UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
or
For the transition period from ___________to ___________
Commission File Number:
(Exact name of small business issuer as specified in its charter) |
| ||
(State of other jurisdiction of incorporation) |
| (IRS Employer ID No.) |
(Address of principal executive offices)
(Issuer’s Telephone Number)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
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| OTC Pink Sheets |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.
The number of shares of the registrant’s common stock issued and outstanding as of November 14, 2024, was
CANNAPHARMARX, INC. September 30, 2024 TABLE OF CONTENTS |
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| PART I. FINANCIAL INFORMATION |
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Item 1 | Financial Statements (unaudited) |
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Item 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations/Plan of Operation |
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Item 3 | Quantitative and Qualitative Disclosures About Market Risk |
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Item 4 | Controls and Procedures |
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| 2 |
| Table of Contents |
CANNAPHARMAX, INC. CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS |
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| September 30, 2024 (Unaudited) |
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| December 31, 2023 |
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ASSETS |
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Current assets |
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Cash |
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Goods and services tax receivable |
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Accounts receivable |
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Inventory |
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Total current assets |
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Non-current assets |
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Property, plant and equipment, net |
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Right-of-use building, net |
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Investments |
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Total assets |
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LIABILITIES AND STOCKHOLDERS’ DEFICIT |
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Current liabilities |
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Accounts payable and accrued liabilities |
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Accrued interest |
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Accrued legal settlement |
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Deferred revenue |
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Notes payable |
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Convertible notes - net of discount |
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Derivative conversion feature |
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Loans payable - related party |
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Liability for right-of-use building, current portion |
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Obligation to issue shares |
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Total current liabilities |
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Non-current liability |
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Liability for right-of-use building |
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Total liabilities |
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STOCKHOLDERS’ DEFICIT |
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Preferred stock series A, $ |
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Preferred stock series B, $ |
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Preferred stock series C, $ |
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Common stock, $ |
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Treasury stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Accumulated other comprehensive income (loss) |
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Total stockholders’ deficit |
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Total liabilities and stockholders’ deficit |
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The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
| 3 |
| Table of Contents |
CANNAPHARMAX, INC. CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS |
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| Three months ended September 30, |
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| Nine months ended September 30, |
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Revenue |
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Cost of goods sold |
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Gross loss |
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Operating expenses |
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Depreciation |
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General and administrative |
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Payroll and consulting fees |
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Professional fees |
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Rent |
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Stock-based compensation |
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Total operating expenses |
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Loss from operations |
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Other income (expenses) |
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Change in the fair value of derivative conversion feature |
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Change in the fair value of obligation to issue shares |
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Interest expense |
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Loss on the extinguishment of debt |
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Loss on impairment of investment |
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Total other income (expenses) |
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Net income (loss) |
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Foreign currency translation adjustment |
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Net comprehensive income (loss) |
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Basic and diluted income (loss) per share of common stock |
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Weighted average number of common stock outstanding |
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The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
| 4 |
| Table of Contents |
CANNAPHARMAX, INC. CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
| Nine months ended September 30, |
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Operating activities |
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Net loss |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation |
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Change in the fair value of derivative conversion feature |
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Change in the fair value of obligation to issue shares |
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Interest expense |
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Loss on extinguishment of debt |
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Loss on impairment of investment |
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Loss on impairment of inventory included in cost of goods sold |
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Stock-based compensation |
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Changes in operating assets and liabilities: |
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Cash overdraft |
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Goods and services tax receivable |
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Accounts receivable |
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Prepaid expenses |
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Inventory |
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Other assets |
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Accounts payable and accrued liabilities |
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Accrued interest |
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Deferred revenue |
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Net cash used in operating activities |
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Investing activity |
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Purchases of property, plant and equipment |
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Net cash used in investing activity |
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Financing activities |
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Issuance of warrants |
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Proceeds from notes payable |
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Proceeds from loans payable - related party |
