunder the trading symbol “CPMD”

 

 

 

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DESCRIPTION OF SECURITIES TO BE REGISTERED

 

Common Stock Rights

 

Each share of Common Stock shall have one (1)vote per share for all purposes. Our Common Stock does not provide preemptive, subscription or conversion rights and there is no redemptionor sinking fund provisions or rights. Our Common Stockholders are not entitled to cumulative voting for election of Board members. Eachshare of our Common Stock entitles its holder to one vote in the election of each director and on all other matters voted on generallyby our stockholders. Holders of our Common Stock will be entitled to dividends in such amounts and at such times as our Board of Directorsin its discretion may declare out of funds legally available for the payment of dividends. We currently intend to retain our entire availablediscretionary cash flow to finance the growth, development and expansion of our business and do not anticipate paying any cash dividendson the Common Stock in the foreseeable future. Any future dividends will be paid at the discretion of our Board of Directors.

 

Holders of our Common Stock Shares

 

As of May 7, 2021, there were 316 holders of recordof our common stock.

 

Authorized Capital Stock

 

We are authorized to issue 300,000,000 sharesof capital stock in the denominations set forth below, $0.0001 par value.

 

Common Stock

 

We are authorized to issue 300,000,000 sharesof common stock, of which 55,649,656 shares are issued and outstanding as of May 7, 2021.

 

Preferred Stock

 

Series A Preferred Stock

 

The authorized capital of the Corporation currentlyincludes up to 10,000,000 shares of one or more series of Preferred Shares, at a par value of $0.0001. As at the date of this Prospectus58,300 Series A Preferred Shares and 475,000 Series B Preferred Shares have been issued by the Corporation.

 

Each holder of Series A Preferred Shares is entitledto vote at all meetings of shareholders. Each share of the Series A Preferred Shares is convertible into 1,250 Common Shares and voteon an as-converted basis. The rights and designations of the Series A 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 Preferred Shares shall only be entitled to receive dividends upon declaration by the Board of Directors of a dividend payable on the Common Shares whereupon the holders of the Series A Preferred Shares shall receive a dividend on the number of Common Shares into which each Preferred Share is convertible;

 

  · each Preferred Share is convertible into 1,250 Common Shares; and

 

  · the Series A Preferred Shares are not redeemable.

 

 

 

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Series B Preferred Stock

 

In February 2019, the Company commenced an offeringof up to $3 million in principal amount of Units at a price of $1.00 per Unit, each Unit consisting of one share of Series “B”Convertible Preferred Stock, each Convertible Preferred Share convertible into one share of the Company’s Common Stock at the electionof the holder and one Common Stock Purchase Warrant exercisable to purchase one share of Common Stock at an exercise price of $2.00 pershare, which offering is to be offered only to “accredited investors,” as that term is defined in Rule 501 of Regulation D.This Offering was closed at the end of August 2019. As of September 30, 2020, the Company had accepted $475,000 in subscriptions in thisoffering.

 

There were 475,000 shares of Series B ConvertiblePreferred Stock issued and outstanding as of September 30, 2020, and December 31, 2019, respectively.

 

Options

 

There were no stock options outstanding at December31, 2020.

 

Warrants

 

The following table reflects all outstanding andexercisable warrants on December 31, 2020, and December 31, 2019:

 

    Number of Warrants Outstanding (a)     Weighted Average Exercise Price     Average Remaining Contractual Life (Years)  
Warrants outstanding, January 1, 2018         $        
Warrants issued     350,000       0.57       2.50  
Warrants exercised                  
Warrant forfeited                  
Warrants outstanding, December 31, 2018     350,000     $ 0.57       1.12  
Warrants issued (a)     1,519,750     $ 1.01       1.59  
Warrants outstanding December 31, 2019     1,869,750     $ 0.92       1.80  
Warrants exercised     (25,000 )                
Warrants outstanding December 31, 2020     1,844,750     $ 0.92       1.50  

 

Stock purchase warrants are exercisable for aperiod of two-five years from the date of issuance.

 

(a) Thenumber of warrants reflected in this table does not include 475,000 warrants that were issued at various times during 2019 in connectionwith the issuance of the Company’s Series B Preferred stock. These warrants are exercisable for a period of three years at a strikeprice of $2.00 per share. The Company accounts for warrants issued to purchase shares of its common stock or preferred stock as equityin accordance with FASB ASC 480, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’sOwn Stock, Distinguishing Liabilities from Equity. Therefore, no stock-based compensation expense was recorded for the issuance of these475,000 warrants.

 

 

 

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The value of the stock purchase warrants for theperiods ended December 31, 2020, and December 31, 2019, was determined using the following Black-Scholes methodology:

 

Expected dividend yield (1) 0.00%
Risk-free interest rate range (2) 1.75 - 2.91%
Volatility range (3) 1.23% - 442.92%
Expected life (in years) 2.00 - 5.00

 

_____________

  (1) The Company has no history or expectation of paying cash dividends on its Common Stock.
  (2) The risk-free interest rate is based on the U.S. Treasury yield for a term consistent with the expected life of the awards in effect at the time of grant.
  (3) The volatility of the Company’s Common Stock is based on trading activity for the previous three-year period ended at each stock purchase warrant contract date.

 

During the periods ended December 31, 2020 and2019, the Company recorded $204,579 and $199,035, respectively, in stock-based compensation.

 

Dividend Rights

 

There are no restrictions in our Articles of Incorporationor By-laws that prevent us from declaring dividends. The Delaware Revised Statutes, however, do prohibit us from declaring dividends where,after giving effect to the distribution of the dividend:

 

  1. We would not be able to pay our debts as they become due in the usual course of business; or

 

  2. Our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution

 

We have never declared or paid any cash dividendson our common stock. We currently intend to retain future earnings, if any, to finance the expansion of our business. As a result, wedo not anticipate paying any cash dividends on our common stock in the foreseeable future.

 

Sales Pursuant to Rule 144

 

Any shares of common stock covered by this prospectuswhich qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than pursuant to this prospectus.

 

Rule 144

 

In general, under Rule 144 as currently in effect,once we have been subject to public company reporting requirements for 90 days, a person (or persons whose shares are aggregated) whois not deemed to have been an affiliate of ours at any time during the three months preceding a sale, and who has beneficially owned restrictedsecurities within the meaning of Rule 144 for a least six months (including any period of consecutive ownership of preceding non-affiliatedholders) would be entitled to sell those shares, subject only to the availability of current public information about us. A non-affiliatedperson who has beneficially owned restricted securities within the meaning of Rule 144 for at least one year would be entitled to sellthose shares without regard to the provisions of Rule 144.

 

 

 

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In general, under Rule 144 as currently in effect,once we have been subject to public company reporting requirements for 90 days, our affiliates or persons selling shares on behalf ofour affiliates who own shares that were acquired from us or an affiliate of ours at least six months prior to the proposed sale are entitledto sell upon expiration of the lock-up agreements described above, within any three-month period beginning 90 days after the date of thisprospectus, a number of shares that does not exceed the greater of:

 

  · 1% of the number of shares of common stock then outstanding, which will equal 440,036 shares as of the date of this Prospectus; or

 

  · the average weekly trading volume of the common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.

 

Sales under Rule 144 by our affiliates or personsselling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availabilityof current public information about us.

 

Transfer Agent and Registrar

 

Our transfer agent is Mountain Share Transfer,LLC., an SEC Registered transfer agent. Mountain Share Transfer, LLC. is located at 2030 Powers Ferry Road SE, Suite # 212, Atlanta, Ga.30339 and its telephone number is (404)-474-3110.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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INTEREST OF NAMED EXPERTS AND COUNSEL

 

No expert or counsel named in this Prospectusas having prepared or certified any part of this Prospectus or having given an opinion upon the validity of the securities being registeredor upon other legal matters in connection with the registration or Offering of the Common Stock was employed on a contingency basis, orhad, or is to receive, in connection with the Offering, a substantial interest, direct or indirect, in the registrant. Nor was any suchperson connected with the registrant as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.

 

Joshua D. Brinen of Brinen & Associates, LLCwill pass on the validity of the Common Stock being offered pursuant to this Registration Statement. Brinen & Associates, LLC andits member no shares of the Company.

 

The audited financial statements for the year-endedDecember 31, 2019 included in this Prospectus and the Registration Statement have been audited by BF Borgers CPA PC, independent registeredpublic accounting firms, to the extent and for the periods set forth in their report appearing elsewhere herein and in the RegistrationStatement, and are included in reliance upon such report given upon the authority of said firm as experts in auditing and accounting.

 

WHERE YOU CAN FIND MORE INFORMATION

 

We filed this Prospectus with the SEC under theAct with respect to the Common Stock offered by Selling Shareholders in this Prospectus. This Prospectus, which constitutes a part ofthe Registration Statement, does not contain all of the information set forth in the Registration Statement or the exhibits and schedulesfiled therewith. For further information with respect to us and our Common Stock, please see the Registration Statement and the exhibitsand schedules filed with the Registration Statement. Statements contained in this Prospectus regarding the contents of any contract orany other document that is filed as an exhibit to the Registration Statement are not necessarily complete, and each such statement isqualified in all respects by reference to the full text of such contract or other document filed as an exhibit to the Registration Statement.The Registration Statement, including its exhibits and schedules, may be inspected without charge at the public reference room maintainedby the SEC, located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549, and copies of all or any part of the Registration Statementmay be obtained from such offices upon the payment of the fees prescribed by the SEC. Please call the SEC at 1-800-SEC-0330 for furtherinformation about the public reference room. The SEC also maintains an Internet website that contains reports, proxy and information statementsand other information regarding registrants that file electronically with the SEC. The address of the site is www.sec.gov.

 

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATIONFOR SECURITIES LIABILITIES

 

Insofar as indemnification for liabilities arisingunder the Securities Act may be permitted to our directors, officers, and persons controlling us pursuant to the provisions describedin Item 14 of the registration statement of which this prospectus is a part or otherwise, we have been advised that in the opinion ofthe SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the eventthat a claim for indemnification against such liabilities (other than our payment of expenses incurred or paid by our directors, officers,or controlling persons in the successful defense of any action, suit, or proceeding) is asserted by our directors, officers, or controllingpersons in connection with the common stock being registered, we will, unless in the opinion of our counsel the matter has been settledby controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against publicpolicy as expressed in the Securities Act and will be governed by the final adjudication of the issue.

 

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

 

The SEC permits us to “incorporate by reference”the information contained in documents we file with the SEC, which means that we can disclose important information to you by referringyou to those documents rather than by including them in this prospectus. Information that is incorporated by reference is considered tobe part of this prospectus and you should read it with the same care that you read this prospectus. Information that we file later withthe SEC will automatically update and supersede the information that is either contained, or incorporated by reference, in this prospectus,and will be considered to be a part of this prospectus from the date those documents are filed.

 

 

 

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We incorporate by reference the documents listedbelow, all filings filed by us pursuant to the Exchange Act after the date of the registration statement of which this prospectus supplementforms a part, and any future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the timethat all securities covered by this prospectus supplement have been sold; provided, however, that we are not incorporating any documentsor information deemed to have been furnished and not filed in accordance with SEC rules:

 

AnnualReport For Year Ended December 31, 2020 filed on April 26, 2021

Quarterly Report For QuarterEnded September 30, 2020 filed on November 12, 2020

Quarterly Report For QuarterEnded June 30, 2020 filed on August 19, 2020

Quarterly Report For QuarterEnded March 31, 2020 filed on June 29, 2020

Annual Report For Year Ended December31, 2019 filed on June 22, 2020 as Amended

Schedule 14A Proxy Statement Pursuantto Section 14(a) of the Securities Exchange Act of 1934 filed on June 29, 2020

Annual Report For Year Ended December31, 2019 filed on May 27, 2020

 

In addition, all documents subsequently filedby us pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act before the date our offering is terminated or completed are deemedto be incorporated by reference into, and to be a part of, this prospectus.

 

Any statement contained in this prospectus orin a document incorporated or deemed to be incorporated by reference into this prospectus will be deemed to be modified or supersededfor purposes of this prospectus to the extent that a statement contained in this prospectus or any other subsequently filed document thatis deemed to be incorporated by reference into this prospectus modifies or supersedes the statement. Any statement so modified or supersededwill not be deemed, except as so modified or superseded, to constitute a part of this prospectus.

 

We will provide to each person, including anybeneficial holder, to whom a prospectus is delivered, at no cost, upon written or oral request, a copy of any or all of the informationthat has been incorporated by reference in the prospectus but not delivered with the prospectus. You should direct any requests for copiesto us at Attention: Secretary, 888 – 3rd Street SW, Suite 3600, Calgary, Alberta, CanadaT2P 5C5 or you may call us at 949-652-6838.Exhibits to the filings will not be sent, however, unless those exhibits have specifically been incorporated by reference into this prospectus.

 

You should rely only on information containedin, or incorporated by reference into, this prospectus. We have not authorized anyone to provide you with information different from thatcontained in this prospectus, or incorporated by reference in this prospectus and in any free writing prospectus that we have authorizedfor use in connection with this offering. We are not making offers to sell the securities in any jurisdiction in which such an offer orsolicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to anyone to whomit is unlawful to make such offer or solicitation.

 

Information with Respect to the Registrant

 

Forward-Looking Statements

 

This Prospectus includes a number of forward-lookingstatements that reflect management's current views with respect to future events and financial performance. Forward-looking statementsare projections in respect of future events or our future financial performance. In some cases, you can identify forward-looking statementsby terminology such as “may,” “should,” “expects,” “plans,” “anticipates,”“believes,” “estimates.” “predicts,” “potential” or “continue” or the negativeof these terms or other comparable terminology. Those statements include statements regarding the intent, belief or current expectationsof us and members of our management team, as well as the assumptions on which such statements are based. Prospective investors are cautionedthat any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actualresults may differ materially from those contemplated by such forward-looking statements. These statements are only predictions and involveknown and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” set forthin this Annual Report on Form 10-K for the fiscal year ended December 31, 2019, any of which may cause our company’s or our industry’sactual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity,performance or achievements expressed or implied by these forward-looking statements. These risks include, by way of example and withoutlimitation:

 

 

 

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· our ability to successfully commercialize and our products and services on a large enough scale to generate profitable operation;

 

· 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.

 

Although we believe that the expectations reflectedin the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, or performance. Except as requiredby applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statementsto conform these statements to actual results.

 

Readers are urged to carefully review and considerthe various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission (the “SEC”).We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipatedevents or changes in the future operating results over time except as required by law. We believe that our assumptions are based uponreasonable data derived from and known about our business and operations. No assurances are made that actual results of operations orthe results of our future activities will not differ materially from our assumptions.

 

As used in this Annual Report on Form 10-K andunless otherwise indicated, the terms “CPMD,” “Company,” “we,” “us,” and “our”refer to CannaPharmaRx, Inc. and our wholly-owned subsidiaries Alternative Medical Solutions Inc., and CannapharmaRx Canada Corp. Unlessotherwise specified, all dollar amounts are expressed in United States dollars.

 

 

 

 

 

 

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Description of Business

 

Corporate History and Background

 

The Company was originally incorporated in theState of Colorado in August 1998 under the name “Network Acquisitions, Inc.” It changed its 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 underChapter 11 of the United States Bankruptcy Code. In connection with the filing, on February 16, 2001, the Company sold its entire business,and all of its assets, for the benefit of its creditors. After the sale, the Company still had liabilities of $8.4 million and was subsequentlydismissed by the Court from the Chapter 11 reorganization, effective March 13, 2001, at which time the last of the Company’s thenremaining directors resigned. On March 13, 2001, the Company had no business or source of income, no assets, no employees or directors,outstanding liabilities of approximately $8.4 million, and had terminated its duty to file reports under securities law. In February 2008,after filing of a Form 10 registration statement pursuant to the Securities Exchange Act of 1934, as amended, we were re-listed on theOTC Bulletin Board.

 

In April 2010, the Company re-domiciled in Delawareunder the name CCVG, Inc. (“CCVG”). Effective December 31, 2010, the Company completed an Agreement and Plan of Merger andReorganization (the “Reorganization”) which provided for the merger of two of the Company’s wholly-owned subsidiaries.As a result of this reorganization, the Company’s name became “Golden Dragon Inc.,” which became the surviving publiclyquoted parent holding company.

 

On May 9, 2014, the Company entered into a SharePurchase Agreement (the “Share Purchase Agreement”) with CannaPharmaRx, Inc., a Colorado corporation (“CannaColorado”), 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 restricted shares of the Company’s common stock from Mr.Cutler and an additional 9,000,000 common shares directly from the Company.

 

In October 2014, the Company changed its legalname to “CannaPharmaRx, Inc.”

 

In April 2016, the Company ceased operations.As a result, the Company was then considered a “shell” company as defined under the Securities Exchange Act of 1934, as amended,as defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act.

 

Effective December 31, 2018, the Company and HanoverCPMD Acquisition Corp. (“CPMD Hanover”) a newly formed, wholly-owned subsidiary, entered into a Securities Purchase Agreementwith Alternative Medical Solutions, Inc., an Ontario, Canada corporation (“AMS”), its shareholders, wherein the Company acquiredall 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 inspectthe facility and relevant operating procedures to ensure it meets the standards that have been approved in the application. There canbe no assurances that the Company will receive this license.

 

The facility is a 48,750 square-foot marijuanagrow facility built on a 6.7-acre parcel of land located in Hanover, Ontario Canada. To date, the exterior construction of the buildinghas been completed. However, no interior construction has begun. Upon full completion, the facility will contain up to twenty separategrowing rooms which we believe will provide an annual production capacity of 9,500 kilos of marijuana (20,900 lbs.). Completion of thebuild-out of the facility is expected to take an estimated 20 weeks. Together with the remaining equipment needed to complete the growthe Company estimates that it will require approximately CAD$20.0 million in additional financing which it may seek to raise via equityand debt. There can be no assurances that the Company will successfully raise the financing required to complete the construction of thefacility and begin cultivation.

 

As a result of the completion of the acquisitionof AMS on December 31, 2019, the Company no longer fits the definition of a “shell company,” as defined in Rule 405 of theSecurities 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, advisingthat it was no longer a shell company pursuant to the aforesaid Rule.

 

 

 

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Effective February 25, 2019, the Company acquired3,712,500 shares and 2,500,000 Warrants to purchase 2,500,000 shares of Common Stock of GN Ventures, Ltd, Alberta, Canada, f/k/a GreatNorthern Cannabis, Ltd. (“GN”), in exchange for an aggregate of 7,988,963 shares of its Common Stock, from a former shareholderof GN who is now the Company’s President and CEO. In May 2020, the Company exchanged 5,507,400 of its shares for 3,671,597 sharesof GN. We estimate that these shares and warrants represent approximately 14.7% of the fully diluted issued and outstanding stock of GN.There can be no assurances that GN has not issued any Common Stock subsequent to May 2020. If they have issued Common Stock this woulddilute our ownership percentage below 14.7%. The Company believes these recent purchases and exchange of common stock represent the initialstep in its efforts to acquire all or a significant portion of the issued and outstanding stock of GN. However, there can be no assurances.

 

GN owns a 60,000 square-foot cannabis cultivationand grow facility located on 38 acres in Stevensville, Ontario, Canada. Because the Company is a minority shareholder of GN and GN isa privately held company, the Company cannot confirm that the information it currently has on GN’s operations is complete or fullyreliable. GN estimates annual total production capacity from the Stevensville facility of up to 12,500 kilograms of cannabis. GN believesthe Stevensville facility to be complete, and GN’s subsidiary, 9869247 Canada Limited, received a license to cultivate from theCanadian Ministry of Health on July 5, 2019. As a result, in October 2019, GN commenced cultivation activities and began generating revenuesduring the first calendar quarter of 2020. The Company expects that it will obtain additional information on the business activities ofGN as it has renewed discussions to acquire additional interests and is performing its due diligence procedures.

 

Effective June 11, 2019, the Company entered intoa Securities Purchase Agreement with Sunniva, Inc, a British Columbia, Canada corporation (“Sunniva”) wherein the Companyagreed 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 companiesare the current owners of the Sunniva Canada Campus, which includes construction assets for a planned 759,000 square-foot greenhouse locatedon an approximately 114-acre property in Okanagan Falls, British Columbia.