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Proceeds from convertible notes |
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Repayment of convertible notes |
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Lease payments |
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Net cash provided by financing activities |
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Effects of exchange rates on cash |
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Net change in cash |
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Cash, beginning of period |
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Cash, end of period |
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Supplemental disclosure of cash flow information: |
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Cash interest paid |
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Supplemental disclosure of non-cash flow investing and financing activities: |
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Cancellation of preferred stock series B |
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Conversion of convertible loans into common stock |
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Conversion of preferred stock series A into common stock |
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Common stock issued to convert convertible notes and accrued interest into equity |
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The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
| 5 |
| Table of Contents |
CANNAPHARMAX, INC. CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT |
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| Preferred stock series A |
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| Preferred stock series B |
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| Preferred stock series C |
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| Common stock |
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| Treasury stock |
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| Accumulated other |
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| Additional |
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| comprehensive |
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| Total |
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| Value |
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| Value |
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| paid-in capital |
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| Accumulated deficit |
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| income (loss) |
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| stockholders' deficit |
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Balance, December 31, 2022 |
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Conversion of preferred stock series B to common stock |
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Conversion of convertible notes to common stock |
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Stock based compensation related to warrant issuances |
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Foreign currency translation adjustment |
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Net loss |
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Balance, March 31, 2023 |
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| $ |
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Conversion of convertible notes to common stock |
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Stock based compensation |
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| - |
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| - |
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| - |
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Foreign currency translation adjustment |
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| - |
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| - |
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| - |
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Net loss |
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| - |
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| - |
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| - |
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| - |
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Balance, June 30, 2023 |
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| $ |
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| $ |
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| - |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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Common stock returned to treasury |
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| - |
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| - |
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Stock based compensation related to warrant issuances |
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| - |
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| - |
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| - |
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| - |
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Foreign currency translation adjustment |
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| - |
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| - |
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| - |
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| - |
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| - |
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Net loss |
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| - |
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| - |
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| - |
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| - |
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Balance, September 30, 2023 |
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| $ |
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| $ |
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| - |
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| $ |
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|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ | ( | ) | |||||||||||
| 6 |
| Table of Contents |
CANNAPHARMAX, INC. CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT |
|
| Preferred stock |
|
| Preferred stock series B |
|
| Preferred stock series C |
|
| Common stock |
|
| Treasury stock |
|
|
|
|
|
|
| Accumulated other |
|
|
| |||||||||||||||||||||||||||||||
|
| Number |
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|
|
| Number |
|
|
|
|
| Number |
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|
|
| Number |
|
|
|
|
| Number |
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|
|
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| Additional |
|
|
|
| comprehensive |
|
| Total |
| |||||||||||||||
|
| of shares |
|
| Value |
|
| of shares |
|
| Value |
|
| of shares |
|
| Value |
|
| of shares |
|
| Value |
|
| of shares |
|
| Value |
|
| paid-in capital |
|
| Accumulated deficit |
|
| income (loss) |
|
| stockholders' deficit |
| ||||||||||||||
Balance, December 31, 2023 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | |||||||||||
Exercise of warrants on cashless basis |
|
| - |
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
| - |
| |||||||
Conversion of preferred stock series A to common stock |
|
| ( | ) |
|
| ( | ) |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Cancellation of preferred stock series B |
|
| - |
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Conversion of convertible notes to common stock |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Issuance of warrants in convertible notes |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Adjustment to issuance of preferred stock series C for LTB investment |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
| ( | ) |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Foreign currency translation adjustment |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | |||||||
Balance, March 31, 2024 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ | ( | ) | ||||||||||||
Conversion of convertible notes to common stock |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Adjustment of treasury stock to par value |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| ||||||||
Foreign currency translation adjustment |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net income |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Balance, June 30, 2024 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ | ( | ) | ||||||||||||
Foreign currency translation adjustment |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||||||
Net income |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Balance September 30, 2024 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ | ( | ) | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
| 7 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023 |
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
CannaPharmaRX Inc. (“CPRX” or the “Company”) was originally incorporated in the state of Colorado in August 1998 as Network Acquisitions, Inc. The Company focuses its business efforts on evaluation, negotiation, acquisition, and development of cannabis cultivation projects in Canada.
On January 6, 2022, the Company entered into a 20-year operating lease with Formosa Mountain Ltd. for the use of a leased facility located in Cremona, Alberta, Canada. The facility was built in 2015 and was previously operating as a cannabis production facility until it was decommissioned, and the license cancelled by the previous owner making the facility ready for sale in 2020.
CPRX recommissioned the 55,000 square foot facility which contains 11 growing rooms and 10 drying and packing rooms into a new indoor cannabis farm during 2022. The Company received an operating license from Health Canada on December 9, 2022, and a cannabis license from the Canada Revenue Agency (“CRA”) on December 22, 2022.
Preliminary discussions with export partners would set conditional per gram pricing for optimal product at approximately $3.30 Canadian dollars (“CAD”) per gram. This price would be based on achieving satisfactory test results associated to tetrahydrocannabinol (“THC”) and cannabidiol (“CBD”) content of the dried flower.
Basis of presentation
The accompanying condensed interim consolidated financial statements (the “financial statements”) have been prepared in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification, the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“US GAAP”).
All figures are in United States (“US”) dollars (“USD”) unless indicated otherwise.
Use of estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. The most significant estimates relate to the purchase price allocation of acquired businesses, the impairment of long-lived assets, the valuation of financial instruments, the provision of income taxes and contingencies. The Company bases its estimates on historical experience, known or expected trends, and various other assumptions that are believed to be reasonable given the quality of information available as at the date of these financial statements. The results of these assumptions provide the basis for making estimates about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.
Cash
The Company considers all its cash in bank accounts and its highly liquid temporary cash investments with an original maturity of three months or less to be cash and cash equivalents. On September 30, 2024, the Company had cash of $
Comprehensive income or loss
ASC 220 Comprehensive Income establishes standards for the reporting and display of comprehensive income and its components in the financial statements. As at September 30, 2024, and December 31, 2023, the Company’s financial statements include the translation of foreign operations to the presentation currency giving rise to foreign currency translation differences. The statement of comprehensive income includes the effects of translation of the Company’s foreign operations.
| 8 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023 |
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventory
Inventory is valued at the lower of cost and net realizable value, with cost determined using the weighted average cost method. Net realizable value is calculated as the estimated selling price in the ordinary course of business, less any estimated costs to complete and sell the goods. Costs are capitalized to inventory, until substantially ready for sale. Costs include direct and indirect labor, raw materials, consumables, packaging supplies, utilities, facility costs, quality and testing costs, production related depreciation, and other overhead costs.If costs of inventory exceed its net realizable value, the difference is recorded as a net realizable value adjustment and included within cost of goods sold.
Leases
At the inception of a lease, the Company determines if the lease will be classified as an operating lease or a finance lease. If the lease transfers ownership by the end of the term, contains a purchase option that is reasonably certain to be exercised, is for a term representing the major part of the underlying asset’s useful life, or if the present value of lease payments represents substantially all of the fair value of the underlying asset, then the lease is classified as a finance lease. Otherwise, the lease is classified as an operating lease. This classification of operating or finance lease determines the presentation of corresponding expenses over the lifetime of the lease.
Finance lease assets represent the right to use an underlying asset for the lease term, and finance lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are recognized based on the present value of future payments over the lease term at commencement date. A collateralized incremental borrowing rate based on the information available at commencement date, including lease term, is used in determining the present value of future payments. This incremental borrowing rate is updated in the event of a lease modification such as a renewal or option that adds time and payments to a lease. A lease term generally does not include an option to extend or terminate the lease, unless there is a reasonable certainty that the option will be exercised. Fixed payments may contain predetermined fixed rent escalations. The Company recognizes the expense related to finance leases using the effective interest rate method from the commencement date to the end of the lease term. Certain lease contracts contain non-lease components such as maintenance, utilities, fuel and other services. The Company recognizes both the lease and non-lease component for each right-of-use asset.
Short-term leases (that have an initial term less than 12 months or that are cancellable by the lessor and lessee without significant penalties) are expensed as they are incurred.