 

On June 8, 2020, the Company received a noticeof termination of this Purchase Agreement, as amended, from Sunniva. As a result, for the three-month interim period ended June 30, 2020,the Company incurred a charge of $1,881,126 due to the write-off of its deposit to Sunniva, banking fees and prepaid expenses associatedwith the failed acquisition of Sunniva. The Company is in discussions with Sunniva, as well as an investment banker who received depositsfrom the Company, about recovering all or a portion of its deposits, banking fees, and prepaid expenses. There can be no assurances thatthe Company will be successful in recovering any amounts. See Note 16, Subsequent Events, below. The accompanying financial statementsas of June 30, 2020, do not reflect, potential recovery amounts related to Sunniva and other parties, if any.

 

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, thepandemic 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.

 

Covid-19 and the U.S’s response to the pandemicare significantly affecting the economy. There are no comparable events that provide guidance as to the effect the Covid-19 pandemic mayhave, and, as a result, the ultimate effect of the pandemic is highly uncertain and subject to change. We do not yet know the full extentof the effects on the economy, the markets we serve, our business, or our operations.

 

 

 

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Overview

 

Corporate History

 

The Company was originally incorporated in theState of Colorado in August 1998 under the name “Network Acquisitions, Inc.” It changed its 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 underChapter 11 of the United States Bankruptcy Code. In connection with the filing, on February 16, 2001, the Company sold its entire business,and all of its assets, for the benefit of its creditors. After the sale, the Company still had liabilities of $8.4 million and was subsequentlydismissed by the Court from the Chapter 11 reorganization, effective March 13, 2001, at which time the last of the Company’s thenremaining directors resigned. On March 13, 2001, the Company had no business or source of income, no assets, no employees or directors,outstanding liabilities of approximately $8.4 million, and had terminated its duty to file reports under securities law. In February 2008,after filing a Form 10 registration statement pursuant to the Securities Exchange Act of 1934, as amended, we were re-listed on the OTCBulletin Board.

 

In April 2010, the Company re-domiciled in Delawareunder the name CCVG, Inc. (“CCVG”). Effective December 31, 2010, the Company completed an Agreement and Plan of Merger andReorganization (the “Reorganization”) which provided for the merger of two of the Company’s wholly-owned subsidiaries.As a result of this reorganization, the Company’s name became “Golden Dragon Inc.,” which became the surviving publiclyquoted parent holding company.

 

On May 9, 2014, the Company entered into a SharePurchase Agreement (the “Share Purchase Agreement”) with CannapharmaRx, Inc., a Colorado corporation (“CannaColorado”), 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 restricted shares of the Company’s common stock from Mr.Cutler and an additional 9,000,000 common shares directly from the Company.

 

In October 2014, the Company changed its legalname to “CannaPharmaRx, Inc.”

 

In April 2016, the Company ceased operations.As a result, the Company was then considered a “shell” company as defined under the Securities Exchange Act of 1934, as amended,as defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act.

 

Effective December 31, 2018, the Company and HanoverCPMD Acquisition Corp. (“CPMD Hanover”) a newly formed, wholly-owned subsidiary, entered into a Securities Purchase Agreementwith Alternative Medical Solutions, Inc., an Ontario, Canada corporation (“AMS”), its shareholders, wherein the Company acquiredall 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 inspectthe facility and relevant operating procedures to ensure it meets the standards that have been approved in the application. There canbe no assurances that the Company will receive this license.

 

The facility is a 48,750 square-foot marijuanagrow facility built on a 6.7-acre parcel of land located in Hanover, Ontario, Canada. To date, the exterior construction of the buildinghas been completed. However, no interior construction has begun. Upon full completion, the facility will contain up to twenty separategrowing rooms which we believe will provide an annual production capacity of 9,500 kilos of marijuana (20,900 lbs.). Completion of thebuild-out of the facility is expected to take an estimated 20 weeks. Together with the remaining equipment needed to complete the growfacility, the Company estimates that it will require approximately CAD$20.0 million in additional financing which it may seek to raisevia equity and debt. There can be no assurance that the Company will successfully raise the financing required to complete the constructionof the facility and begin cultivation.

 

As a result of the completion of the acquisitionof AMS on December 31, 2019, the Company no longer fits the definition of a “shell company,” as defined in Rule 405 of theSecurities Act and Rule 12b-2 of the Exchange Act. It filed the required disclosure on Form 8-K/A with the Securities and Exchange Commission(SEC) on February 14, 2019, advising that it was no longer a shell company pursuant to the aforesaid Rule.

 

 

 

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Effective February 25, 2019, the Company acquired3,712,500 shares and 2,500,000 Warrants to purchase 2,500,000 shares of Common Stock of GN Ventures, Ltd, Alberta, Canada, f/k/a GreatNorthern Cannabis, Ltd. (“GN”), in exchange for an aggregate of 7,988,963 shares of its Common Stock, from a former shareholderof GN who is now the Company’s President and CEO. In May 2020, the Company exchanged 5,507,400 of its shares for 3,671,597 sharesof GN. We estimate that these shares and warrants represent approximately 14.7% of the fully diluted issued and outstanding stock of GN.There can be no assurances that GN has not issued any Common Stock subsequent to May 2020. If they have issued Common Stock this woulddilute our ownership percentage below 14.7%. The Company believes these recent purchases and exchange of common stock represent the initialstep in its efforts to acquire all or a significant portion of the issued and outstanding stock of GN. However, there can be no assurances.

 

GN owns a 60,000 square-foot cannabis cultivationand grow facility located on 38 acres in Stevensville, Ontario, Canada. Because the Company is a minority shareholder of GN and GN isa privately held company, the Company cannot confirm that the information it currently has on GN’s operations is complete or fullyreliable. GN estimates annual total production capacity from the Stevensville facility of up to 12,500 kilograms of cannabis. GN believesthe Stevensville facility to be complete, and GN’s subsidiary, 9869247 Canada Limited, received a license to cultivate from theCanadian Ministry of Health on July 5, 2019. As a result, in October 2019, GN commenced cultivation activities and began generating revenuesduring the first calendar quarter of 2020. The Company expects that it will obtain additional information on the business activities ofGN as it has renewed discussions to acquire additional interests and is performing its due diligence procedures.

 

Effective June 11, 2019, the Company entered intoa Securities Purchase Agreement with Sunniva, Inc, a British Columbia, Canada corporation (“Sunniva”) wherein the Companyagreed 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. Thesecompanies are the current owners of the Sunniva Canada Campus, which includes construction assets for a planned 759,000 square-foot greenhouselocated on an approximately 114-acre property in Okanagan Falls, British Columbia.

 

On June 8, 2020, the Company received a noticeof termination of this Purchase Agreement, as amended, from Sunniva. As a result, for the three-month interim period ended June 30, 2020,the Company incurred a charge of $1,881,126 due to the write-off of its deposit to Sunniva, banking fees and prepaid expenses associatedwith the failed acquisition of Sunniva. The Company is in discussions with Sunniva, as well as an investment banker who received depositsfrom the Company, about recovering all or a portion of its deposits, banking fees, and prepaid expenses. There can be no assurance thatthe Company will be successful in recovering any amounts. See Note 16, Subsequent Events, below. The accompanying financial statementsas of December 31, 2020, do not reflect, potential recovery amounts related to Sunniva and other parties, if any.

 

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, thepandemic 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.

 

Covid-19 and the U.S. response to the pandemicare significantly affecting the economy. There are no comparable events that provide guidance as to the effect the Covid-19 pandemic mayhave, and, as a result, the ultimate effect of the pandemic is highly uncertain and subject to change. We do not yet know the full extentof the effects on the economy, the markets we serve, our business, or our operations.

 

Genetic Sharing Agreement – KloneticsPlant Sciences

 

On August 6, 2020, CannaPharmaRx and Kloneticsentered into a Cooperation Agreement, intended for long-term cooperation to pursue business opportunities concerning the supply of cannabisgenetics, tissues, propagation, plantlet production, ready to flower production, cannabis flower production, flower extraction and cannabisinfused products. This agreement will expire on August 30, 2021, unless extended by mutual agreement of the parties at any time beforethe conclusion of the term.

 

 

 

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The target markets are limited to Canada and USA,but additional markets could be pursued upon mutual agreement and amended to the original agreements

 

CannaPharmaRx has subscribed for 83,333 commonshares of Klonetics for CAN$50,000 which represents approximately 30% of the issued and outstanding shares. Post funding and based onthe multiple closings, tranches, pricing and timing the transaction will create the synergies and financial alignment.

 

Upon CannaPharmaRx reaching a minimum of $500,000of the First Closing in the Klonetics Investment, CannaPharmaRx will have the following rights:

 

- right to buy its genetics from Kloneticsupon a sale of Klonetics for the time period specified in any offtake agreements;

 

- preferred pricing of Klonetics productsequal to or better on a per unit basis than any other of the Klonetics customers;

 

- right to purchase from the completeKlonetics genetics catalogue, subject to third party exclusivity, in Canada and USA; and

 

- preferred delivery of product: deliverytimes and availability equal to or better than any of the other Klonetics clients.

 

Upon the completion of the second closing CannaPharmaRxwill have the right to appoint one person to the Klonetics Board of Directors.

 

Wholly-Owned Subsidiaries

 

Our wholly-owned subsidiaries are:

 

CannaPharmaRx Canada Corp. (Alberta). CannaPharmaRxCanada Corp. is a wholly owned subsidiary of the Company. This subsidiary’s sole purpose and business is to hold the shares of AlternativeMedical Solutions Inc. (Ontario).

 

Alternative Medical Solutions Inc. (Ontario).Alternative Medical Solutions Inc. (Ontario) is a wholly owned subsidiary of the CannaPharmaRx Canada Corp. This subsidiary’s solepurpose and business is to hold, develop and operate the Hannover Project.

 

Liquidity

 

Our cash position is critically deficient, andpayments essential to our ability to operate are not being made in the ordinary course. Failure to raise capital to fund our operationsand failure to generate positive cash flow to fund such operations in the future will have a material adverse effect on our financialcondition. These factors raise substantial doubt about our ability to continue as a going concern.

 

Target Markets, Sales and Marketing

 

CannapharmaRx plans to be a supplier of qualitycannabis with a focus on the whole sale markets. We will do so by building and acquiring the most technologically advanced cannabis growfacilities that combine best practices in advanced construction coupled with forward thinking workflow practices to create the low cost,safe, high quality products. We are partnering with genetics and extraction companies so that we can focus on our core business of growingcannabis.

 

Acquisitions will be funded through a combinationof cash, debt and the issuance of corporate securities. The use of debt will allow the Company to minimize shareholder dilution, enhanceshareholder returns while maintaining the control over the assets.

 

The recent downturn in the Cannabis market hascaused many high quality cannabis assets to be offered at fire sale prices. CannapharmaRx is currently evaluating several of the assetsfor purchase. This will enable us to generate cash flow more quickly.

 

 

 

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Competition

 

The Company is and will continue to be an insignificantparticipant in the business of seeking mergers with joint ventures with, and acquisitions of other entities. A large number of establishedand well-financed entities, including venture capital firms, private equity firms, and family offices, are active in mergers and acquisitionsof companies that may be desirable target candidates for the Company. Nearly all such entities have significantly greater financial resources,technical expertise, and managerial capabilities than the Company, and, consequently, the Company will be at a competitive disadvantagein identifying possible business opportunities and successfully completing a business combination. Moreover, the Company will also competein seeking merger or acquisition candidates with numerous other small public companies.

 

Research and Development

 

We have not incurred any research and developmentexpense.

 

Intellectual Property

 

We currently do not have any intellectual property.

 

Government Approvals and Regulations

 

We do not expect to encounter any significantgovernmental approval or regulation issues, as we do not intend to monopolize any target business areas. We do expect to be subject tothe traditional government regulation related to business licenses, foreign corporation rules, etc.

 

Subsidiaries

 

We currently have two subsidiaries including CannaPharmaRx Canada Corp.(Alberta), and Alternative Medical Solutions Inc. (Ontario).

 

Employees

 

As of the date of this Prospectus, the Corporationhas four (4) individuals working. The operations of the Corporation are managed by its directors and officers.

 

The Corporation’s directors and officerspossess a wide range of professional skills and relevant to pursuing and executing its business strategy. In addition, the Corporationhas available to it various specialized consultants to assist in various areas where full-time employees are not required. These professionalskills include, but are not limited to, large-scale production of cannabis, marketing, financial, and business skills.

 

Drawing on significant experience in the cannabisindustry, the Corporation believes that its Management has a gathered all of the key components for the successful development of itsIntended Business, such as strong technical skills, expertise in planning and financial controls, ability to execute on business developmentopportunities, capital markets expertise, and entrepreneurial experience which will allow the Corporation to effectively identify, evaluateand execute on value-added initiatives.

 

We intend to hire additional staff and to engageconsultants in general administration on an as-needed basis. We also intend to engage experts in operations, finance, and general businessto advise us in various capacities. None of our employees are covered by a collective-bargaining agreement, and we believe our relationshipwith our employees is good to excellent.

 

Our future success depends, in part, on our abilityto continue to attract, retain, and motivate highly qualified technical, marketing, and management personnel and, as of the end of theperiod covered by this report and as of the date of filing, we continue to rely on the services of independent contractors for much ofour sales/marketing. We believe technical, accounting, and other functions are also critical to our continued and future success.

 

 

 

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Description of Property

 

Our principal executive offices are located at888 – 3rd Street SW, Suite 3600, Calgary, Alberta, CanadaT2P 5C5, and our telephone number is 949-652-6838.  Our executiveoffice is a virtual office and is utilized for meetings, conferences, telephone and message support. On March 14, 2019, we entered intoa lease agreement located at such address for a total monthly rental of $4,200CAD.

 

AMS owns 38 acres located in the town ofHanover, Ontario. 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. Uponfull completion, the facility will contain up to twenty separate growing rooms which we believe will provide an annual production capacityof 9,500 kilos of marijuana (20,900 lbs.). Completion of the build-out of the facility is expected to take an estimated 20 weeks.

 

The Company’s place of business in the UnitedStates is located at 2 Park Plaza, Suite 1200 – B. Irvine, CA 92614. This space was provided to the Company on a twelve-month termby a company of which Mr. Nicosia, one of the Company’s directors, serves of the President and CEO. The monthly rent at that locationwas $1,000; however, as of the date of this report, the Company has not made any rent payments and continues to accrue those amounts asaccounts payable.

 

The Company maintains a satellite place of businessto Suite 206 1180 Sunset Drive, Kelowna, BC, Canada Z1Y 9W6, which the Company has rented pursuant to an oral sublease from PLC InternationalInvestments Inc, a company owned and controlled by Dominic Colvin, the Company’s current CEO, President and a director. This locationconsists of approximately 500 sq. feet. The Company paid a monthly rent of $1,500 (CAD).

 

Legal Proceedings

 

We may be involved in legal proceedings in theordinary course of our business, and our management cannot predict the ultimate outcome of these legal proceedings with certainty.  TheCompany is plaintiff or defendant in the following actions:

 

As part of our acquisition of AMS, we assumedan action filed against AMS by Ataraxia Canada, Inc., alleging breach of contract, specifically, breach of a nonbinding term sheet providingfor Ataraxia to acquire controlling interest in AMS and they are seeking $15 million in damages. A Statement of Claim was prepared byAtaraxia Canada, Inc., as plaintiff, and circulated to Alternative Medical Solutions Inc., as defendant, on August 2, 2018, under theOntario Superior Court of Justice (Court file no. CV-17-580157). The parties have engaged in discussions with respect to a potential settlementof this matter. Counsel has advised that it believes it is premature to speculate on any outcome of this litigation, including the likelihoodof a settlement or any potential liability at this time.

  

Our agreement to acquire AMS contained a provisionrequiring us to diligently defend against the claims brought forth in, and assume full and complete control of, the Ataraxia litigation,provided that we shall not enter into any compromise or settlement in respect of the Ataraxia litigation without the prior written consentof the sellers, which consent is not to be unreasonably withheld, conditioned or delayed. The sellers are obligated to cooperate fullyand make available to us all pertinent information and witnesses under their control, make such assignments and take such other stepsas in the opinion of our counsel are reasonably necessary to enable us to defend against the claims brought forth in the Ataraxia litigation.

 

We are currently reviewing two separate situationswith our legal counsel in order to ascertain whether we have claims against Steven Barber arising out of his default of the ConsultingAgreement we entered into as part of the AMS acquisition more fully described in” Part I, Item 1,” Business, above and variousclaims against Gary Herick, a former officer and director. In January 2020, we received correspondence from counsel for Mr. Barber demandingpayment on amounts purported to be due pursuant to his Consulting Agreement with us. We are currently reviewing whether Mr. Barber hasperformed pursuant to the terms of the Consulting Agreement.

 

No decision on whether to proceed on either ofthese situations has been reached as of the date of this Report.

 

 

 

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On July 9, 2020, we filed a lawsuit in the United States District Courtfor the District of Colorado (1:20-cv-01999-RM-GPG) against Gary Herick, Arrowhead Consulting, LLC, Whitemoon Energy LLC., JamieHuttrer a/k/a Jamie Huttrer-Herick, and ZeroRMW, LLC (collectively, the “Herick Parties”). The lawsuit alleges, amongother things, the Herick Parties engaged in various legal violations including breach of fiduciary duty, common law fraud, conversion,usurpation of corporate opportunities, securities violations pursuant to Section 10b-5 of the Securities Exchange Act of 1934, and civilconspiracy. Mr. Herick was a former officer and director of the Company. On September 8, the Herick Parties filed a Motion to Dismissthe Sixth Claim for Relief (§ 10b-5 Federal Securities Law). On September 28, 2020, we filed a First Amended Complaint. On October10, 2020, the Herick Parties filed a Motion to Dismiss the Fourth and Fifth Claims for Relief. On October 30, 2020, the Parties fileda Stipulated Motion for an Extension of Time, through and including November 16, 2020, for us to respond to the Herick Parties’Motion to Dismiss the Fourth and Fifth Claims for Relief.

 

On July 9, 2020, we made a demand of Gary Herick, Arrowhead Consulting,LLC, Whitemoon Energy LLC., Jamie Huttrer a/k/a Jamie Huttrer-Herick, and ZeroRMW, LLC (collectively, the “Herick Parties”)for a return of with seeking the return of profits made between the period of August 2018, to January 2019. During this period, Gary Herickwas the Chief Financial Officer and Director of the Issuer. Gary Herick was also the owner of approximately twenty-six percent (26%) ofthe Issuer’s common stock. Pursuant to the Securities Exchange Act of 1934, §16(b), 15 U.S.C.S. § 78p(b), an issuer mayrecover any profits realized by a beneficial owner from the sale of the issuer's equity securities within a six (6) month period. Allunlawful profits must be returned to the Issuer on or before Tuesday, September 8, 2020. If Herick does not return such profits by thatdate, the Company will file a lawsuit to recover such profits.

 

On February 17, 2021, a Settlement Agreement and Release together witha Lock Up Agreement were signed by all parties to the lawsuit. As a result, the litigation has been discontinued.

 

On April 15, 2021, Bristol Capital Investors,LLC (BCI) filed a lawsuit in the Superior Court of the State of California, County of Los Angeles against Cannapharmarx Inc. and Does1 – 50, inclusive (Case No. 21st CV1 3696). The lawsuit alleges that Cannapharmarx Inc. (CPMD) breached the Amended andRestated Limited Liability Company Membership Purchase Agreement it had entered into with Bristol Capital Investors, LLC (BCI) to purchaseBCI’s interest in Ramon Road Production Campus, LLC (RRPC), a single asset entity which owned an improved property, known as theGlass House, located in Cathedral City, California. BCI alleges causes of action for Fraud, Breach of Contract, Breach of the ImpliedCovenant of Good Faith and Fair Dealing, and Negligent Misrepresentation, and seeks compensatory and consequential damages in the amountof $10.5 millions dollars plus attorneys’ fees and costs. CPMD intends to vigorously defend against BCI’s lawsuit, going forward.

 

We are not a party to any other legal proceedingor aware of any other threatened action as of the date of this Report.

 

 

 

 

 

 

 

 

 

 

 

 

 

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MARKET FOR REGISTRANT’S COMMON EQUITY,RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information

 

Our common stock is nottraded on any exchange but is currently available for trading in the over-the-counter market and is quoted on the OTC Markets Pink Fully-Reportingoperated by OTC Markets Group, Inc. under the symbol “CPMD” Trading in stocks quoted on these markets is often thin and ischaracterized by wide fluctuations in trading prices due to many factors that may have little to do with a company’s operationsor business prospects. As of May 7, 2021, there were 316 holders of record of our common stock. The transfer agent for our common stockis Issuer Direct Corporation.

 

The SEC also has rulesthat regulate broker/dealer practices in connection with transactions in “penny stocks.” Penny stocks generally are equitysecurities with a price of less than $5.00 (other than securities listed on certain national exchanges, provided that the current priceand volume information with respect to transactions in that security is provided by the applicable exchange or system). The penny stockrules require a broker/dealer, before effecting a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardizedrisk disclosure document prepared by the SEC that provides information about penny stocks and the nature and level of risks in the pennystock market. The broker/dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensationof the broker/dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stockheld in the customer’s account. The bid and offer quotations, and the broker/dealer and salesperson compensation information, mustbe given to the customer orally or in writing before effecting the transaction, and must be given to the customer in writing before orwith the customer’s confirmation. These disclosure requirements may have the effect of reducing the level of trading activity inthe secondary market for shares of our common stock. As a result of these rules, investors may find it difficult to sell their shares.

 

Set forth below are therange of high and low bid quotations for the periods indicated as reported by the OTC Bulletin Board. The market quotations reflect inter-dealerprices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions.

 

Quarter Ended   High     Low
           
March 31, 2021   $ 0.68     0.22
December 31, 2020   $ 0.60     0.213
September 30, 2020   $ 2.50     0.53
June 30, 2020   $ 1.95     0.442
March 31, 2020   $ 1.50     0.70
December 31, 2019   $ 2.19     1.10
September 30, 2019   $ 2.99     1.43
June 30, 2019   $ 2.05     1.24
March 31, 2019   $ 2.80     1.20
December 31, 2018   $ 4.00     1.20
September 30, 2018   $ 2.55     0.51
June 30, 2018   $ 1.65     0.55
March 31, 2018   $ 2.01     0.442

 

The last reported sales price of our commonstock on OTC Markets, on April 13, 2021, was Twenty-Five Cents ($0.25) per share.

 

 

 

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Transfer Agent and Registrar

 

Our transfer agent is Mountain Share Transfer,LLC, an SEC Registered transfer agent. Mountain Share Transfer, LLC is located at 2030 Powers Ferry Road SE, Suite 212, Atlanta, GA 30339and its telephone number is 404-474-3110.

 

Dividend Policy

 

We have not declarednor paid any cash dividend on our common stock, and we currently intend to retain future earnings, if any, expansion of our business,and we do not expect to pay any cash dividends in the foreseeable future. The decision whether to pay cash dividends on our common stockwill be made by our board of directors, in their discretion, and will depend on our financial condition, results of operations, capitalrequirements and other factors that our board of directors considers significant.

 

Penny Stock Considerations

 

Our Common Stock willbe deemed to be “penny stock” as that term is generally defined in the Securities Exchange Act of 1934 to mean equity securitieswith a price of less than $5.00. Our shares thus will be subject to rules that impose sales practice and disclosure requirements on broker-dealerswho engage in certain transactions involving a penny stock.

 

Under the penny stockregulations, a broker-dealer selling a penny stock to anyone other than an established customer or accredited investor must make a specialsuitability determination regarding the purchaser and must receive the purchaser’s written consent to the transaction prior to thesale, unless the broker-dealer is otherwise exempt. Generally, an individual with a net worth in excess of $1,000,000 or annual incomeexceeding $200,000 individually or $300,000 together with his or her spouse is considered an accredited investor. In addition, the broker-dealeris required to:

 

Deliver, prior to anytransaction involving a penny stock, a disclosure schedule prepared by the SEC relating to the penny stock market, unless the broker-dealeror the transaction is otherwise exempt:

 

  · Disclose commissions payable to the broker-dealer and our registered representatives and current bid and offer quotations for the securities;

 

  · Send monthly statements disclosing recent price information pertaining to the penny stock held in a customer’s account, the account’s value and information regarding the limited market in penny stocks; and

 

  · Make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction, prior to conducting any penny stock transaction in the customer’s account.

 

Because of these regulations,broker-dealers may encounter difficulties in their attempt to buy or sell shares of our Common Stock, which may affect the ability ofSelling Shareholders or other holders to sell their shares in the secondary market and have the effect of reducing the level of tradingactivity in the secondary market. These additional sales practice and disclosure requirements could impede the sale of our Common Stockeven if our Common Stock becomes publicly traded. In addition, the liquidity for our Common Stock may be decreased, with a correspondingdecrease in the price of our Common Stock. Our shares are likely to be subject to such penny stock rules for the foreseeable future.

 

 

 

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MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Note Regarding Forward-Looking Statements

 

This registrationstatement includes a number of forward-looking statements that reflect management's current views with respect to future events and financialperformance. Forward-looking statements are projections in respect of future events or our future financial performance. Insome 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. Thesestatements include statements regarding the intent, belief or current expectations of us and members of our management team, as well asthe assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are notguarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplatedby such forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertaintiesand other factors, including the risks set forth in the section entitled “Risk Factors” in our Annual Report on Form 10-Kfor the fiscal year ended December 31, 2019, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on May27, 2020 as amended on June 22, 2020, 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 expressedor implied in our forward-looking statements. These risks and factors include, by way of example and without limitation:

 

  · our ability to successfully commercialize and 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.

 

Although we believe that the expectations reflectedin the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, or performance. Except as requiredby applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statementsto conform these statements to actual results.

 

Readers are urged to carefully review and considerthe various disclosures made by us in this report and in our other reports filed with the SEC. We undertake no obligation to update orrevise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operatingresults over time except as required by law. We believe that our assumptions are based upon reasonable data derived from and known aboutour business and operations. No assurances are made that actual results of operations or the results of our future activities will notdiffer materially from our assumptions.

 

As used in This registration statement and unlessotherwise indicated, the terms “CPMD,” “Company,” “we,” “us,” and “our” referto CannaPharmaRx, Inc. and our wholly-owned subsidiaries Alternative Medical Solutions Inc. and CannapharmaRx Canada Corp. Unless otherwisespecified, all dollar amounts are expressed in United States dollars.

 

 

 

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Corporate History and Overview

 

Overview

 

Corporate History

 

The Company was originally incorporated in theState of Colorado in August 1998 under the name “Network Acquisitions, Inc.” It changed its 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 underChapter 11 of the United States Bankruptcy Code. In connection with the filing, on February 16, 2001, the Company sold its entire business,and all of its assets, for the benefit of its creditors. After the sale, the Company still had liabilities of $8.4 million and was subsequentlydismissed by the Court from the Chapter 11 reorganization, effective March 13, 2001, at which time the last of the Company’s thenremaining directors resigned. On March 13, 2001, the Company had no business or source of income, no assets, no employees or directors,outstanding liabilities of approximately $8.4 million, and had terminated its duty to file reports under securities law. In February 2008,after filing a Form 10 registration statement pursuant to the Securities Exchange Act of 1934, as amended, we were re-listed on the OTCBulletin Board.

 

In April 2010, the Company re-domiciled in Delawareunder the name CCVG, Inc. (“CCVG”). Effective December 31, 2010, the Company completed an Agreement and Plan of Merger andReorganization (the “Reorganization”) which provided for the merger of two of the Company’s wholly-owned subsidiaries.As a result of this reorganization, the Company’s name became “Golden Dragon Inc.,” which became the surviving publiclyquoted parent holding company.

 

On May 9, 2014, the Company entered into a SharePurchase Agreement (the “Share Purchase Agreement”) with CannapharmaRx, Inc., a Colorado corporation (“CannaColorado”), 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 restricted shares of the Company’s common stock from Mr.Cutler and an additional 9,000,000 common shares directly from the Company.

 

In October 2014, the Company changed its legalname to “CannaPharmaRx, Inc.”

 

In April 2016, the Company ceased operations.As a result, the Company was then considered a “shell” company as defined under the Securities Exchange Act of 1934, as amended,as defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act.

 

Effective December 31, 2018, the Company and HanoverCPMD Acquisition Corp. (“CPMD Hanover”) a newly formed, wholly-owned subsidiary, entered into a Securities Purchase Agreementwith Alternative Medical Solutions, Inc., an Ontario, Canada corporation (“AMS”), its shareholders, wherein the Company acquiredall 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 inspectthe facility and relevant operating procedures to ensure it meets the standards that have been approved in the application. There canbe no assurances that the Company will receive this license.

 

The facility is a 48,750 square-foot marijuanagrow facility built on a 6.7-acre parcel of land located in Hanover, Ontario, Canada. To date, the exterior construction of the buildinghas been completed. However, no interior construction has begun. Upon full completion, the facility will contain up to twenty separategrowing rooms which we believe will provide an annual production capacity of 9,500 kilos of marijuana (20,900 lbs.). Completion of thebuild-out of the facility is expected to take an estimated 20 weeks. Together with the remaining equipment needed to complete the growfacility, the Company estimates that it will require approximately CAD$20.0 million in additional financing which it may seek to raisevia equity and debt. There can be no assurance that the Company will successfully raise the financing required to complete the constructionof the facility and begin cultivation.

 

As a result of the completion of the acquisitionof AMS on December 31, 2019, the Company no longer fits the definition of a “shell company,” as defined in Rule 405 of theSecurities Act and Rule 12b-2 of the Exchange Act. It filed the required disclosure on Form 8-K/A with the Securities and Exchange Commission(SEC) on February 14, 2019, advising that it was no longer a shell company pursuant to the aforesaid Rule.

 

 

 

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Effective February 25, 2019, the Company acquired3,712,500 shares and 2,500,000 Warrants to purchase 2,500,000 shares of Common Stock of GN Ventures, Ltd, Alberta, Canada, f/k/a GreatNorthern Cannabis, Ltd. (“GN”), in exchange for an aggregate of 7,988,963 shares of its Common Stock, from a former shareholderof GN who is now the Company’s President and CEO. In May 2020, the Company exchanged 5,507,400 of its shares for 3,671,597 sharesof GN. We estimate that these shares and warrants represent approximately 14.7% of the fully diluted issued and outstanding stock of GN.There can be no assurances that GN has not issued any Common Stock subsequent to May 2020. If they have issued Common Stock this woulddilute our ownership percentage below 14.7%. The Company believes these recent purchases and exchange of common stock represent the initialstep in its efforts to acquire all or a significant portion of the issued and outstanding stock of GN. However, there can be no assurances.

 

GN owns a 60,000 square-foot cannabis cultivationand grow facility located on 38 acres in Stevensville, Ontario, Canada. Because the Company is a minority shareholder of GN and GN isa privately held company, the Company cannot confirm that the information it currently has on GN’s operations is complete or fullyreliable. GN estimates annual total production capacity from the Stevensville facility of up to 12,500 kilograms of cannabis. GN believesthe Stevensville facility to be complete, and GN’s subsidiary, 9869247 Canada Limited, received a license to cultivate from theCanadian Ministry of Health on July 5, 2019. As a result, in October 2019, GN commenced cultivation activities and began generating revenuesduring the first calendar quarter of 2020. The Company expects that it will obtain additional information on the business activities ofGN as it has renewed discussions to acquire additional interests and is performing its due diligence procedures.

 

Effective June 11, 2019, the Company entered intoa Securities Purchase Agreement with Sunniva, Inc, a British Columbia, Canada corporation (“Sunniva”) wherein the Companyagreed 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. Thesecompanies are the current owners of the Sunniva Canada Campus, which includes construction assets for a planned 759,000 square-foot greenhouselocated on an approximately 114-acre property in Okanagan Falls, British Columbia.

 

On June 8, 2020, the Company received a noticeof termination of this Purchase Agreement, as amended, from Sunniva. As a result, for the three-month interim period ended June 30, 2020,the Company incurred a charge of $1,881,126 due to the write-off of its deposit to Sunniva, banking fees and prepaid expenses associatedwith the failed acquisition of Sunniva. The Company is in discussions with Sunniva, as well as an investment banker who received depositsfrom the Company, about recovering all or a portion of its deposits, banking fees, and prepaid expenses. There can be no assurance thatthe Company will be successful in recovering any amounts. See Note 16, Subsequent Events, below. The accompanying financial statementsas of December 31, 2020, do not reflect, potential recovery amounts related to Sunniva and other parties, if any.

 

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, thepandemic 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.

 

Covid-19 and the U.S. response to the pandemicare significantly affecting the economy. There are no comparable events that provide guidance as to the effect the Covid-19 pandemic mayhave, and, as a result, the ultimate effect of the pandemic is highly uncertain and subject to change. We do not yet know the full extentof the effects on the economy, the markets we serve, our business, or our operations.

 

Genetic Sharing Agreement – KloneticsPlant Sciences

 

On August 6, 2020, CannaPharmaRx and Kloneticsentered into a Cooperation Agreement, intended for long-term cooperation to pursue business opportunities concerning the supply of cannabisgenetics, tissues, propagation, plantlet production, ready to flower production, cannabis flower production, flower extraction and cannabisinfused products. This agreement will expire on August 30, 2021, unless extended by mutual agreement of the parties at any time beforethe conclusion of the term.

 

 

 

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The target markets are limited to Canada and USA,but additional markets could be pursued upon mutual agreement and amended to the original agreements.

 

CannaPharmaRx has subscribed for 83,333 commonshares of Klonetics for CAN$50,000 which represents approximately 30% of the issued and outstanding shares. Post funding and based onthe multiple closings, tranches, pricing and timing the transaction will create the synergies and financial alignment.

 

Upon CannaPharmaRx reaching a minimum of $500,000of the First Closing in the Klonetics Investment, CannaPharmaRx will have the following rights:

 

- right to buy its genetics from Kloneticsupon a sale of Klonetics for the time period specified in any offtake agreements;

 

- preferred pricing of Klonetics productsequal to or better on a per unit basis than any other of the Klonetics customers;

 

- right to purchase from the completeKlonetics genetics catalogue, subject to third party exclusivity, in Canada and USA; and

 

- preferred delivery of product: deliverytimes and availability equal to or better than any of the other Klonetics clients.

 

Upon the completion of the second closing CannaPharmaRxwill have the right to appoint one person to the Klonetics Board of Directors.

 

Wholly-Owned Subsidiaries

 

Our wholly-owned subsidiaries are:

 

CannaPharmaRx Canada Corp. (Alberta). CannaPharmaRxCanada Corp. is a wholly-owned subsidiary of the Company. This subsidiary’s sole purpose and business is to hold the shares of AlternativeMedical Solutions Inc. (Ontario).

 

Alternative Medical Solutions Inc. (Ontario).Alternative Medical Solutions Inc. (Ontario) is a wholly-owned subsidiary of the CannaPharmaRx Canada Corp. This subsidiary’s solepurpose and business is to hold, develop and operate the Hannover Project.

 

Results of Operations

 

The Company does not currently sell or marketany products and did not have any sales in the fiscal years ended December 31, 2020 or 2019. The Company will commence actively marketingproducts after the products have been cleared or approved by Health Canada, but there can be no assurance, however, that we will be successfulin obtaining Health Canada clearance or approval for our products.

 

Costs of Goods Sold

 

The Company did not have sales for the fiscalyears 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 and2019, the Company had no gross profit or gross margin.

 

 

 

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Operating Expenses

 

Our operating expenses consist primarily of generaland administrative expenses, which include salaries, stock-based compensation expense and legal and professional fees associated withthe costs for services or employees in finance, accounting, sales, administrative activities and the formation and compliance of a publiccompany.

 

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 $1,657,188which included a write up of a promissory note due of $890,570 and an accounts payable amount of $312,371 which are both currently indispute. Acquisition expenses are lower by $4,041,424. Professional fees have increased by $413,566. The current year includes an impairmentof goodwill and fixed assets of $7,962,694. The prior year includes an investment write-down of $7,070,841.

 

Liquidity, Financial Condition and CapitalResources

 

As of December 31, 2020 we had cash on hand of$334,969 and a working capital deficit of approximately $7,541,860 as compared to cash on hand of $1,547 and a working capital deficitof approximately 3,730,887 as of December 31, 2019. The increase in working capital deficit is 3,810,973 due primarily to the write-offstaken resulting from the loss of the Sunniva acquisition.

 

Going Concern

 

As of December 31, 2020, and 2019, the Companyhad $334,969 and $1,547 cash on hand, respectively, and no revenue-producing business or other sources of income. Additionally, as ofDecember 31, 2020, the Company had negative working capital totaling $17,081,639 and a retained earnings deficit of $77,331,820.

 

In the Company’s financial statements forthe fiscal years ended December 31, 2020, and 2019, the Reports of the Independent Registered Public Accounting Firm include an explanatoryparagraph that describes substantial doubt about the Company’s ability to continue as a going concern. These financial statementshave been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitmentsin the normal course of business. Based on its current financial projections, the Company believes it does not have sufficient existingcash resources to fund its current limited operations.

 

It is the Company’s current intention toraise debt and/or equity financing to fund ongoing operating expenses. There is no assurance that these events will be satisfactorilycompleted or at terms acceptable to the Company. Any issuance of equity securities, if accomplished, could cause substantial dilutionto existing stockholders. Any failure by the Company to successfully implement these plans would have a material adverse effect on itsbusiness, including the possible inability to continue operations.

 

The condensed consolidated financial statementsdo not include any adjustments that may be necessary should the Company be unable to continue as a going concern. The Company’scontinuation as a going concern is dependent on its ability to obtain additional financing as may be required and ultimately to attainprofitability. If the Company raises additional funds through the issuance of equity, the percentage ownership of current shareholderscould be reduced, and such securities might have rights, preferences or privileges senior to the rights, preferences and privileges ofthe Company’s common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are notavailable or are not available on acceptable terms, the Company may not be able to take advantage of prospective business endeavors oropportunities, which could significantly and materially restrict its future plans for developing its business and achieving commercialrevenues. If the Company is unable to obtain the necessary capital, the Company may have to cease operations.

 

 

 

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Cash Flows

 

As of December 31, 2020 we had cash on hand of$334,969 and a working capital deficit of approximately $7,541,860 as compared to cash on hand of $1,547 and a working capital deficitof approximately 3,730,887 as of December 31, 2019. The increase in working capital deficit is 3,810,973 due primarily to the write-offstaken resulting from the loss of the Sunniva acquisition.

 

Going Concern

 

As of December 31, 2020, and 2019, the Companyhad $334,969 and $1,547 cash on hand, respectively, and no revenue-producing business or other sources of income. Additionally, as ofDecember 31, 2020, the Company had negative working capital totaling $17,081,639 and a retained earnings deficit of $77,331,820.

 

In the Company’s financial statements forthe fiscal years ended December 31, 2020, and 2019, the Reports of the Independent Registered Public Accounting Firm include an explanatoryparagraph that describes substantial doubt about the Company’s ability to continue as a going concern. These financial statementshave been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitmentsin the normal course of business. Based on its current financial projections, the Company believes it does not have sufficient existingcash resources to fund its current limited operations.

 

It is the Company’s current intention toraise debt and/or equity financing to fund ongoing operating expenses. There is no assurance that these events will be satisfactorilycompleted or at terms acceptable to the Company. Any issuance of equity securities, if accomplished, could cause substantial dilutionto existing stockholders. Any failure by the Company to successfully implement these plans would have a material adverse effect on itsbusiness, including the possible inability to continue operations.