Derivative financial instruments
Terms of convertible and other promissory notes are reviewed to determine whether they contain embedded derivative instruments that are required to be accounted for separately from the host contract and recorded on the balance sheet at fair value. The fair value of derivative instruments is required to be revalued at each reporting date, with corresponding changes in fair value recorded in the current period operating results. Derivative liabilities arose due to the issuance of variably priced convertible notes. For the nine months ended September 30, 2024, the Company had derivative liabilities of $
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risk.
Revenue Recognition
The Company recognizes revenue from the sale of products in accordance with ASC 606, “Revenue Recognition” following the five steps procedure:
Step 1: Identify the contract(s) with customers
Step 2: Identify the performance obligations in the contract - The performance obligation is the delivery of products in accordance with the terms of the contract.
Step 3: Determine the transaction price - The transaction price is the amount agreed upon for the sale of goods and represents the amount invoiced to the customer.
Step 4: Allocate the transaction price to performance obligations - Transaction price is allocated to performance obligations on the same basis as invoice itemization.
| 9 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023 |
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Step 5: Recognize revenue when the entity satisfies a performance obligation - The Company has shipped out the product and, therefore, satisfied the performance obligation. The risk of loss is passed to the customers at the point of shipment.
Foreign currency translation
The functional currency and the reporting currency of the Company’s US operations is USD. The functional currency of the Company’s Canadian operations is CAD. Management adopted ASC 830 Foreign Currency Matters for transactions that occur in foreign currencies. Monetary assets denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Average monthly rates are used to translate revenues and expenses.
Transactions denominated in currencies other than 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 respective periods.
Assets and liabilities of the Company’s operations are translated into the reporting currency, USD, 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 historical rate when the transaction occurred. The resulting translation adjustment is reflected as accumulated other comprehensive income, a separate component of stockholders' deficit in the statements of changes in stockholders' deficit.
These translation adjustments are reflected in accumulated other comprehensive income, a separate component of the Company's stockholders' deficit.
Sales tax
The Canadian Goods and Services Tax (“GST”) is a 5% tax applied to taxable goods and services. GST is a consumption tax paid by the consumer at the point of sale. The vendor or seller collects the tax proceeds from consumers by adding the GST rate to the cost of goods and services; they then remit the total collected tax, less input tax credits for GST paid to vendors, to the government periodically.
The GST is in effect Canada-wide, although is sometimes combined with a Provincial Sales Tax and referred to as a Harmonized Sales Tax. The GST is collected by the Canada Revenue Agency, which remits the appropriate amounts to the participating provinces.
Stock-based compensation
The Company has adopted ASC Topic 718 Compensation—Stock Compensation, which establishes a fair value method of accounting for stock-based compensation plans. In accordance with guidance now incorporated in ASC Topic 718, the fair value of stock options and warrants issued to employees and non-employees is measured on the grant date based on the fair value. The fair value is determined using the Black-Scholes option pricing model. The resulting amount is charged to expense on a straight-line basis over the period in which the Company expects to receive the benefit, which is generally the vesting period. The fair value of share purchase warrants issued as a form of compensation or payment was determined at the date of grant using the Black-Scholes option pricing model. The Black-Scholes option pricing 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 as at September 30, 2024 or December 31, 2023.
Long-lived assets
The Company evaluates the recoverability of its long-lived assets whenever events or changes in circumstances have indicated that an asset may not be recoverable. The long-lived asset is grouped with other assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. If the sum of the projected undiscounted cash flows is less than the carrying value of the assets, the assets are written down to the estimated fair value.
| 10 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023 |
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair values of assets and liabilities
The Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded, and the 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 entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
Financial instruments
The estimated fair value for financial instruments was determined at discrete points in time based on relevant market information. These estimates involve uncertainties and could not be determined with exact precision. The fair value of the Company’s financial instruments, which include cash, accounts receivable, prepaid expenses, accounts payable and accrued liabilities, and related party loans, each approximate their carrying value due either to their short length to maturity or interest rates that approximate prevailing market rates.