 

The condensed consolidated financial statementsdo not include any adjustments that may be necessary should the Company be unable to continue as a going concern. The Company’scontinuation as a going concern is dependent on its ability to obtain additional financing as may be required and ultimately to attainprofitability. If the Company raises additional funds through the issuance of equity, the percentage ownership of current shareholderscould be reduced, and such securities might have rights, preferences or privileges senior to the rights, preferences and privileges ofthe Company’s common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are notavailable or are not available on acceptable terms, the Company may not be able to take advantage of prospective business endeavors oropportunities, which could significantly and materially restrict its future plans for developing its business and achieving commercialrevenues. If the Company is unable to obtain the necessary capital, the Company may have to cease operations.

 

Cash Flows

 

The following table sets forth the primary sourcesand 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 

 

 

 

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Convertible Notes Payable

 

The following tables set forth the componentsof the Company’s, convertible debentures as of December 31, 2020, and December 31, 2019:

 

   December 31,
2020
   December 31,
2019
 
         
Principal value of convertible notes  $1,662,000   $1,550,000 
Note discount   (664,442)   (997,397)
Total convertible notes, net current  $997,558   $552,603 

 

During the years ended December 31, 2020, andDecember 31, 2019, the Company received proceeds from convertible notes of $2,053,000 and $1,550,000, respectively.

 

On July 8, 2019, the Company commenced a privateoffering of Units at a price of $50,000 per Unit, each Unit consisting of 50,000 shares of the Company’s Common Stock and one $50,000unsecured Convertible Note (“a Convertible Note”), which mature one year from the date of issuance and accrue interest at5% per annum. These Convertible Notes are convertible into shares of the Company’s Common Stock at a conversion price of $1.00 pershare. During the year ended December 31, 2019, the Company issued 31 Units in this offering for and received proceeds of $1,550,000 fromsix accredited investors. Since the Company’s stock price exceeded the conversion feature of the Convertible Notes and was immediatelyexercisable, the Company recorded a beneficial conversion feature (“BCF”) and expense of $1,550,000 which was charged to interestexpense with an offset to paid-in capital.

 

In addition, the 5,505,530 shares of Common Stockincluded 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, wascharged to interest expense with an offset to paid-in capital. The remaining $1,550,000 was recorded as a Note discount of $1,550,000to be amortized over the three years from the date of the Note to the maturity date. The Company recorded $552,602 in interest expenserelated to the amortization of note discount during the year ended December 31, 2019. During the nine months ended September 30, 2020the Company recorded $58,179 in interest expense on these Notes and amortized $1,003,233 of note discount which was charged to interestexpense. As of September 30, 2020, there was $85,808 in accrued interest on these notes, and $12,329 in unamortized note discount relatedto these notes. All of these notes are past their maturity dates. The Company has not received any notice of default on these notes andcontinues to accrue interest on these notes past the maturity date.

 

During the year ended December 31, 2020, the Companyissued a total of 24 notes to accredited investors of which $582,500 was in the form of unsecured 5% convertible notes, and $595,500 wasin unsecured 8% convertible notes, and $1,000,500 at 10%.  Under the terms of each convertible note, the investors received the rightto convert their notes to common stock commencing the year after the date of issuance ranging from 55%-75%, respectively, of the lowestclosing price for the Company’s common stock measured 20 business days prior to conversion. One of the noteholders also received153,940 “returnable” shares in connection with issuance of the convertible notes. These shares are returnable to the Companyif the underlying convertible note ($160,000) is redeemed before the passage of 180 days. During the three months ended September 30,2020 the Company repaid the $160,000 Note, received the 153,940 shares back from the noteholder, and converted a $100,000 note plus accruedinterest into 135,000 Common Shares of the Company.

 

During the year ended December 31, 2020 the Companyrecorded $257,345 in interest expense on these Notes and amortized $1,690,933 of note discount which was charged to interest expense.As of December 31, 2020, there was $35,048 in accrued interest on these notes, and $664,442 in unamortized note discount related to thesenotes. As of the date of this Report, there was one note for $100,000 that past due its maturity date. The Company has not received anynotice of default on these note and continues to accrue interest on these notes past the maturity date.

 

 

 

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During the year ended December 31, 2020 the Companyissued 4,067,332 common shares upon the conversion of $1,984,000 in convertible notes and recorded a gain of $566,408.

 

The FASB has issued authoritative guidance wherebyinstruments which do not have fixed settlement provisions are deemed to be derivative instruments. The conversion prices of the Notesdescribed above were not a fixed amount because they were either subject to an adjustment based on the occurrence of future offeringsor events or they were variable. Since the number of shares is not explicitly limited, the Company is unable to conclude that enough authorizedand unissued shares are available to settle the conversion option. In accordance with the FASB authoritative guidance, the conversionfeatures have been characterized as derivative liabilities to be re-measured at the end of every reporting period with the change in valuereported in the statement of operations.

 

As of December 31, 2020, derivative liabilitieswere valued using a probability-weighted average Black-Scholes-Merton pricing model with the following assumptions:

 

  

December 31,

2020

 
Exercise Price   0.13–0.46 
Stock Price   0.49-1.01 
Risk-free interest rate   .10%-.19% 
Expected volatility   345.50-352.70% 
Expected life (in years)   1.00 
Expected dividend yield   0% 
Fair Value:  $3,676,949 

 

The risk-free interest rate was based on ratesestablished by the Federal Reserve Bank. The Company uses the historical volatility of its common stock to estimate the future volatilityfor its common stock. The expected life of the conversion feature of the notes was based on the remaining term of the notes. The expecteddividend yield was based on the fact that the Company has not customarily paid dividends in the past and does not expect to pay dividendsin the future.

 

During the year ended December 31, 2020, the Companyrecognized a loss of $3,676,649 as “Other Expense” on its Consolidated Statements of Operations, which represented the netchange in the value of the derivative liability. There were no derivative instruments or liability as of December 31, 2019.

 

Promissory Note Agreements

 

The following tables set forth the componentsof the Company’s, convertible debentures as of December 31, 2020, and December 31, 2019:

 

   December 31,
2020
   December 31,
2019
 
Principal value of Promissory Note  $8,977,721   $8,789,794 
Loan discounts   (248,972)   (488,117)
Less: Current portion, net of discount   (8,728,749)   (2,800,559)
Promissory Note, long term net of discount  $   $5,501,118 

 

 

 

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Pursuant to the terms of the Securities PurchaseAgreement with AMS the Company issued a non-interest-bearing CAD $10,000,000 ($7,330,000 USD) promissory note secured only by the sharesacquired in AMS. Principal payments under the Promissory Note are due quarterly commencing upon AMS receiving a license to cultivate andare computed based upon 50% of AMS' cash flow, defined as EBITDA less all capital expenditures, taxes incurred, non-recurring items andother non-cash items for the relevant fiscal quarter, including the servicing of all senior debt payment obligations of the Company. ThePromissory Note matures the earlier of two years from the date AMS receives a license to cultivate, or December 31, 2021. Since AMS hadnot received its cultivation license as of September 30, 2020, the Note Payable will have a maturity date of December 31, 2021.

 

The Company performed a valuation study as partof the AMS acquisition. The valuation study determined that the Promissory Note should be valued at $6,632,917 since it was non-interest-bearing.As a result, the Company recorded a note discount of $697,083. The note discount will be amortized to interest expense over the three-yearterm of the Promissory Note. During the year-ended December 31, 2019, the Company recorded $244,058 in interest expense related to theamortization of the note discount. During the nine months ended September 30, 2020 the Company recorded $175,721 in amortization expenserelated to the Note discount.

 

On July 3, 2019, the Company entered into a 12%$1,000,000 Loan Agreement with Koze Investments LLC (“Koze”), payable in full on June 28, 2020. The Company is currently indiscussions with Koze to extend the maturity date of the Note. While the Company believes it will be successful in extending the maturitydate, there are no assurances this will occur. Under the terms of the 12% Note, Koze took a first security interest against the Company’sHanover, Ontario cannabis facility in progress and required the Company to pay off its existing mortgage of approximately $650,000 CAD.Additionally, the Company agreed to pay a 3% origination fee, prepay six months of interest ($60,000) and to issue to Koze five-year warrantsto purchase 1,001,000 shares of the Company’s Common Stock at an exercise price $1.00 per share. After paying the origination fees,the prepayment and paying off the original mortgage, the Company used a portion of the remaining proceeds as payment against the SMI purchaseprice of CAD $1,000,000. As of the date this Report the Company has continued to accrue interest on the Koze Note and is in discussionto extend its term. Koze has not asserted that a default has occurred.

 

The Company entered into a promissory note withJames Samuelson, a director of the Company, in the amount of $75,000 on May 17, 2019. This note is non-interest bearing, unsecured, andbears no maturity date.

 

The Company entered into a promissory note withDominic Colvin, an officer and director of the Company, in the amount of $250,000 on October 2, 2019. As of September 30, 2020, the remainingbalance of this note is $220,000 with no maturity date.

 

The Company entered into a promissory note witha former officer and director of the Company, Arrowhead Consulting, in the amount of $50,000 on November 13, 2019. This note is non-interestbearing, unsecured, and bears no maturity date.

 

On April 21, 2020, the Company received a loanfrom the Government of Canada under the Canada Emergency Business Account program (CEBA). This loan was in the amount of $40,000 CAD (USD$29,352). These funds are interest-free until December 31, 2022, at which time the remaining balance will convert to a 3-year term loanat an interest rate of 5% per annum. If the Company repays the loan prior to December 31, 2022, there will be loan forgiveness of 25%or $10,000 CAD.

 

Financing Agreements:

 

On July 8, 2019, the Company issued a ConvertibleDebenture Issue offering raising $1,550,000 from 6 accredited investors, maturing between July 8 – October 22, 2020. These debenturesare accruing interest at 5% per annum and are convertible to common shares at $1.00 per share. These debentures have all reached theirmaturity dates. There has been no notice of default received on these notes, and interest continues to be accrued past the maturity dates.

 

On January 8, 2020, we issued two $100,000 SeniorOID 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 eachunder the same terms. The maturity date for each additional tranche of this OID Note funded shall be twelve (12) months from the dateof funding.

 

 

 

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These Notes were issued with a one-year maturitydate, 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 anytime after 180 days, or 75% times the lowest closing price of Common Stock for 20 consecutive trading days prior to conversion. In theevent 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 priorto 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. Oneof these notes ($100,000) with accrued interest was converted to common shares of the Company, 30,000 Common Shares were issued on July28, 2020 and 105,000 Common Shares were issued on August 24, 2020 to retire this debenture.

 

On February 27, 2020 we issued an OID Note for$160,000 to an accredited investor for $160,000 under comparable terms and received proceeds of $152,000. This note is convertible intoshares 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 thename of the investor (153,940 shares based on the low closing price of $0.812). The returnable shares will only be returned to our treasuryif the Note is prepaid within the initial 180 days after issuance. The Note was repaid in full with interest on September 3, 2020 andthe 153,940 shares were returned.

 

On March 25, 2020, we issued an OID Note for $78,000to an accredited investor and received proceeds of $75,000. This note is convertible into common shares at any time after 180 days ata variable conversion price which is 61% multiplied by the market price over the immediate 20 preceding day period. This note bears interestat 8%, increasing to 22% if default occurs. Prepayment is authorized up to 180 days, ranging from 115% to 140% of principal plus interest.On October 1, 2020 $35,000 of this Note was converted at $0.3172 into 110,340 Common Shares of the Company. The remainder of this Noteincluding interest, was repaid on October 6, 2020 in the amount of $64,669.87.

 

On May 11, 2020, we issued an OID Note for $53,000to an accredited investor and received proceeds of $50,000. This note is convertible into common shares at any time after 180 days ata variable conversion price which is 61% multiplied by the market price over the immediate 20 preceding day period. This note bears interestat 10%, increasing to 22% in the event of default. Prepayment is authorized up to 180 days, ranging from 115% to 135% of principal plusinterest.

 

On June 4, 2020, we issued an OID Note for $43,000to an accredited investor and received proceeds of $40,000. This note is convertible into common shares at any time after 180 days ata variable conversion price which is 61% multiplied by the market price over the immediate 20 preceding day period. This note bears interestat 10%, increasing to 22% in the event of default. Prepayment is authorized up to 180 days ranging from 115% to 135% of principal plusinterest.

 

On August 17, 2020, we issued an OID Note for$157,500 to an accredited investor and received proceeds of $150,000. This note is convertible into common shares at 55% of the lowesttrading price during immediately preceding 20 day period. This note bears interest at 8%, with principal amount increasing by 20% in theevent of default. Prepayment is authorized up to 180 days ranging from 115% to 140% of principal plus interest.

 

On September 1, 2020, we issued an OID Note for$220,000 to an accredited investor and received proceeds of $220,000. This note is convertible into common shares at $0.75 per share andbears interest of 10%, Should default occur, conversion price is 60% of closing price for 20 days immediately preceding conversion date.Prepayment authorized up to 180 days at 105% to 135% of principal plus interest. Repayment consists of 5 equal monthly payments of $48,400between February 1, 2021 and June 1, 2021.

 

On September 3, 2020, we issued an OID note for$43,500 to an accredited investor and received proceeds of $40,000. This note is convertible into common shares at any time after 180days at a variable conversion price which is 61% multiplied by the market price over the immediate 20 preceding day period. This notebears interest at 10%, increasing to 22% in the event of default. Prepayment authorized up to 180 days at 115% to 140% of principal plusinterest.

 

On September 25, 2020 we issued an OID Note for$250.000 to an accredited investor and received proceeds of $235,000. This note is convertible into common shares at any time after 180days at a variable conversion price which is 60% multiplied by the trading price of common stock during 20 trading days immediately precedingconversion. The note bears interest at 10%. Prepayment authorized up to 180 days at 115% to 140% of principal plus interest.

 

 

 

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We will require additional funds to implementour growth strategy for our business. In addition, while we have received capital from various private placements of equity and convertibledebt that have enabled us to fund our operations, additional funds will be needed for further business development.

 

On October 15, 2020, the Company entered intoa convertible debenture with an accredited investor in the amount of $110,000 with a $10,000 OID. This debenture bears 10% interest andis convertible into common shares at 40% of the lowest closing price during the previous 20-day trading period to the date of conversion.Prepayment of this note is authorized at 0-60 days at 115%, 61-90 days at 125%, 91-120 days at 130%, 121-150 days at 135%, 151-180 daysat 140% and after 180 days at 145%. In the event of default interest increases to 18%.

 

On October 23, 2020 the Company entered into aconvertible debenture with an accredited investor in the amount of $82,500 with a $3,750 OID and 12 months of prepaid interest at $3,750or 5%. This debenture is convertible into common shares at 70% of the lowest closing price during the previous 25 trading days prior toconversion date. Prepayment is authorized at 0-60 days at 115%, 61-180 days at 130%. No prepayment after 180 days. Interest increasesto 24% in the event of default.

 

On December 1, 2020 the Company entered into aconvertible debenture with an accredited investor in the amount of $48,500 bearing 10% interest and a December 1, 2021 maturity date.This debenture is convertible into common shares at 61% of market price during 20 day previous trading period after 180 days. This noteis subject for prepayment between 0 – 180 days at 115% to 139%.

 

On December 17, 2020 the Company entered into$500,000 convertible debentures with a group of accredited investors with a 12 month maturity date, 5% interest, and is convertible at$0.30 per share. These notes are eligible for prepayment at any time with 14 days written notice.

 

On December 30, 2020 the Company entered intoa convertible debenture with an accredited investor in the amount of $43,500 bearing 10% interest and a December 30, 2021 maturity date.This debenture is convertible into common shares at 61% of market price during 20 day previous trading period after 180 days. This noteis subject for prepayment between 0 – 180 days at 115% to 139%.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements thathave or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenuesor expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

 

Effects of Inflation

 

We do not believe that inflation has had a materialimpact on our business, revenues or operating results during the periods presented.

 

Critical Accounting Policies and Estimates

 

Our significant accounting policies are more fullydescribed in the notes to our financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020. Webelieve that the accounting policies below are critical for one to fully understand and evaluate our financial condition and results ofoperations.

 

 

 

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Recent Accounting Pronouncements

 

In May 2014, the FASB issued Accounting StandardsUpdate (“ASU”) No. 2014-09, Revenue from Contracts with Customers: Topic 606, or ASU 2014-09. ASU 2014-09establishes the principles for recognizing revenue and develops a common revenue standard for U.S. GAAP. The standard outlines a singlecomprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenuerecognition guidance, including industry-specific guidance. In applying the new revenue recognition model to contracts with customers,an entity: (1) identifies the contract(s) with a customer; (2) identifies the performance obligations in the contract(s); (3) determinesthe transaction price; (4) allocates the transaction price to the performance obligations in the contract(s); and (5) recognizes revenuewhen (or as) the entity satisfies a performance obligation. The accounting standards update applies to all contracts with customers exceptthose that are within the scope of other topics in the FASB Accounting Standards Codification. The accounting standards update also requiressignificantly expanded quantitative and qualitative disclosures regarding the nature, amount, timing and uncertainty of revenue and cashflows arising from contracts with customers.  The Company adopted ASU 2014-09 as of January 1, 2018, and as there have not beenany significant revenues to date, the adoption did not have a material impact on the Company’s financial position or results ofoperations, and no transition method was necessary upon adoption.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases,or ASU 2016-02The new guidance requires lessees to recognize the assets and liabilities arising from leases on the balancesheet. For public companies, ASU 2016-02 is effective for annual periods, including interim periods within those annual periods, beginningafter December 15, 2018, and early adoption is permitted. The Company does not expect that the adoption of ASU 2016-02 will have a materialimpact on its financial statements.

 

In June 2018, the FASB issued ASU No. 2018-07(Topic 718) Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which expands the scope ofASC Topic 718 to include all share-based payment arrangements related to the acquisition of goods and services from both nonemployeesand employees. An entity should apply the requirements of Topic 718 to nonemployee awards except for certain exemptions specified in theamendment. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year.Early adoption is permitted. The Company is currently evaluating the impact that the adoption of this amendment will have on its condensedconsolidated financial statements.

 

  a. Changes in and Disagreements with Accountants on Disclosure

 

None.

 

  b. Quantitative and Qualitative Disclosures About Market Risk

 

As a smaller reporting company,we are not required to provide the information required by this Item.

 

 

  c. Directors and Executive Officers

 

Set forthbelow are the directors and executive officers of the Company as of May 7, 2021. Except as set forth below, there are no other personswho have been nominated or chosen to become directors, nor are there any other persons who have been chosen to become executive officers.Other than as set forth below, there are no arrangements or understandings between any of the directors, officers and other persons pursuantto which such person was selected as a director or an officer.

 

 

 

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Name   Position Held with Company   Age   Date First Elected or Appointed
Dominick Colvin   Chief Executive Officer, President, and Director   52   April 2018
Marc Branson   Director   44   April 2019
Richard Orman   Director   71   April 2019
Andrew Steedman   Chief Operating Officer   59   April 2019
John  Cassels   Chief Financial Officer   72   April 2019

 

Our Board of Directors believes that all membersof the Board and all executive officers encompass a range of talent, skill, and experience sufficient to provide sound and prudent guidancewith respect to our operations and interests. The information below with respect to our sole officer and director includes his experience,qualifications, attributes, and skills necessary for him to serve as a director and/or executive officer.

 

Biographies

 

Dominick Colvin, 52, was appointedas our Chief Executive Officer, President and a director in April 2018. He resigned these positions in November 2018 but was re-appointedto these positions again in February 2019. In addition to his positions with our Company, since June 2007 Mr. Colvin has been Presidentof PLC International Investments, Inc., a private held Canadian company engaged in power production, oil and coal mining.

 

Marc Branson, 44, was appointedas a director of our Company in April 2019. In addition, since January 2018 he has been the owner and co-founder of Titan Technologies,Inc., Vancouver, British Columbia, Canada, a development stage privately held technology company focused on AI powered block chain solutionsfor businesses. Since October 2016 he has also been the President and director of Catalina Gold Corp., a publicly traded Canadian company.Previously, from October 2013 through June 2015 he was President and a director of Lightning Ventures Inc., a publicly held manufacturerand distributor of specialty oil and gas products. Since 2007 he has also been President and a director of CapWest Investments., a privateinvestment corporation that focuses on development stage companies. He received a degree in International Business from Open LearningUniversity in 2000 and received a Business Management certificate from Capilano College in 1997.

 

Richard D. Orman, 71, was appointedas a director of our Company in April 2019. In addition, he is currently the President of PLM Consultants, LTD, Calgary, Alberta, Canada,a privately held business consulting company, a position he has held since 1982. In 1986 Mr. Orman was elected to the Legislative Assemblyof Alberta and was appointed to the provincial cabinet as Minister of Career Development and Employment. In 1988 he was appointed Ministerof Labor. He was re-elected in 1989 and was then appointed Minster of Energy. He has over 35 years of experience with publicly tradedcompanies in Canada, including Chairman and CEO of Kappa Energy Company, Inc., from 19914 to 2001, a director of Vanguard Oil Corp. from1998 through 2001, and Executive Vice Chairman of Exceed Energy Company, Inc. from 2003 through 2005, Each of the aforesaid companieshad their securities traded on the Toronto Stock Exchange. In addition, he was Vice Chairman of Novatel Inc., a company traded on NASDAQfrom 2004 through 2007 and from 2007 through 2011 he was the lead director of Daylight Energy Ltd, also traded on the TSX. From 2015 throughFebruary 2019, he was a consultant and senior counsel at Canadian Strategy Group, a government relations firm located in Edmonton, Alberta.In 2012 he was elected to the Board of Directors and currently serves as Chairman of the Board of Wescan Energy Corp. a company tradedon the TSX. In 2016 he was elected and currently serves as an independent non-executive director of Persta Resources, Inc., a companytraded on the Hong Kong Stock Exchange. Mr. Orman received a Bachelor of Arts degree with honors from Eastern Washington University in1971.

 

Andrew Steedman, Chief Operating Officer.Mr. Steedman is Chief Operating Officer of CannaPharmaRx, Inc. Prior to joining CannaPharmaRx, Mr. Steedman was the Presidentof his own management consulting firm. From 2005 to 2015 he was Vice President of Operations for NXT Energy Solutions Inc. where he wasresponsible for the signing and execution of over $50 million in contracts in Canada, the USA and internationally. From 2001 to 2003 hewas President and CEO of Wireless Networks and was responsible for the overall strategic direction of the company. From 1999 to 2001,he was Senior Manager of Business Development with Nortel Networks. In this role he was responsible for developing Nortel's unlicensedwireless strategy, identifying strategic partners, developing relationships with key customers and negotiating OEM agreements with keypartners. From 1994 to 1999, Mr. Steedman held various positions within Nortel including product management, project management, internationalbusiness development and marketing. From 1991 to 1994, Mr. Steedman consulted in Bangkok to the Telephone Organization of Thailand (TOT).He was responsible for the construction of a network management center that would monitor the TOT's national network. Mr. Steedman holdsa B.Sc. in Electrical Engineering and an MBA both from the University of Calgary.

 

 

 

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John H. Cassels, Chief Financial Officer.Mr. Cassels’s career focus for more than three decades has been the junior oil and gas exploration and productionsector of the energy industry in Canada, the United States and Argentina. A CPA, CA. He has served as a CEO or CFO and a Director of twelveearly-stage companies, all but one of which were eventually TSX or NYSE listed companies. With a sharp financial bent, Mr. Cassels hasprovided a guiding hand to the entities through initiatives to raise capital from under $1 million to $33 million and developed internallygenerated cash flow for sustained growth while actively participating in accretive mergers, strategic acquisitions and value-added divestitures.Mr. Cassels served as CFO for Purdy & Partners (a private equity firm), CEO of Highview Resources (sold to Wild River Resources),CFO of Redwood Energy and Landover Energy (both subsequently sold), CEO of Raider Resources and Fortune Energy, CFO of PanContinentalOil and Tri-Power Petroleum (both sold) and CFO of Anschutz Canada Exploration (sold to Pembina Resources).

 

Family Relationships

 

There are no family relationships between andamong any of our directors or executive officers.

 

Involvement in Certain Legal Proceedings

 

No director, executive officer, significant employeeor control person of the Company has been involved in any legal proceeding listed in Item 401(f) of Regulation S-K in the past 10 years.

 

Committees of the Board

 

Our Board of Directors held no formal meetingin the year ended December 31, 2018. Otherwise, all proceedings of the Board of Directors were conducted by resolutions consented to inwriting by the sole director and filed with the minutes of the Company.

 

Board Nominations and Appointments

 

In considering whether to nominate any particularcandidate for election to the Board of Directors, we will use various criteria to evaluate each candidate, including an evaluation ofeach candidate’s integrity, business acumen, knowledge of our business and industry, experience, diligence, conflicts of interestand the ability to act in the interests of our stockholders.  The Board of Directors plans to evaluate biographical informationand interview selected candidates in the next fiscal year and also plans to consider whether a potential nominee would satisfy the listingstandards for “independence” of The Nasdaq Stock Market and the SEC’s definition of “audit committee financialexpert.” The Board of Directors does not plan to assign specific weights to particular criteria and no particular criterionwill be a prerequisite for each prospective nominee.

 

We do not have a formal policy with regard tothe consideration of director candidates recommended by our stockholders, however, stockholder recommendations relating to director nomineesmay be submitted in accordance with the procedures set forth below under the heading “Communicating with the Board of Directors”.

 

Communicating with the Board of Directors

 

Stockholders who wish to send communications tothe Board of Directors may do so by writing to 888 – 3rd Street SW, Suite 3600 Calgary, Alberta, CanadaT2P 5C5. The mailing envelopemust contain a clear notation indicating that the enclosed letter is a “Stockholder-Board Communication.” All such lettersmust identify the author as a stockholder and must include the stockholder’s full name, address and a valid telephone number. Thename of any specific intended recipient should be noted in the communication. We will forward any such correspondence to the intendedrecipients; however, prior to forwarding any such correspondence, and we will review such correspondence, and in our discretion, may notforward communications that relate to ordinary business affairs, communications that are primarily commercial in nature, personal grievancesor communications that relate to an improper or irrelevant topic or are otherwise inappropriate for the Board of Director’s consideration.

 

 

 

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Compensation of Directors

 

The Company has been accruing $10,000 per monthper director since January 1, 2019, however to date none of these have been paid. As of June 30, 2020, there was $899,307 in unpaid directorfees, which includes $150,000 owed to former directors accrued since 2016. Directors are not paid for meetings attended. However, we intendto review and consider future proposals regarding board compensation. All travel and lodging expenses associated with corporate mattersare reimbursed by us, if and when incurred.

 

Compensation Committee Interlocks and InsiderParticipation

 

No interlocking relationship exists between ourBoard of Directors and the board of directors or compensation committee of any other company, nor has any interlocking relationship existedin the past.

 

Code of Ethics

 

As part of our system of corporate governance,our Board of Directors has adopted a Code of Business Conduct and Ethics (the “Code”) for directors and executive officersof the Company. This Code is intended to focus each director and executive officer on areas of ethical risk, provide guidance to directorsand executive officer to help them recognize and deal with ethical issues, provide mechanisms to report unethical conduct, and help fostera culture of honesty and accountability. Each director and executive officer must comply with the letter and spirit of this Code. We havealso adopted a Code of Ethics for Financial Executives applicable to our Chief Executive Officer and senior financial officers to promotehonest and ethical conduct; full, fair, accurate, timely and understandable disclosure; and compliance with applicable laws, rules andregulations. We intend to disclose any changes in or waivers from our Code of Business Conduct and Ethics and our Code of Ethics for FinancialExecutives by filing a Form 8-K or by posting such information on our website.

 

Compliance with Section 16(a) of the SecuritiesExchange Act of 1934

 

Section 16(a) of the Securities Exchange Act requiresour executive officers and directors, and persons who own more than 10% of our common stock, to file reports regarding ownership of, andtransactions in, our securities with the SEC and to provide us with copies of those filings.

 

Based solely on our review of the copies of suchforms received by us, or written representations from certain reporting persons, we believe that during the year ended December 31, 2018,none of our greater than 10% percent beneficial owners failed to comply on a timely basis with all applicable filing requirements underSection 16(a) of the Exchange Act.

 

  d. Executive Compensation, Corporate Governance

 

General Philosophy

 

Our Board of Directors is responsible for establishingand administering the Company’s executive and director compensation.

 

Executive Compensation

 

The following summary compensation table indicatesthe cash and non-cash compensation earned from the Company during the years ended December 31, 2020 and 2019 for our named executiveofficers.

 

 

 

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Name and Position     Year   Salary ($)       Bonus ($)       Total ($)
                           
Nick Colvin (1)   2020     94,251   (2)           94,251
      2019     89,038   (2)           89,038
                               
James Samuelson (3)   2020     94,251   (2)           94,251
      2019     170,000   (9)           170,000
                               
Gary Herick (4)   2020                   -
      2019     56,500               56,500
                               
John Cassels (5)   2020     94,251   (10)           94,251
      2019     63,265   (7)     20,000   (8)   83,265
                               
Andrew Steedman (6)   2020     94,251   (10)           94,251
      2019     63,265   (7)     20,000   (8)   83,265

 

(1) Was appointed as director in April 2018. Mr. Colvin resigned his positions with our Company in November 2018. In February 2019 he was again appointed as President, CEO and Director.
   
(2) Accrued and not paid.

 

(3) Was appointed as a Director in April 2018. Mr. Samuelson was appointed as our President and CEO in November 2018 when Mr. Colvin resigned from those positions. He resigned as President and CEO in February 2019 but remains a Director.
   
(4) Mr. Herick resigned as Chief Financial Officer effective February 9, 2015 and was appointed as CEO, President, CFO, Secretary and sole Director in April 2016. Mr. Herick resigned all of his positions in April 2019.
   
(5) Was appointed to Chief Financial Officer in April 2019.
   
(6) Was appointed to Chief Operating Officer in April 2019.
   
(7) Of the amount declared, $40,627 was accrued, $22,638 was paid to each.
   
(8) Signing bonus paid during the year.
   
(9) Director fees for current year of $10,000 per month, of which $145,000 remains accrued, $25,000 paid in cash.
   
(10) Of amount declared 50% was paid, 50% was accrued.

 

The amounts in these columns represent the fairvalue of the award as of the grant date as computed in accordance with ASC 718. These amounts represent restricted stock awards and stockoptions granted to the named executive officers, and do not reflect the actual amounts that may be realized by those officers.

 

 

 

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Key Employee Employment Agreements

 

The Company has an Employment Agreement with DominicColvin to serve as the Company’s Chief Executive Officer. The Agreement is dated April 23, 2019. The Contracts provide for an annualsalary of CAD $120,000 and a signing bonus of US$20,000. During 2019 and 2020 the salaries were accrued but not paid. The unpaid amountswere accrued in the financial statements of the Company.

 

The Company has an Employment Agreement with AndrewSteedman to serve as Chief Operating Officer. The Agreement is dated April 23, 2019. The Contracts provide for an annual salary of CAD$120,000 and a signing bonus of US$20,000. During 2019 the salaries were paid intermittently and in 2020 not at all from July. The unpaidamounts were accrued in the financial statements of the Company.

 

The Company has Employment Agreements with JohnCassels to serve as Chief Financial Officer. The Agreement dated April 23, 2019. The Contracts provide for an annual salary of CAD $120,000and a signing bonus of US$20,000.

 

During 2019 the salaries were paid intermittentlyand in 2020 not at all from July. The unpaid amounts were accrued in the financial statements of the Company.

 

Key Employee Employment Agreements

 

The Company has an Employment Agreement with DominicColvin to serve as the Company’s Chief Executive Officer. The Agreement is dated April 23, 2019. The Contracts provide for an annualsalary of CAD $120,000 and a signing bonus of US$20,000. During 2019 the salaries were paid intermittently and in 2020 not at all fromFebruary. The unpaid amounts were accrued in the financial statements of the Company.

 

The Company has an Employment Agreement with AndrewSteedman to serve as Chief Operating Officer. The Agreement is dated April 23, 2019. The Contracts provide for an annual salary of CAD$120,000 and a signing bonus of US$20,000. During m2019 the salaries were paid intermittently and in 2020 not at all from February. Theunpaid amounts were accrued in the financial statements of the Company.

 

The Company has Employment Agreements with JohnCassels to serve as Chief Financial Officer. The Agreement dated April 23, 2019. The Contracts provide for an annual salary of CAD $120,000and a signing bonus of US$20,000. During m2019 the salaries were paid intermittently and in 2020 not at all from February. The unpaidamounts were accrued in the financial statements of the Company.

 

Options Granted to Named Executives

 

None

 

Outstanding Equity Awards at Fiscal Year-End

 

None

 

Equity Compensation Plan Information and Issuances

 

Our current policy is that all full-time key employeesare considered annually for the possible grant of stock options, depending upon qualifying performance criteria. The criteria for theawards are experience, uniqueness of contribution to our business and the level of performance shown during the year. Stock options areintended to enhance the ability of the Company and its Affiliates to attract and retain exceptionally qualified individuals upon whom,in large measure, the sustained progress, growth and profitability of the Company depend.

 

 

 

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Pension Benefits

 

None of our named executive officers is coveredby a pension plan or other similar benefit plan that provides for payments or other benefits at, following, or in connection with retirement.

 

Nonqualified Deferred Compensation

 

None of our named executive officers is coveredby a defined contribution or other plan that provides for the deferral of compensation on a basis that is not tax-qualified.

 

Equity Incentive Plan

 

As of the date of this Report we do not have any equity compensationplan but may adopt one or more in the future.

 

In accordance with the ACS 718, Compensation– Stock Compensation, awards granted are valued at fair value at the grant date. The Company recognizes compensation expenseon a pro rata straight-line basis over the requisite service period for stock-based compensation awards with both graded and cliff vestingterms. The Company recognizes the cumulative effect of a change in the number of awards expected to vest in compensation expense in theperiod of change. The Company has not capitalized any portion of its stock-based compensation.

 

Director Compensation

 

We paid each of our current officers and directorsa one-time fee of $27,500 in 2018. In January 2019, the Board authorized and approved a monthly director fee of $10,000 (U.S.) for eachdirector. All of these fees have been accrued.

 

We do not believe risks arising from our compensationpolicies and practices for our employees are reasonably likely to have a material adverse effect upon us

 

  e. Security Ownership of Certain Beneficial Owners and Management

 

Except asotherwise stated, the table below sets forth information concerning the beneficial ownership of Common Stock as of May 7, 2021 for: (1)each director currently serving on our Board of Directors; (2) each of our named executive officers; (3) our directors and executive officersas a group; and (4) each person known to the Company to beneficially own more than 5% of the outstanding shares of Common Stock. As ofMay 7, 2021, there were 55,649,656 shares of Common Stock outstanding, 60,000 Preferred A Shares convertible into 1250 Shares of CommonStock, and 475,000 Series B Preferred Shares for a total of 119,510,994 shares. Except as otherwise noted, each stockholder has sole votingand investment power with respect to the shares beneficially owned.

 

 

 

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Title of Class  

Name and Address

of Beneficial Owner1

 

Amount and Nature

of Beneficial Ownership

  Percent of Class2
Common   Dominic Colvin
Suite 206, 1180 Sunset Drive
Kelowna, BC Z1Y 9W6
  1,079,454   0.9 %
Series A Preferred   James Samuelson
2 Park Plaza, Suite 1200B
Irvine, CA 92614
  18,500,000   15.0 %
Series A Preferred   Matt Nicosia
2 Park Plaza, Suite 1200B
Irvine, CA 92614
  20,000,000   16.2 %
Series A Preferred  

Andrew Steedman

3600, 888 – 3rd Street SW

Calgary, Alberta, T2P 5C5

  5,000,000   4.1 %
Common  

Andrew Steedman

3600,888 – 3rd Street SW

Calgary, Alberta T2P 5C5

  375,000   0.3%
Series A Preferred  

John Cassels

3600, 888 - 3rd Street SW

Calgary, Alberta, T2P 0C5

  5,000,000   4.1 %
Common  

John Cassels

3600,888 – 3rd Street SW

Calgary, Alberta T2P 5C5

  881,637   0.7%
Common  

Richard Orman

3600, 888-3rd Street SW

Calgary, Alberta T2P 5C5

  625,725   0.5%
   

Total Beneficial Holders

as a Group

  51,461,816   41.8 %

 

___________________ 

1 The address of recordis c/o CannaPharmaRx, Inc., 888 – 3rd Street SW, Suite 3600, Calgary, Alberta, CanadaT2P 5C5.

 

2 Applicablepercentages are based 55,649,656 shares outstanding as of May 7, 2021 and includes issued and outstanding shares of common stock as wellas vested but unissued restricted shares. Beneficial ownership is determined under the rules of the SEC and generally includes votingor investment power with respect to securities. A person is deemed to be the beneficial owner of securities that can be acquired by suchperson within 60 days whether upon the exercise of options or otherwise. Shares of Common Stock subject to options and warrants currentlyexercisable, or exercisable within 60 days after the date of this report, are deemed outstanding for computing the percentage of the personholding such securities but are not deemed outstanding for computing the percentage of any other person. Unless otherwise indicated inthe footnotes to this table, the Company believes that each of the shareholders named in the table has sole voting power.

 

Changes in Control.

 

There are currently no arrangements which mayresult in a change of control of our company.

 

 

 

 74 

 

 

Non-Cumulative Voting

 

The holders of our shares of common stock do nothave cumulative voting rights, which means that the holders of more than 50% of such outstanding shares, voting for the election of Directors,can elect all of the Directors to be elected, if they so choose.  In such event, the holders of the remaining shares will notbe able to elect any of our Directors.

 

  f. Transactions with Related Persons, Promoters, and Certain Control Persons

 

Transactions with Related Persons

 

As of December 31, 2019, there have been no transactions,or currently proposed transactions, in which we were or are to be a participant and the amount involved exceeds the lesser of $120,000or one percent of the average of our total assets at year-end for the last two completed years, and in which any of the following personshad or will have a direct or indirect material interest.

 

Named Executive Officers and Current Directors

 

For information regarding compensation for ournamed executive officers and current directors, see “Executive Compensation.”

 

Director Independence

 

Our securities are quoted on the OTC Markets Group,Pink, which does not have any director independence requirements.  We evaluate independence by the standards for director independenceestablished by applicable laws, rules, and listing standards including, without limitation, the standards for independent directors establishedby The New York Stock Exchange, Inc., the NASDAQ National Market, and the Securities and Exchange Commission.

 

Subject to some exceptions, these standards generallyprovide that a director will not be independent if (a) the director is, or in the past three years has been, an employee of ours; (b)a member of the director’s immediate family is, or in the past three years has been, an executive officer of ours; (c) the directoror a member of the director’s immediate family has received more than $120,000 per year in direct compensation from us other thanfor service as a director (or for a family member, as a non-executive employee); (d) the director or a member of the director’simmediate family is, or in the past three years has been, employed in a professional capacity by our independent public accountants, orhas worked for such firm in any capacity on our audit; (e) the director or a member of the director’s immediate family is, or inthe past three years has been, employed as an executive officer of a company where one of our executive officers serves on the compensationcommittee; or (f) the director or a member of the director’s immediate family is an executive officer of a company that makes paymentsto, or receives payments from, us in an amount which, in any twelve-month period during the past three years, exceeds the greater of $1,000,000or two percent of that other company’s consolidated gross revenues.  Based on these standards, we have determined thatour director is not an independent director.

 

Our board of directors has determined Marc Bransonis an “independent director” as defined in the NASDAQ listing standards and applicable SEC rules.

 

 

 

 

 

 

 

 

 

 75 

 

 

SHARES ELIGIBLE FOR FUTURE SALE

 

Prior to this offering, there has been a limitedpublic market for our common stock. Future sales of substantial amounts of common stock in the public market could adversely affect marketprices prevailing from time to time. Furthermore, since only a limited number of shares will be available for sale shortly after thisoffering because of certain restrictions on resale, sales of substantial amounts of our common stock in the public market after the restrictionslapse could adversely affect the prevailing market price and our ability to raise equity capital in the future.