Income taxes
The Company accounts for income taxes under the liability method, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
Earnings (loss) per share
Earnings (loss) per share is presented in accordance with Accounting Standards Update (“ASU”), Earnings per Share (Topic 260), which requires the presentation of both basic and diluted earnings per share (“EPS”) on the income statements.
Basic EPS excludes any dilutive effects of options, warrants, and convertible securities but does include the restricted shares of common stock issued. Basic EPS calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding during the year.
Diluted EPS reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted to common stock. Diluted EPS calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding.
Recently issued accounting pronouncements
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new pronouncements that have been issued that might have a material impact on its financial position or results of operations.
| 11 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023 |
NOTE 2 - GOING CONCERN AND LIQUIDITY
As at September 30, 2024, the Company had cash of $
These financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. Based on current financial projections, the Company does not have sufficient existing cash resources to fund its current limited operations. Accordingly, there is substantial doubt about the Company’s ability to continue as a going concern.
It is the Company’s intention to incur debt and/or raise additional funding through equity financing to fund ongoing operating expenses. There is no assurance that these events will be satisfactorily completed or at terms acceptable to the Company. Any issuance of equity securities, if accomplished, could cause substantial dilution to existing stockholders. Any failure by the Company to successfully implement these plans would have a material adverse effect on its business, including the possible inability to continue operations.
NOTE 3 - INVENTORY
A summary of the Company’s inventory as at September 30, 2024, and December 31, 2023 is as follows:
|
| 2024 |
|
| 2023 |
| ||
|
|
|
|
|
|
| ||
Finished goods |
| $ |
|
| $ |
| ||
Work in process |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
During the three and nine months ended September 30, 2024, the Company recorded a provision in cost of goods sold of $
During the three and nine months ended September 30, 2024, depreciation expense allocated to inventory was $
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
A summary of the Company’s property, plant and equipment as at September 30, 2024 is as follows:
|
| Cost |
|
| Accumulated depreciation |
|
| Net book value |
| |||
Computers, office and plant equipment |
| $ |
|
| $ | ( | ) |
| $ |
| ||
A summary of the Company’s property, plant and equipment as at December 31, 2023 is as follows:
|
| Cost |
|
| Accumulated depreciation |
|
| Net book value |
| |||
Computers, office and plant equipment |
| $ |
|
| $ | ( | ) |
| $ |
| ||
During the three and nine months ended September 30, 2024, the Company recorded depreciation expense on fixed assets of $
For the three and nine months ended September 30, 2024, depreciation expense allocated to inventory was $
| 12 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023 |
NOTE 5 - RIGHT-OF-USE BUILDING
A summary of the Company’s right-of-use building asset at September 30, 2024 and December 31, 2023 is as follows:
|
| 2024 |
|
| 2023 |
| ||
Gross carrying amount |
| $ |
|
| $ |
| ||
Accumulated depreciation |
|
| ( | ) |
|
| ( | ) |
Net book value |
| $ |
|
| $ |
| ||
For the three and nine months ended September 30, 2024, the Company recorded depreciation expense on the right-of-use building of $
For the three and nine months ended September 30, 2024, depreciation expense allocated to inventory was $
NOTE 6 - INVESTMENTS
On November 22, 2023, the Company closed a deal with LTB Management, LLC (“LTB”) whereby the Company obtained
Contingent consideration includes a quarterly true up of the sellers’ preferred share proportional ownership to
NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable are initially recognized at the transaction price and subsequently measured at the undiscounted amount of cash or other consideration expected to be paid. Accrued liabilities are recognized based on the expected amount required to settle the obligation or liability.