 

Upon completion of this offering and assumingall 135,000,000 being registered are received in conversion of the Series A Preferred Shares by the Selling Stockholders, we may haveoutstanding an aggregate of up to 177,438,895 issued and outstanding. Of these shares, 135,000,000 will be freely tradable without restrictionor further registration under the Securities Act, unless such shares are purchased by individuals who become “affiliates”as that term is defined in Rule 144 under the Securities Act, as the result of the securities they acquire in this offering which providethem, directly or indirectly, with control or the capacity to control us. Our officers and directors will not be purchasing shares inthis offering. The remaining shares of common stock held by our existing stockholders are “restricted securities” as thatterm is defined in Rule 144 under the Securities Act. Restricted shares may be sold in the public market only if registered or if theyqualify for an exemption from registration under Rule 144 and or Section 4(a)(1). As a result of these provisions of Rules 144, additionalshares will be available for sale in the public market as follows:

 

  · no restricted shares will be eligible for immediate sale on the date of this prospectus; and
     
  · the remainder of the restricted shares will be eligible for sale from time to time pursuant to available exemptions, subject to restrictions on such sales by affiliates.

 

Sales pursuant to Rule 144 are subject to certainrequirements relating to the availability of current public information about us. A person (or persons whose shares are aggregated) whois not deemed to have been an affiliate of Hammer Fiber at any time during the 90 days immediately preceding the sale and who has beneficiallyowned restricted shares for at least six months is entitled to sell such shares under Rule 144 without regard to the resale limitations.

 

The SEC has adopted rules that regulate broker-dealerpractices in connection with transactions in “penny stocks.” Penny stocks generally are equity securities with a price ofless than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided thatcurrent price and volume information with respect to transactions in such securities is provided by the exchange or system. The pennystock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver to the prospectivepurchaser a standardized risk disclosure document prepared by the SEC that provides information about penny stocks and the nature andlevel of risks in the penny stock market. In addition, the penny stock rules require that prior to a transaction in a penny stock nototherwise exempt from such rules; the broker-dealer must make a special written determination that the penny stock is a suitable investmentfor the prospective purchaser and receive the purchaser’s written agreement to the transaction. Furthermore, subsequent to a transactionin a penny stock, the broker-dealer will be required to deliver monthly or quarterly statements containing specific information aboutthe penny stock. It is anticipated that our common stock will be traded on an OTC market at a price of less than $5.00. In this event,broker-dealers would be required to comply with the disclosure requirements mandated by the penny stock rules.

 

These disclosure requirements will likely make it more difficult forinvestors in this offering to sell their common stock in the secondary market.

 

Disclosure of Commission Position on Indemnificationfor Securities Act Liabilities

 

Insofar as indemnification for liabilities arisingunder the Securities Act of 1933 may be permitted to our directors, officers and controlling persons, we have been advised that in theopinion of the SEC, such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by adirector, officer or controlling person of the corporation in the successful defense of any action, suit or proceeding) is asserted bysuch director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of ourcounsel the matter has been settled by a controlling precedent, submit to a court of appropriate jurisdiction the question of whethersuch indemnification by us is against public policy as expressed in the Securities Act of 1933, as amended, and will be governed by thefinal adjudication of such case.

 

 

 

 76 

 

 

INDEX TO FINANCIAL STATEMENTS

 

    Page
     
Report of Independent Registered Accounting Firm   F-2
     
Audited Financial Statements:    
     
Consolidated Balance Sheets as of December 31, 2020 and 2019   F-3
     
Consolidated Statements of Operations for the Years ended December 31, 2020, and 2019   F-4
     
Consolidated Statement of Changes in Stockholders’ Equity (Deficit) for the Years ended December 31, 2020, and 2019   F-5
     
Consolidated Statements of Cash Flows for the Years ended December 31, 2020, and 2019   F-7
     
Notes to the Consolidated Financial Statements   F-8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 F-1 

 

 

Report of Independent Registered Public AccountingFirm

 

To the shareholders and the board of directorsof CannaPharmaRx, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidatedbalance sheets of CannaPharmaRx, Inc. as of December 31, 2020 and 2019, the related statements of operations, stockholders' equity (deficit),and cash flows for the years then ended, and the related notes (collectively referred to as the "financial statements"). Inour opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31,2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principlesgenerally accepted in the United States.

 

Basis for Opinion

 

These financial statements are the responsibilityof the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. Weare a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and arerequired to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules andregulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with thestandards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engagedto perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understandingof internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’sinternal control over financial reporting. Accordingly, we express no such opinion.

 

Our audit included performing procedures to assessthe risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respondto those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluatingthe overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

 

Substantial Doubt about the Company’sAbility to Continue as a Going Concern

 

The accompanying financial statements have beenprepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company hassuffered recurring losses from operations and has a significant accumulated deficit. In addition, the Company continues to experiencenegative cash flows from operations. These factors raise substantial doubt about the Company's ability to continue as a going concern.Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments thatmight result from the outcome of this uncertainty.

 

/S/ BF Borgers CPA PC

We have served as the Company's auditor since2018

Lakewood, CO

April 14, 2021

 

 

 

 

 

 F-2 

 

 

CANNAPHARMARX, INC.

CONSOLIDATED BALANCE SHEETS

 

 

   December 31,   December 31, 
   2020   2019 
         
ASSETS          
           
Current assets          
Cash  $334,969   $1,547 
Deposit       1,308,830 
HST Receivable   551    28,361 
Prepaid expenses   132,031    592,473 
Total current assets   467,551    1,931,211 
           
Construction in progress   1,566,316    1,540,918 
Land       143,201 
Office equipment   2,435    3,978 
Investments   6,711,289    4,193,597 
Intangible assets       1,834,176 
Goodwill       6,370,333 
Total Assets  $8,747,591   $16,017,414 
           
LIABILITIES & STOCKHOLDERS' DEFICIT          
           
Current liabilities          
Accounts payable and accrued expenses  $2,447,848   $902,854 
Accounts payable related party   380,413    154,291 
Accrued interest   96,477    27,630 
Accrued legal settlement   190,000    190,000 
Accrued expense - related party   756,738    606,356 
Notes payable current   8,728,749    2,800,559 
Convertible Notes -net of discount   997,558    552,603 
Derivative liability   3,676,649     
Loan payable - related party   274,758    427,805 
Total current liabilities   17,549,190    5,662,098 
Notes payable long-term       5,501,118 
Total Liabilities   17,549,190    11,163,216 
           
Commitments and contingencies        
           
Stockholders' Equity          
Preferred stock, Series A, $0.0001 par value, 60,000 shares authorized, 60,000 shares issued and outstanding as of December 31, 2020 and December 31, 2019, respectively   60,000    60,000 
Preferred Stock Series B, $0.0001 par value, 3,000,000 shares authorized 475,000 and -0- shares issued and outstanding as of December 31, 2020 and December 31, 2019, respectively   475,000    475,000 
Common stock, $0.0001 par value; 300,000,000 shares authorized, 46,986,794 and 36,486,999 issued and outstanding as of December 31, 2020 and December 31, 2019, respectively   4,699    3,649 
Treasury stock, 133,200 and 133,200 shares as of December 31, 2020 and December 31, 2019, respectively   (13)   (13)
Additional paid in capital   68,336,249    61,619,415 
Retained earnings (deficit)   (77,331,820)   (57,441,549)
Accumulated other comprehensive income (loss)   (345,714)   137,696 
Total Stockholders' Equity (Deficit)   (8,801,599)   4,854,198 
Total Liabilities and Stockholders' (Equity)  $8,747,591   $16,017,414 

 

The accompanying notes are an integral part ofthese consolidated financial statements.

  

 

 

 

 F-3 

 

 

CANNAPHARMARX, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

                    

 

   December 31,   December 31, 
   2020   2019 
         
Revenue  $   $ 
           
Operating Expenses:          
General & administrative   2,135,075    477,887 
Acquisition expenses   1,885,303    5,926,727 
Amortization and depreciation   128,505    129,035 
Stock based compensation   820,379    736,186 
Travel and entertainment   14,277    109,174 
Rent   35,813    30,148 
Rent - related parties       24,299 
Professional fees   932,536    518,970 
Consulting fees       261,352 
Impairment of goodwill and long lived assets   7,962,694     
Investment write-down       7,070,841 
Consulting fees and payroll-related parties   571,590    693,324 
Total operating expenses   14,486,172    15,977,943 
Income (loss) from operations   (14,486,172)   (15,977,943)
           
Other income (expense)          
Interest (expense)   (2,293,858)   (4,473,137)
Gain or loss on conversion of convertible notes   566,408     
Change in the fair value of derivative liability   (3,676,649)    
Other income (expense) net   (5,404,100)   (4,473,137)
Income (loss) before provision for income taxes   (19,890,272)   (20,451,080)
Provision (credit) for income tax        
Net income (loss)  $(19,890,272)  $(20,451,080)
           
Basic and diluted earnings(loss) per common share  $(0.49)  $(0.66)
           
Weighted average number of shares outstanding   40,699,951    31,174,936 
           
Comprehensive loss:          
Net income (loss)  $(19,890,272)  $(20,451,080)
Foreign currency translation adjustment   (483,410)   137,696 
Comprehensive income (loss)  $(20,373,681)  $(20,313,386)

 

 

The accompanying notes are an integral part ofthese consolidated financial statements.

 

 

 

 F-4 

 

 

CANNAPHARMARX, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'EQUITY

 

 

  Preferred Stock Series A  Preferred Stock Series B  Common Stock  Treasury Stock  Paid in  Retained earnings 

Accumulated other comprehensive income

  Equity/ 
  Shares  Value  Shares  Value  Shares  Value  Shares  Value  Capital  (Deficit)  (loss)  Deficit 
Balances at December 31, 2018  60,000  $60,000         18,942,506  $1,894        $36,642,276  $(36,990,469) $  $(286,299)
                                                 
Net loss                             (20,451,080)     (20,451,080)
Change in foreign currency translation                                137,696   137,696 
Issuance of Series B Preferred Stock        475,000   475,000                        475,000 
Conversion of convertible notes and accrued interest to common shares              5,505,530   551         2,201,662         2,202,213 
Issuance of shares to purchase non-controlling interest in GN              7,988,963   799         11,263,639         11,264,438 
Stock based compensation related to warrant issuance                          736,186         736,186 
Issuance of common shares in connection with the issuance of convertible debentures              1,550,000   155         5,074,845         5,075,000 
Repurchase of shares from an investor                    133,200   (13)  (98,942)        (98,955)
Issuance of shares for acquisition fees              2,500,000   250         5,799,749         5,799,999 
Balance at December 31, 2019  60,000  $60,000   475,000  $475,000   36,486,999  $3,649   133,200  $(13) $61,619,415  $(57,441,549) $137,696  $4,854,198 

(continued)

 

 

 

 F-5 

 

 

CANNAPHARMARX, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(continued)

 

 

  Preferred Stock Series A  Preferred Stock Series B  Common Stock  Treasury Stock  Paid in  Retained earnings  Accumulated other comprehensive income  Equity/ 
  Shares  Value  Shares  Value  Shares  Value  Shares  Value  Capital  (Deficit)  (loss)  Deficit 
Balance at December 31, 2019  60,000  $60,000   475,000  $475,000   36,486,999  $3,649   133,200  $(13) $61,619,415  $(57,441,549) $137,696  $4,854,198 
                                                 
Net loss                             (19,890,272)     (19,890,272)
Change in foreign currency translation                                (483,410)  (483,410)
Common stock issued in connection with convertible notes              153,940   15         130,834         130,849 
Return of common shares related to note payoff              (153,940)  (15)        (130,834)        (130,849)
Beneficial conversion feature of convertible notes                          1,357,978         1,357,978 
Stock based compensation related to warrant issuances                          820,379         820,379 
Shares issued for services              885,063   89         715,413         715,502 
Shares received from share exchange with GN              5,507,400   551         2,477,871         2,478,422 
Warrant exercise              25,000   2         9,998         10,000 
Convertible note conversion to common stock              135,000   14         306,737         306,751 
To record loan conversions              621,874   62         228,130         228,192 
Shares issued for financing              15,000   2         6,150         6,152 
Shares issued for loan conversions              3,310,458   331         794,179         794,510 
                                               
Balance, December 31, 2020  60,000  $60,000   475,000  $475,000   46,986,794   4,699   133,200  $(13) $68,336,249  $(77,331,820) $(345,714) $(8,801,599)

 

The accompanying notes are an integral part ofthese consolidated financial statements.

 

 

 

 

 F-6 

 

 

CANNAPHARMARX, INC.

STATEMENTS OF CONSOLIDATED CASH FLOWS

 

 

   December 31,   December 31, 
   2020   2019 
Cash Flows From Operating Activities:          
Net income (loss)  $(19,890,272)  $(20,451,080)
Adjustments to reconcile net income to net cash provided by (used for) operating activities          
Stock-based compensation expense   820,379    736,186 
Amortization of intangible assets   126,963    128,256 
Loss on investments       7,070,841 
Advertising expense paid with common stock   701,650     
Acquisition consideration paid in common stock       5,800,000 
Common stock issued in connection with financing   20,003     
Change in the fair value of derivatives   3,676,649     
Depreciation   1,542    779 
Impairment of goodwill and long lived assets   7,962,694     
Amortization of debt discount   2,293,858    4,434,751 
Changes in operating assets and liabilities          
(Increase)/decrease in prepaid expenses and deposit   1,782,873    (1,869,283)
HST Receivable   28,381     
Accrued interest   54,542    27,630 
Mortgages payable       (500,435)
Accounts payable/loan payable related party   223,016    145,291 
Accrued expense related party   150,381    456,356 
Accounts payable and accrued expense   1,483,767    225,937 
Net cash provided by (used for) operating activities   (563,573)   (3,794,771)
           
Cash Flows From Investing Activities:          
Purchase of fixed assets       (4,774)
Changes in intangible assets          
Capitalized mortgage interest and changes in construction in progress       (42,163)
Net cash provided by (used for) investing activities       (46,937)
           
Cash Flows From Financing Activities:          
Proceeds from the sale of preferred stock       475,000 
Proceeds from convertible loans, net of repayments   848,000    1,550,000 
Proceeds from loans, net of repayment   11,973    1,050,000 
Purchase of treasury shares       (98,955)
Proceeds (repayment of related party loans), net   (35,400)   290,400 
Net cash provided by (used for) financing activities   824,573    3,266,445 
           
Effect of exchange rates on cash and cash equivalents   72,422    112,692 
Net Increase (Decrease) In Cash   261,000    (575,263)
Cash At The Beginning Of The Period   1,547    464,118 
Cash At The End Of The Period  $334,969   $1,547 
           
Supplemental disclosure of cash flow information:          
Cash paid for interest  $   $66,016 
Cash paid for income taxes  $   $ 
           
Supplemental disclosure of non-cash investing and financing activities:          
Common stock issued for advertising expense  $554,000   $ 
Common stock issued related to investment in Great Northern Cannabis  $2,478,422   $11,264,438 
Common stock issued to convert convertible notes and accrued interest into equity  $306,750   $2,202,213 

 

The accompanying notes are an integral part ofthese consolidated financial statements.

 

 

 

 

 

 F-7 

 

 

CANNAPHARMARX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

 

 

NOTE 1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Operations

 

CannaPharmaRx, Inc. (the “Company”)is a Delaware corporation. In November 2018 it formed an Ontario corporation, Hanover CPMD Acquisition Corporation, to facilitate theacquisition described below. As of the date of this Report, the Company intends to engage in acquisitions or joint ventures with a companyor companies that will allow to become a national or internationally branded cannabis cultivation company, or otherwise engage in thecannabis industry. Management is engaged in seeking out and evaluating businesses for acquisition. However, if an opportunity in anotherindustry arises the Company will review that opportunity as well.

 

History

 

The Company was originally incorporated in theState of Colorado in August 1998 under the name “Network Acquisitions, Inc.” It changed its 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 underChapter 11 of the United States Bankruptcy Code. In connection with the filing, on February 16, 2001, the Company sold its entire business,and all of its assets, for the benefit of its creditors. After the sale, the Company still had liabilities of $8.4 million and was subsequentlydismissed by the Court from the Chapter 11 reorganization, effective March 13, 2001, at which time the last of the Company’s thenremaining directors resigned. On March 13, 2001, the Company had no business or source of income, no assets, no employees or directors,outstanding liabilities of approximately $8.4 million, and had terminated its duty to file reports under securities law. In February 2008,after filing of a Form 10 registration statement pursuant to the Securities Exchange Act of 1934, as amended, we were re-listed on theOTC Bulletin Board.

 

In April 2010, the Company re-domiciled in Delawareunder the name CCVG, Inc. (“CCVG”). Effective December 31, 2010, the Company completed an Agreement and Plan of Merger andReorganization (the “Reorganization") which provided for the merger of two of the Company’s wholly-owned subsidiaries.As a result of this reorganization, the Company’s name became “Golden Dragon Inc.,” which became the surviving publiclyquoted parent holding company.

 

On May 9, 2014, the Company entered into a SharePurchase Agreement (the “Share Purchase Agreement”) with CannaPharmaRx, Inc., a Colorado corporation (“CannaColorado”), 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 restricted shares of the Company’s common stock from Mr.Cutler and an additional 9,000,000 common shares directly from the Company.

 

In October 2014, the Company changed its legalname to “CannaPharmaRx, Inc.”

 

In April 2016, the Company ceased operations.As a result, the Company was then considered a “shell” company as defined under the Securities Exchange Act of 1934, as amended,as defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act.

 

 

 

 

 F-8 

 

 

Effective December 31, 2018, the Company and HanoverCPMD Acquisition Corp. (“CPMD Hanover”) a newly formed, wholly-owned subsidiary, entered into a Securities Purchase Agreementwith Alternative Medical Solutions, Inc., an Ontario, Canada corporation (“AMS”), its shareholders, wherein the Company acquiredall 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 inspectthe facility and relevant operating procedures to ensure it meets the standards that have been approved in the application. There canbe no assurances that the Company will receive this license.

 

The facility is a 48,750 square foot marijuanagrow facility built on a 6.7-acre parcel of land located in Hanover, Ontario Canada. To date, the exterior construction of the buildinghas been completed. However, no interior construction has begun. Upon full completion, the facility will contain up to 20 separate growingrooms which we believe will provide an annual production capacity of 9,500 kilos of marijuana (20,900 lbs.). Completion of the build-outof the facility is expected to take an estimated 20 weeks. Together with the remaining equipment needed to complete the grow the Companyestimates 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 facilityand begin cultivation.

 

As a result of the completion of the acquisitionof AMS on December 31, 2019, the Company no longer fits the definition of a “shell company,” as defined in Rule 405 of theSecurities 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, advisingthat it was no longer a shell company pursuant to the aforesaid Rule.

 

Effective February 25, 2019, the Company acquired3,936,500 shares and 2,500,000 Warrants to purchase 2,500,000 shares of Common Stock of GN Ventures, Ltd, Alberta, Canada, f/k/a GreatNorthern Cannabis, Ltd. (“GN”), in exchange for an aggregate of 7,988,963 shares of its Common Stock, from a former shareholderof GN who is now the Company’s President and CEO. While no assurances can be provided, the Company believes this is the initialstep in its efforts to acquire all or a significant portion of the issued and outstanding stock of GN. In May 2020, the Company exchanged5,507,400 of its shares for 3,671,597 shares of GN.

 

GN owns a 60,000 square foot cannabis cultivationand grow facility located on 38 acres in Stevensville, Ontario, Canada. Because the Company is a minority shareholder of GN and GN isa privately held company, the Company cannot confirm that the information it currently has on GN’s operations is complete or fullyreliable. GN estimates annual total production capacity from the Stevensville facility of up to 12,500 kilograms of cannabis. GN believesthe Stevensville facility to be complete, and GN’s subsidiary, 9869247 Canada Limited, received a license to cultivate from theCanadian Ministry of Health on July 5, 2019. As a result, in October 2019, GN commenced cultivation activities and began generating revenuesduring the first calendar quarter of 2020. The Company expects that it will obtain additional information on the business activities ofGN as it has renewed discussions to acquire additional interests and is performing its due diligence procedures.

 

Effective June 11, 2019, the Company entered intoa Securities Purchase Agreement with Sunniva, Inc, a British Columbia, Canada corporation (“Sunniva”) wherein the Companyagreed 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. Thesecompanies are the current owners of the Sunniva Canada Campus, which includes construction assets for a planned 759,000 square-foot greenhouselocated on an approximately 114-acre property in Okanagan Falls, British Columbia.

 

On June 8, 2020, the Company received a noticeof termination of this Purchase Agreement, as amended, from Sunniva. As a result, the Company incurred a charge of $1,881,126 due to thewrite-off of its deposit to Sunniva, banking fees, and prepaid expenses associated with the failed acquisition of Sunniva. The Companyis in discussions with Sunniva, as well as an investment banker who received deposits from the Company, about recovering all or a portionof its deposits, banking fees, and prepaid expenses. The accompanying financial statements as of December 31, 2020, do not reflect potentialrecovery amounts related to Sunniva and other parties if any.

 

 

 

 

 F-9 

 

 

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, thepandemic is having a negative ripple effect on the global economy, leading to disruptions and volatility in the global financial markets.Most US states and many countries have issued policies intended to stop or slow the further spread of the disease.

 

Covid-19 and the U.S’s response to the pandemicare significantly affecting the economy. There are no comparable events that provide guidance as to the effect the Covid-19 pandemic mayhave, and, as a result, the ultimate effect of the pandemic is highly uncertain and subject to change. We do not yet know the full extentof the effects on the economy, the markets we serve, our business, or our operations

 

Basis of Presentation

 

The accompanying financial statements have beenprepared in accordance with the Financial Accounting Standards Board (“FASB”) “FASB Accounting Standard Codification™”(the “Codification”) which is the source of authoritative accounting principles recognized by the FASB to be appliedby nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”)in the United States. Certain amounts in prior periods have been reclassified to conform to the current presentation.

 

All figures are in U.S. dollars unless indicatedotherwise.

 

Use of Estimates

 

The preparation of financial statements in conformitywith US GAAP requires management to make estimates and assumptions that affect the reported amounts of liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. The mostsignificant estimates relate to purchase price allocation of acquired businesses, impairment of long-lived assets and goodwill, valuationof financial instruments, income taxes, and contingencies. The Company bases its estimates on historical experience, known or expectedtrends, and various other assumptions that are believed to be reasonable given the quality of information available as of the date ofthese financial statements. The results of these assumptions provide the basis for making estimates about the carrying amounts of assetsand liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid temporarycash investments with an original maturity of the year or less to be cash equivalents. On December 31, 2020, and December 31, 2019, theCompany cash and cash equivalents totaled $334,969 and $1,547 respectively.

 

Comprehensive Gain or Loss

 

ASC 220 “Comprehensive Income,” establishesstandards for the reporting and display of comprehensive income and its components in the financial statements. As of December 31, 2020,and December 31, 2019, the Company determined that it had items that represented components of comprehensive income and, therefore, hasincluded a statement of comprehensive income in the financial statements.

 

 

 

 F-10 

 

 

Reclassifications

 

Certain prior year amounts have been reclassifiedto conform to the current period presentation. These reclassifications had no impact on net earnings and financial position.

 

Derivative Financial Instruments

 

The Company does not use derivative instrumentsto hedge exposures to cash flow, market, or foreign currency risk. Terms of convertible and other promissory notes are reviewed to determinewhether they contain embedded derivative instruments that are required to be accounted for separately from the host contract and recordedon the balance sheet at fair value. The fair value of derivative liabilities is required to be revalued at each reporting date, with correspondingchanges in fair value recorded in current period operating results. For the periods ended December 31, 2020, and 2019, the Company hadderivative liabilities of $3,676,649 and $-0-, respectively. These derivative liabilities arose in 2020 due to the issuance of variablypriced convertible notes.

 

Beneficial Conversion Features

 

In accordance with FASB ASC 470-20, “Debtwith Conversion and Other Options” the Company records a beneficial conversion feature (“BCF”) related to the issuanceof convertible debt or preferred stock instruments that have conversion features at fixed rates that are in-the-money when issued. TheBCF for the convertible instruments is recognized and measured by allocating a portion of the proceeds equal to the intrinsic value ofthat feature to additional paid-in capital. The intrinsic value is generally calculated at the commitment date as the difference betweenthe conversion price and the fair value of the common stock or other securities into which the security is convertible, multiplied bythe number of shares into which the security is convertible. If certain other securities are issued with the convertible security, theproceeds are allocated among the different components. The portion of the proceeds allocated to the convertible security is divided bythe contractual number of the conversion shares to determine the effective conversion price, which is used to measure the BCF. The effectiveconversion price is used to compute the intrinsic value. The value of the BCF is limited to the basis that is initially allocated to theconvertible security.

 

Foreign Currency Translation

 

The functional currency and the reporting currencyof CannaPharmaRx’s US operations is United States dollars, (“USD”). The functional currency of the Company’s Canadianoperations in Canadian dollars (“CAD”), Management has adopted ASC 830 “Foreign Currency Matters” for transactionsthat occur in foreign currencies. Monetary assets denominated in foreign currencies are translated using the exchange rate prevailingat the balance sheet date. Average monthly rates are used to translate revenues and expenses.

 

Transactions denominated in currencies otherthan the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction.Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respectiveperiods.

 

 

 

 

 

 F-11 

 

 

Assets and liabilities of the Company’soperations are translated into the reporting currency, United States dollars, at the exchange rate in effect at the balance sheet dates.Revenue and expenses are translated at average rates in effect during the reporting periods. Equity transactions are recorded at the historicalrate when the transaction occurred. The resulting translation adjustment is reflected as accumulated other comprehensive income, a separatecomponent of stockholders' equity in the statement of stockholders' equity. These translation adjustments are reflected in accumulatedother comprehensive income, a separate component of the Company's stockholders' equity.

 

Harmonized Sales Tax

 

The Harmonized Sales Tax (“HST”) isa combination of the Canadian Goods and Services Tax (“GST”) and Provincial Sales Tax (“PST”) that is appliedto taxable goods and services. By fusing sales tax at the federal level with sales tax at the provincial level, the participating provincesharmonized both taxes into a single federal-provincial sales tax. HST is a consumption tax paid by the consumer at the point of sale (POS).The vendor or seller collects the tax proceeds from consumers by adding the HST rate to the cost of goods and services. They then remitthe total collected tax to the government periodically.

 

The HST is in effect in five of the ten Canadianprovinces: New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, and Prince Edward Island. The HST is collected by the CanadaRevenue Agency (CRA), which remits the appropriate amounts to the participating provinces. The HST may differ across these five provinces,as each province will set its own PST rates within the HST. In provinces and territories which have not enacted the HST, the CRA collectsonly the 5% goods and services tax. The current rate in Ontario is 13%.

 

Capital Assets- Construction In Progress

 

As of December 31, 2020, and 2019, the Companyhad $1,566,316 and $1,540,918 in construction in progress (“CIP”), respectively, comprised entirely of the building acquiredrelating to the acquisition of AMS. The Company did not record any depreciation expense on CIP for the years ended December 31, 2020,and December 31, 2019.

 

Stock-Based Compensation

 

The Company has adopted ASC Topic 718, (Compensation—StockCompensation), which establishes a fair value method of accounting for stock-based compensation plans. In accordance with guidancenow incorporated in ASC Topic 718, the cost of stock options and warrants issued to employees and non-employees is measured on the grantdate based on the fair value. The fair value is determined using the Black-Scholes option-pricing model. The resulting amount is chargedto expense on the straight-line basis over the period in which the Company expects to receive the benefit, which is generally the vestingperiod. The fair value of stock warrants was determined at the date of grant using the Black-Scholes option-pricing model. The Black-Scholesoption model requires management to make various estimates and assumptions, including expected term, expected volatility, risk-free rate,and dividend yield. The Company had no stock options outstanding at December 31, 2020.

 

Goodwill and Intangible Assets

 

Goodwill represents the future economic benefitarising from other assets acquired that could not be individually identified and separately recognized. The goodwill arising from theCompany’s acquisitions is attributable to the value of the potential expanded market opportunity with new customers. Intangibleassets have either an identifiable or indefinite useful life. Intangible assets with identifiable useful lives are amortized on a straight-linebasis over their economic or legal life, whichever is shorter. The Company’s amortizable intangible assets consist of customerrelationships and non-compete agreements. Their useful lives range from 10 to 15 years. The Company’s indefinite-lived intangibleassets consist of trade names.

 

 

 

 

 F-12 

 

 

Goodwill and indefinite-lived assets are not amortizedbut are subject to annual impairment testing unless circumstances dictate more frequent assessments. The Company performs an annual impairmentassessment for goodwill during the fourth quarter of each year and more frequently whenever events or changes in circumstances indicatethat the fair value of the asset may be less than the carrying amount. Goodwill impairment testing is a two-step process performed atthe reporting unit level. Step one compares the fair value of the reporting unit to its carrying amount. The fair value of the reportingunit is determined by considering both the income approach and market approaches. The fair values calculated under the income approachand market approaches are weighted based on circumstances surrounding the reporting unit. Under the income approach, the Company determinesfair value based on estimated future cash flows of the reporting unit, which are discounted to the present value using discount factorsthat consider the timing and risk of cash flows. For the discount rate, the Company relies on the capital asset pricing model approach,which includes an assessment of the risk-free interest rate, the rate of return from publicly traded stocks, the Company’s riskrelative to the overall market, the Company’s size and industry and other Company-specific risks. Other significant assumptionsused in the income approach include the terminal value, growth rates, future capital expenditures, and changes in future working capitalrequirements. The market approaches use key multiples from guideline businesses that are comparable and are traded on a public market.If the fair value of the reporting unit is greater than its carrying amount, there is no impairment. If the reporting unit’s carryingamount exceeds its fair value, then the second step must be completed to measure the amount of impairment, if any. Step two calculatesthe implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets of the reporting unit from thefair value of the reporting unit as calculated in step one. In this step, the fair value of the reporting unit is allocated to all ofthe reporting unit’s assets and liabilities in a hypothetical purchase price allocation as if the reporting unit had been acquiredon that date. If the carrying amount of goodwill exceeds the implied fair value of goodwill, an impairment loss is recognized in an amountequal to the excess.

 

Determining the fair value of a reporting unitis judgmental and requires the use of significant estimates and assumptions, including revenue growth rates, strategic plans, and futuremarket conditions, among others. There can be no assurance that the Company’s estimates and assumptions made for purposes of thegoodwill impairment testing will prove to be accurate predictions of the future. Changes in assumptions and estimates could cause theCompany to perform an impairment test before scheduled annual impairment tests.

 

The Company performed its annual fair value assessmenton December 31, 2020, on its subsidiaries with material goodwill and intangible asset amounts on their respective balance sheets and determinedan impairment had arisen at its Hanover facility. As a result of its assessment, the Company recorded an impairment of goodwill, intangibleassets, and amounting to $7,815,891 on its Consolidated Statements of Operations for the year ended December 31, 2020.

 

Long-Lived Assets

 

The Company evaluates the recoverability of itslong-lived assets whenever events or changes in circumstances have indicated that an asset may not be recoverable. The long-lived assetis grouped with other assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of othergroups of assets and liabilities. If the sum of the projected undiscounted cash flows is less than the carrying value of the assets, theassets are written down to the estimated fair value.

 

The Company evaluated the recoverability of itslong-lived assets on December 31, 2020, and on December 31, 2019, respectively on its subsidiaries with material amounts on their respectivebalance sheets and determined that an impairment $146,084 in land had occurred.

 

 

 

 

 F-13 

 

 

Fair Values of Assets and Liabilities

 

The Company groups its financial assets and financialliabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded, andthe reliability of the assumptions used to determine fair value.

 

    Level 1:   Valuation is based on quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
     
    Level 2:   Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. For example, Level 2 assets and liabilities may include debt securities with quoted prices that are traded less frequently than exchange-traded instruments.
     
    Level 3:   Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category generally includes certain private equity investments and long-term derivative contracts.

 

The fair value hierarchy also requires an entityto maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

 

The Company may also be required, from time totime, to measure certain other financial assets at fair value on a nonrecurring basis. These adjustments to fair value usually resultfrom the application of lower-of-cost-or-market accounting or write-downs of individual assets. During the period ended December 31, 2020,the Company wrote down its fixed assets at the Hanover facility of approximately $186,000 which was included in the impairment chargeof goodwill and intangibles noted above.

 

Financial Instruments

 

The estimated fair value for financial instrumentswas determined at discrete points in time based on relevant market information. These estimates involve uncertainties and could not bedetermined with exact precision. The fair value of the Company’s financial instruments, which include cash, prepaid expenses, accountspayable, and the related party loan, each approximate their carrying value due either to their short length to maturity or interest ratesthat approximate prevailing market rates.

 

Income Taxes

 

The Company accounts for income taxes under theliability method, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of eventsthat have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determinedbased on the difference between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect forthe year in which the differences are expected to reverse.

 

 

 

 

 F-14 

 

 

Income (Loss) Per Share

 

Income (loss) per share is presented in accordancewith Accounting Standards Update (“ASU”), Earning per Share (Topic 260) which requires the presentation of bothbasic and diluted earnings per share (“EPS”) on the income statements. Basic EPS would exclude any dilutive effectsof options, warrants, and convertible securities but does include the restricted shares of common stock issued. Diluted EPS reflects thepotential dilution that would occur if securities or other contracts to issue common stock were exercised or converted to common stock.Basic EPS calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding duringthe year. Diluted EPS calculations are determined by dividing net income by the weighted average number of common shares and dilutivecommon share equivalents outstanding.

 

Business Segments

 

The Company’s activities during the yearended December 31, 2020, comprised a single segment.

 

Recently Issued Accounting Pronouncements

 

The Company has implemented all new accountingpronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new pronouncementsthat have been issued that might have a material impact on its financial position or results of operations. The Company adopted ASC 842on January 1, 2019. However, the adoption of the standard had no impact on the Company’s financial statements since all Companyleases are month to month or short-term rental.

 

NOTE 2. GOING CONCERN AND LIQUIDITY

 

As of December 31, 2020, and 2019, the Companyhad $334,969 and $1,547 cash on hand, respectively, and no revenue-producing business or other sources of income. Additionally, as ofDecember 31, 2020, the Company had negative working capital totaling $17,081,639 and a retained earnings deficit of $77,331,820.

 

These financial statementshave been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitmentsin the normal course of business. Based on its current financial projections, the Company believes it does not have sufficient existingcash resources to fund its current limited operations.

 

It is the Company’s current intention toraise debt and/or equity financing to fund ongoing operating expenses. There is no assurance that these events will be satisfactorilycompleted or at terms acceptable to the Company. Any issuance of equity securities, if accomplished, could cause substantial dilutionto existing stockholders. Any failure by the Company to successfully implement these plans would have a material adverse effect on itsbusiness, including the possible inability to continue operations.

 

NOTE 3. DEPOSITS

 

As of December 31, 2020, and December 31, 2019,the Company had deposits of $-0- and $1,308,830, respectively. On June 8, 2020, the Company received a notice of termination of from Sunniva.The $1,308,830 deposit related to this potential Sunniva acquisition, which was not consummated, was non-refundable and was subsequentlywritten off.

 

 

 

 F-15 

 

 

NOTE 4. PREPAID EXPENSES

 

The following table sets forth the componentsof the Company’s prepaid expenses on December 31, 2020, and December 31, 2019:

 

  

December 31,

2020

  

December 31,

2019

 
         
Prepaid expenses   132,031    236,742 
Prepaid acquisition expenses-Sunniva (a)       355,731 
Total  $132,031   $592,473 

 

    (a) This prepayment was written off as part of the Sunniva acquisition that was not consummated. See Note 3. “Deposits” for further information.

 

NOTE 5. INVESTMENT

 

As of December 31, 2020, and December 31, 2019,the balance of investments was $6,711,289 and $4,193,597, respectively.

 

On February 25, 2019, the Company acquired 3,936,500shares and 2,500,000 Warrants to purchase 2,500,000 shares of common stock at a price of CAD$1.00 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 the Company’s CommonStock from a former shareholder of GN. On the date of purchase, the Company’s Common Stock was trading at $1.41 which values thepurchase at $11,264,438. For balance sheet purposes the Company has treated this purchase using the cost method because the purchase consistsof an investment in a private company in which the Company does not have the ability to exercise significant influence over GN’soperating and financial activities. The Company conducted an impairment test on December 31, 2019, and determined that an impairment existedresulting in a write-down of the investment by $7,070,841 to a current value of $4,193,597.

 

On May, 2020, the Company exchanged 5,507,400of its common shares for 3,671,597 common shares of GN. These shares were valued at $0.675 each which represents the value of the GN sharesas determined by the Company’s year-end impairment analysis and were recorded as an investment of $2,478,422. As of December 31,2020 the Company’s investment in GN was $6,672,019.

 

On October 6, 2020, the Company invested $50,000CAD in exchange for 83,333 Class A Common Shares at $0.60 CAD per share. The Company entered into a cooperation agreement with KloneticsPlant Science Inc, a Company that engages in the business of genetics research and development, tissue culture propagation, plantlet production,ready to flower production within the cannabis industry throughout the world. The parties consider it advantageous to pool their respectiveexperience, expertise, knowhow and capabilities in the area of land acquisition, financing, development, operations, and respective areasof industry focus. The parties wish to commence their intended long-term cooperation by pursuing projects in selected areas of focus initiallybefore extending it to a larger scale merger between the parties, which may be discussed at a later date with terms to be determined andagreed to by the parties. CannaPharmaRx will invest up to a maximum percentage of Thirty Percent (30%) of the issued and outstanding sharesof Klonetics.

 

NOTE 6. PROPERTY, PLANT, AND EQUIPMENT

 

The following table sets forth the components ofthe Company’s property and equipment on December 31, 2020, and December 31, 2019:

 

   December 31, 2020   December 31, 2019 
   Gross Carrying Amount   Accumulated Depreciation   Net Book Value   Gross Carrying Amount   Accumulated Depreciation   Net Book Value 
                         
Computers, software, and office equipment  $4,869   $(2,435)  $2,435   $4,757   $(779)  $3,978 
Land               143,201         143,201 
Construction in progress   1,566,316        1,566,316    1,540,918         1,540,918 
Total fixed assets  $1,571,185   $(2,435)  $1,568,751   $1,688,876   $(779)  $1,540,918 

 

 

 

 

 F-16 

 

 

For the years ended December 31, 2020, and 2019,the Company recorded depreciation expense of $1,542 and $779 respectively.

 

As of December 31, 2020 and December 31, 2019,the Company had $1,566,316 and $1,540,918 respectively, in construction in progress.. The facility acquired as part of the AMS acquisitionis 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 exteriorconstruction of the building has been completed, however, no interior construction has begun.

 

For construction in-progress assets, no depreciationis recorded until the asset is placed in service. When construction is completed, the asset should be reclassified as building, buildingimprovements, or land improvement and should be capitalized and depreciated. Construction in progress includes all costs related to theconstruction of a medical cannabis facility. Cost also includes soft costs such as loan fees and interest and consulting fees and relatedexpenses. The facility is not available for use and therefore not being amortized.

 

NOTE 7. GOODWILL AND INTANGIBLE ASSETS

 

As of December 31, 2020, and December 31, 2019,the Company had $-0- and $6,370,333 in goodwill, respectively. Additionally, the Company had $-0- and $1,834,176 in intangible assets,respectively, for the same periods, ended December 31, 2020, and 2019, respectively. The goodwill and intangible assets arose as a resultof the acquisition of AMS. Amortization expense for the years ended December 31, 2020, and 2019 were $126,963 and $128,256 respectively.On December 31, 2020, the Company conducted an impairment test at AMS and determined that all of the goodwill, intangible assets, andthe land had been impaired, resulting in a charge of $7,962,694 to the Company’s consolidated statements of operations for the periodended December 31, 2020.

 

NOTE 8. ACCOUNT PAYABLE AND ACCRUED LIABILITIES

 

Accounts payables are recognized initially atthe transaction price and subsequently measured at the undiscounted amount of cash or other consideration expected to be paid. Accruedexpenses are recognized based on the expected amount required to settle the obligation or liability.

 

The following table sets forth the componentsof the Company’s accrued liabilities on December 31, 2020, and December 31, 2019.

 

  

December 31,

2020

  

December 31,

2019

 
         
Accounts payable and accrued expenses  $2,447,848   $902,854 
Accrued interest (a)   96,477    27,630 
Accrued legal settlement (b)   190,000    190,000 
Total accounts payable and accrued liabilities  $2,734,325   $1,120,484 

 

(a)Represents interest accrued on the outstanding convertible notes and other notes -see Note 12, Notes Payables)

 

(b)The Company had previously been a party to an action filed by Gary M. Cohen, a former officer and directorof the Company in 2014. In March 2015, the Company entered into a Settlement Agreement with Mr. Cohen wherein the Company agreed to repurchase2,250,000 shares of its Common Stock from Mr. Cohen in consideration for $350,000. Mr. Cohen passed away while there was a remaining balanceof $190,000 remaining to be paid in accordance with the Settlement Agreement. The Company has taken the position that his death has dischargedany obligation the Company might have to make the balance of the payments. The Company has not received any demand for payment or otherwisebeen involved in any attempt to collect this balance for a period of greater than two years prior to the date of this Report.

 

 

 

 

 F-17 

 

 

NOTE 9. RELATED PARTY TRANSACTIONS

 

The following table sets forth the componentsof the Company’s related party liabilities on December 31, 2020, and December 31, 2019.

 

  

December 31,

2020

  

December 31,

2019

 
         
Accounts payable and accrued payroll, related party(a)  $655,171   $582,096 
Accrued expense - related party(b)   756,738    606,356 
Total accounts payable and accrued liabilities  $1,411,909   $1,188,452 

 

(a)Accounts payable and accrued payroll-related parties as of December 31, 2020, is comprised of the following:

 

Interest-free loans of $75,000 and $180,000 fromJames Samuelson, a director, and the Company’s CEO and a director, respectively, amounting and $19,758 due to former directors toa total of $274,758, accrued salaries for officers and employees and other payables amounting to $380,413.

 

(b) Accrued expense relatedparties of $756,738 is comprised of bonuses and fees due to current and former directors and officers of the Company. As of December 31,2020, and December 31, 2019, there was $150,000 due to claims received from two former directors, which was purported to be accrued salariesarising out of services provided in 2015 and 2016. Management is in the process of reviewing these claims.

 

Effective March 22, 2020, the Company establishedits principal place of business and leases offices at 3600, 888 – 3rd St SW, Calgary, Alberta, Canada, T2P 5C5. The lease may beterminated by either party on 30 days’ notice. Rent is $4,000 CAD per month. This space was provided by a company to which, Mr.Orman, one of the Company’s directors, serves as a Director.

 

See Note 16, Subsequent Events, below, for additionalrelated party transactions.

 

NOTE 10. CONVERTIBLE NOTES AND DERIVATIVE LIABILITIES

 

The following tables set forth the componentsof the Company’s, convertible debentures as of December 31, 2020, and December 31, 2019:

 

   December 31,
2020
   December 31,
2019
 
         
Principal value of convertible notes  $1,662,000   $1,550,000 
Note discount   (664,442)   (997,397)
Total convertible notes, net current  $997,558   $552,603 

 

During the years ended December 31, 2020, andDecember 31, 2019, the Company received proceeds from convertible notes of $2,053,000 and $1,550,000, respectively.

 

 

 

 

 F-18 

 

 

On July 8, 2019, the Company commenced a privateoffering of Units at a price of $50,000 per Unit, each Unit consisting of 50,000 shares of the Company’s Common Stock and one $50,000unsecured Convertible Note (“a Convertible Note”), which mature one year from the date of issuance and accrue interest at5% per annum. These Convertible Notes are convertible into shares of the Company’s Common Stock at a conversion price of $1.00 pershare. During the year ended December 31, 2019, the Company issued 31 Units in this offering for and received proceeds of $1,550,000 fromsix accredited investors. Since the Company’s stock price exceeded the conversion feature of the Convertible Notes and was immediatelyexercisable, the Company recorded a beneficial conversion feature (“BCF”) and expense of $1,550,000 which was charged to interestexpense with an offset to paid-in capital.

 

In addition, the 5,505,530 shares of Common Stockincluded 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, wascharged to interest expense with an offset to paid-in capital. The remaining $1,550,000 was recorded as a Note discount of $1,550,000to be amortized over the three years from the date of the Note to the maturity date. The Company recorded $552,602 in interest expenserelated to the amortization of note discount during the year ended December 31, 2019.

 

During the year ended December 31, 2020, the Companyissued a total of 24 notes to accredited investors of which $582,500 was in the form of unsecured 5% convertible notes, and $595,500 wasin unsecured 8% convertible notes, and $1,000,500 at 10%.  Under the terms of each convertible note, the investors received the rightto convert their to common stock commencing the year after the date of issuance ranging from 55%-75%, respectively, of the lowest closingprice for the Company’s common stock measured 20 business days prior to conversion. One of the noteholders also received 153,940“returnable” shares in connection with issuance of the convertible notes. These shares are returnable to the Company if theunderlying convertible note ($160,000) is redeemed before the passage of 180 days. During the three months ended September 30, 2020 theCompany repaid the $160,000 Note, received the 153,940 shares back from the noteholder, and converted a $100,000 note plus accrued interestinto 135,000 Common Shares of the Company.

 

During the year ended December 31, 2020 the Companyrecorded $257,345 in interest expense on these Notes and amortized $1,690,933 of note discount which was charged to interest expense.As of December 31, 2020, there was $35,048 in accrued interest on these notes, and $664,442 in unamortized note discount related to thesenotes. As of the date of this Report, there was one note for $100,000 that past due its maturity date. The Company has not received anynotice of default on these note and continues to accrue interest on these notes past the maturity date.

 

During the year ended December 31, 2020 the Companyissued 4,067,332 common shares upon the conversion of $1,984,000 in convertible notes and recorded a gain of $566,408.

 

As of December 31, 2020, derivative liabilitieswere valued using a probability-weighted average Black-Scholes-Merton pricing model with the following assumptions:

 

   

December 31,

2020

 
Exercise Price     0.13 – 0.46  
Stock Price   $ 0.49 –1.01  
Risk-free interest rate     .10% – .19%  
Expected volatility     345.50 – 352.70%  
Expected life (in years)     1.00  
Expected dividend yield     0%  
Fair Value:   $ 3,676,949  

 

 

 

 

 F-19 

 

 

The risk-free interest rate was based on ratesestablished by the Federal Reserve Bank. The Company uses the historical volatility of its common stock to estimate the future volatilityfor its common stock. The expected life of the conversion feature of the notes was based on the remaining term of the notes. The expecteddividend yield was based on the fact that the Company has not customarily paid dividends in the past and does not expect to pay dividendsin the future.

 

During the year ended December 31, 2020, the Companyrecognized a loss of $3,676,649 as “Other Expense” on its Consolidated Statements of Operations, which represented the netchange in the value of the derivative liability. There were no derivative instruments or liability as of December 31, 2019.

 

NOTE 11.

NOTES PAYABLE

 

The following tables set forth the componentsof the Company’s, convertible debentures as of December 31, 2020, and December 31, 2019:

 

   December 31,
2020
   December 31,
2019
 
Principal value of Promissory Note  $8,977,721   $8,789,794 
Loan discounts   (248,972)   (488,117)
Less: Current portion, net of discount   (8,728,749)   (2,800,559)
Promissory Note, long term net of discount  $-   $5,501,118 

 

Pursuant to the terms of the Securities PurchaseAgreement with AMS the Company issued a non-interest bearing CAD $10,000,000 ($7,330,000 USD) promissory note secured only by the sharesacquired in AMS. Principal payments under the Promissory Note are due quarterly commencing upon AMS receiving a license to cultivate andare computed based upon 50% of AMS' cash flow, defined as EBITDA less all capital expenditures, taxes incurred, non-recurring items, andother non-cash items for the relevant fiscal quarter, including the servicing of all senior debt payment obligations of the Company. ThePromissory Note matures the earlier of two years from the date AMS receives a license to cultivate, or December 31, 2021. Since AMS hadnot received its cultivation license as of December 31, 2020, the Note Payable will have a maturity date of December 31, 2021.

 

The Company performed a valuation study as partof the AMS acquisition. The valuation study determined that the Promissory Note should be valued at $6,632,917 since it was non-interestbearing. As a result, the Company recorded a note discount of $697,083. The note discount will be amortized to interest expense over thethree-year term of the Promissory Note. During the year ended December 31, 2019, the Company recorded $244,058 in interest expense relatedto the amortization of the note discount. During the year ended the Company has recorded $175,721 in amortization expense related to Notediscount.

 

On July 3, 2019, the Company entered into a 12%$1,000,000 Loan Agreement with Koze Investments LLC (“Koze”), payable in full on June 28, 2020. The Company is currently indiscussions with Koze to extend the maturity date of the Note. While the Company believes it will be successful in extending the maturitydate, there are no assurances this will occur. Under the terms of the 12% Note, Koze took a first security interest against the Company’sHanover, Ontario cannabis facility in progress and required the Company to pay off its existing mortgage of approximately $650,000 CAD.Additionally, the Company agreed to pay a 3% origination fee, prepay the year of interest ($60,000) and to issue to Koze five-year warrantsto purchase 1,001,000 shares of the Company’s Common Stock at an exercise price of $1.00 per share. After paying the originationfees, the prepayment and paying off the original mortgage, the Company used a portion of the remaining proceeds as payment against theSMI purchase price of CAD $1,000,000. At December 31, 2020 the Company recorded an additional amount of $890,570 relating to penaltiesfor late payment. As of the date this Report the Company has continued to accrue interest on the Koze Note and is in discussion to renegotiatethe final payout amount, which is anticipated to occur when the property is sold. Koze has not asserted that a default has occurred.

 

On April 21, 2020, the Company received a loanfrom the Government of Canada under the Canada Emergency Business Account program (CEBA). This loan was in the amount of $40,000 CAD (USD$29,352). These funds are interest-free until December 31, 2022, at which time the remaining balance will convert to a 3-year term loanat an interest rate of 5% per annum. An additional amount of $20,000 CAD (USD $15,708) was received on December 29, 2020. If the Companyrepays the loan prior to December 31, 2022, there will be loan forgiveness of 33% or $20,000 CAD.

 

 

 

 

 F-20 

 

 

NOTE 12. INCOME TAXES

 

As of December 31, 2020, the Company has approximately$75,600,000 of federal net operating loss carryforwards (“NOLS”) in the United States. The federal net operating loss carryforwardsbegin to expire in 2030. State net operating loss carryforwards begin to expire in 2034. Due to the change in ownership provisions ofthe Internal Revenue Code, the availability of the Company’s net operating loss carryforwards could be subject to annual limitationsagainst taxable income in future periods which could substantially limit the eventual utilization of such carryforwards. The Company hasnot analyzed the historical or potential impact of its equity financings on beneficial ownership and therefore no determination has beenmade whether the net operating loss carryforward is subject to any Internal Revenue Code Section 382 limitation. To the extent there isa limitation there could be a substantial reduction in the deferred tax asset with an offsetting reduction in the valuation allowance.As of December 31, 2020, the Company has no unrecognized income tax benefits.

 

The tax years from 2014 and forward remain opento examination by federal and state authorities due to net operating loss and credit carryforwards. The Company is currently not underexamination by the Internal Revenue Service or any other taxing authorities. Since the company has never been profitable, the Companyhas established a full valuation allowance against the deferred tax asset associated with the NOLS.

 

NOTE 13.

COMMITMENTS AND CONTINGENCIES

 

Effective March 22, 2019, the Company enteredinto a lease agreement to lease three offices at 3600 888 3 St SW, Calgary, Alberta, Canada, T2P 5C5. The lease may be terminated by eitherparty on 30 days’ notice. Rent is $4,000 CAD per month. This space was provided by a company to which, Mr. Orman, one of the Company’sdirectors, serves as a Director.

 

NOTE 14. STOCKHOLDERS’ EQUITY

 

Preferred Stock

 

The Company is authorized to issue up to 10,000,000shares of one or more series of Preferred Stock, par value of $0.0001 per share. The Board of Directors may, without stockholder approval,determine the dividend rates, redemption prices, preferences on liquidation or dissolution, conversion rights, voting rights, and anyother preferences.

 

Series A Preferred Stock

 

In April 2018, the Company issued 60,000 sharesof its Series A Convertible Preferred Stock for $1.00 per share to certain investors who then became members of management and the boardof directors. Each share of Series A Convertible Preferred Stock is convertible into 1,250 shares of Common Stock and vote on an as-convertedbasis. 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 the Company’s Common Stock, whereupon the holders of the Series A Convertible Preferred Stock shall receive a dividend on the number of shares of Common Stock into 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;

 

  · not redeemable.

 

The beneficial conversion (“BCF”) featureattributed to the purchase of Preferred Stock was deemed to have no value on the date of purchase because there was no public tradingmarket for the Convertible Preferred Stock, and none is expected to develop in the future. Therefore, the BCF related to the PreferredShares was considered to have no value on the date of issuance.

 

 

 

 

 F-21 

 

 

There were 60,000 shares of Series A PreferredStock issued and outstanding as of December 31, 2020, and December 31, 2019, respectively.

 

Series B Preferred Stock / Common Stock

 

In February 2019, the Company commenced an offeringof up to $3 million in principal amount of Units at a price of $1.00 per Unit, each Unit consisting of one share of Series “B”Convertible Preferred Stock, each Convertible Preferred Share convertible into one share of the Company’s Common Stock at the electionof the holder and one Common Stock Purchase Warrant exercisable to purchase one share of Common Stock at an exercise price of $2.00 pershare, which offering is to be offered only to “accredited investors,” as that term is defined in Rule 501 of Regulation D.This Offering was closed at the end of August 2019. As of December 31, 2020, the Company had accepted $475,000 in subscriptions in thisoffering.

 

There were 475,000 shares of Series B ConvertiblePreferred Stock issued and outstanding as of December 31, 2020, and December 31, 2019, respectively.

 

The Company is authorized to issue 300,000,000shares of Common Stock, par value $0.0001 per share. As of December 31, 2020, and December 31, 2019, 47,611,794 and 36,486,999 sharesof Common Stock were issued and outstanding, respectively.

 

In January 2019, the Company closed a privateoffering of 12% Convertible Debentures where it 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 common stock at the lesserof $0.40 or 50% of the closing market price on the date a business combination valued at greater than $5,000,000 is completed., The Companyused the proceeds from this offering for the purchase of AMS, as well as working capital, including costs associated with the preparationof over three years of reports that had not been filed with the SEC. During the three-month period ended June 30, 2019, the Company enteredinto a Qualified Financing with its minority purchase of GN stock and warrants described in Note 4 “Investment.” As a result,on June 30, 2019, the convertible notes amounting to $2,072,000 along with $130,212 of accrued interest were converted, pursuant to theautomatic conversion terms described above, to equity at $0.40 per share, or a total of 5,505,530 shares.

 

Unit Offering

 

On July 8, 2019, the Company commenced a privateoffering of Units at a price of $50,000 per Unit, each Unit consisting of 50,000 shares of the Company’s Common Stock and one $50,000unsecured Convertible Note (“Unit Convertible Note”), which mature in one year from the date of issuance and accrue interestat 5% per annum. These Unit Convertible Notes are convertible into one share of the Company’s Common stock at a conversion priceof $1.00 per share. During the year ended December 31, 2019, the Company issued $1,200,000 in Unit Convertible Notes to two accreditedinvestors. Since the Company’s stock price exceeded the conversion feature of the Unit convertible Notes and was immediately exercisable,the Company recorded a beneficial conversion feature (“BCF”) and expense of $1,200,000 which was charged to interest expensewith an offset to paid-in capital.

 

Additionally, 1.2 million shares of Common Stockwere issued in connection with the sale of the Units which were valued at $2,598,000. The excess above the $1,200,000 face value of theUnit Convertible Notes or, $1,398,000 was charged to interest expense with an offset to paid-in capital. The remaining $1,200,000 wasrecorded as a Note discount of $1,200,000 to be amortized over one year at the rate of $100,000 per month. $200,000 in interest expenserelated to this discount was recorded during the year ended December 31, 2019.

 

Shares Issued in Connection with the AssignmentAgreement with Great Northern Ltd

 

On September 28, 2018, Great Northern Cannabis,Ltd (“GN”), entered a Letter of Intent with P2P Green Power Energy Solutions and certain individuals to acquire all of theissued and outstanding shares of AMS. On October 10, 2018, the Company entered into an Assignment and Assumption Agreement (“theAA Agreement”) with GN. Under the terms of the AA Agreement, the Company essentially purchased the right to acquire AMS from GNfor the following consideration:

 

  · A refundable payment of CAD $200,000
  · An accountable reimbursement of GN expenses and fees related to the AMS acquisition not to exceed CAD $300,000
  · In the event that we didn’t enter into a management agreement with GN post-closing, we agreed to issue GN, 2,500,000 shares of our Common Stock trading under symbol “CPMD”

 

 

 

 

 F-22 

 

 

All of the above consideration was expressly contingentupon the closing of the AMS acquisition which was consummated by the Company on December 31, 2019. The payments of $200,000 and $300,000were made to GN. On August 30, 2019, the parties determined that no management agreement had been entered into so the Company issued 2,500,000shares to GN valued at $5,800,000 as required pursuant to the Agreement. Under the guidelines of ASC 805, Business Combinations, sincewe disclosed that the AMS transaction was complete, the goodwill re-measurement period ended and therefore we could not adjust goodwillfor this transaction. As a result, we recorded an acquisition expense on the Company’s income statement for $5,800,000.

 

Shares Reserved for Issuance

 

As of December 31, 2020, the Company had 85,353,320Common Shares reserved for issuance. These shares are comprised of 75,000,000 Common Shares issuable upon the conversion of the SeriesA Preferred Stock; 475,000 Common Shares issuable upon the conversion of Series B Preferred Stock; 7,558,570 shares issuable upon a conversionof the convertible notes, and 2,319,750 Common Shares issuable upon the exercise of warrants. None of these shares were used in the calculationof earnings per share because their inclusion would be anti-dilutive since the Company is operating at a loss. There are no assurancesthat the conversion rights will be utilized or that the options or the warrants will be exercised.

 

Stock Options

 

During the period ended December 31, 2020, andDecember 31, 2019, the Company did not record any stock-based compensation expense related to stock options, as there were none outstanding.

 

Stock Purchase Warrants

 

The following table reflects all outstanding andexercisable warrants on December 31, 2020, and December 31, 2019:

 

   Number of Warrants Outstanding (a)   Weighted Average Exercise Price   Average Remaining Contractual Life (Years) 
Warrants outstanding, January 1, 2018      $     
Warrants issued   350,000    0.57    1.50 
Warrants exercised            
Warrant forfeited            
Warrants outstanding, December 31, 2018   350,000   $0.57    .12 
Warrants issued (a)   1,519,750   $1.01    .59 
Warrants outstanding December 31, 2019   1,869,750   $0.92    .80 
Warrants exercised   (25,000)        
Warrants outstanding December 31, 2020   1,844,750   $0.92    .50 

 

Stock purchase warrants are exercisable for two-fiveyears from the date of issuance.

 

(a) The number of warrants reflected in this table does not include 475,000 warrants that were issued at various times during 2019 in connectionwith the issuance of the Company’s Series B Preferred stock. These warrants are exercisable for three years at a strike price of$2.00 per share. The Company accounts for warrants issued to purchase shares of its common stock or preferred stock as equity in accordancewith FASB ASC 480, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock,Distinguishing Liabilities from Equity. Therefore, no stock-based compensation expense was recorded for the issuance of these 475,000warrants.