A summary of the Company’s accounts payable and accrued liabilities as at September 30, 2024, and December 31, 2023 is as follows:
|
| 2024 |
|
| 2023 |
| ||
Accounts payable and accrued expenses |
| $ |
|
| $ |
| ||
Accrued legal settlement (a) |
|
|
|
|
|
| ||
Total accounts payable and accrued liabilities |
| $ |
|
| $ |
| ||
(a) | The Company has previously been a party to an action filed by Gary M. Cohen, a former officer and director of the Company in 2014. In March 2015, the Company entered into a settlement agreement with Mr. Cohen wherein the Company agreed to repurchase |
| 13 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023 |
NOTE 8 - NOTES PAYABLE
A summary of the Company’s notes payable as at September 30, 2024, and December 31, 2023 is as follows:
|
| 2024 |
|
| 2023 |
| ||
Notes payable |
| $ |
|
|
|
| ||
CEBA loan |
|
|
|
| $ |
| ||
Promissory notes (secured investors) |
|
|
|
|
|
| ||
Promissory notes (LTB Transaction) |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
Notes payable
On April 9, 2024, the Company entered into a note payable agreement (“Note A”) bearing interest at
On May 10, 2024 and May 31, 2024, the Company entered into notes payable agreements (“Note B” and “Note C”, respectively) bearing interest at
On July 29, 2024 and August 13, 2024, the Company entered into notes payable agreements (“Note D” and “Note E”, respectively) bearing interest at
CEBA loan
Due to the global COVID 19 outbreak, the Government of Canada introduced the Canada Emergency Business Account (“CEBA”) program. The Company participated in this program and received $60,000 CAD. The loan was interest-free until January 18, 2024 at which time it was converted to a non-amortizing term loan with the full principal repayment due on December 31, 2026. As at September 30, 2024 and December 31, 2023 the Company’s CEBA Loan balance is $
Promissory notes (secured investors)
During the year ended December 31, 2021, the Company entered into promissory note agreements with secured investors for non-interest-bearing notes maturing within 12 months with a total value of $
The Company has a $
On May 25, 2023, the Company entered into a promissory note with Koze Investments LLC (“Koze”) whereby it was agreed that up to $2,000,000 in funding would be advanced to the Company to pay for certain documented Company expenses. The promissory note bears interest at
| 14 |
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CANNAPHARMARX, INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023 |
Promissory notes (LTB Transaction)
On November 22, 2023, the Company entered into promissory notes of $
NOTE 9 - CONVERTIBLE NOTES AND DERIVATIVE CONVERSION FEATURE
A summary of the Company’s convertible notes is as follows:
Balance, net of note discount, December 31, 2022 |
| $ |
| |
Proceeds received |
|
|
| |
Value of conversion of notes to 166,607,680 common shares |
|
| ( | ) |
Note discount |
|
|
| |
Balance, net of note discount, December 31, 2023 |
|
|
| |
Proceeds received |
|
|
| |
Value of conversion of notes to 204,353,254 common shares |
|
| ( | ) |
Repayment |
|
| ( | ) |
Balance, September 30, 2024 |
| $ | 1,148,114 |
|
During the three and nine months ended September 30, 2024, the Company recorded a loss on conversion of $nil (2023 - $nil) and $
A summary of the terms and conditions of the convertible notes outstanding which have a derivative conversion feature as at September 30, 2024 is as follows:
Maturity Date |
| Interest Rate |
|
| Conversion price |
| Principal at inception |
|
| Principal outstanding |
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As at September 30, 2024, the Company had $
As at the date of this 10-Q Report, all convertible notes were past their maturity date. Additionally, as a result of the late filing of previous Reports, and the loss of the Company’s active listing in the OTC market, the penalty provisions of all convertible notes outstanding became effective. The Company estimated that the maximum penalty provisions amounted to one time the face value of all convertible notes outstanding and recorded an accrued liability for penalties amounting to $
| 15 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023 |
The convertible notes were determined to be compound instruments, comprising separate financial instruments, being the debt obligation and the conversion option, which were bifurcated and are presented separately on the consolidated balance sheets. As the number of common shares to be issued on exercise of the conversion option is contingent on a variable share price, the conversion option has been classified as derivative conversion feature.
A summary of Company’s derivative conversion feature as at September 30, 2024 is as follows:
Balance, December 31, 2022 |
| $ |
| |
Changes in fair value of derivative conversion feature |
|
|
| |
Balance, December 31, 2023 |
|
|
| |
Changes in fair value of derivative conversion feature |
|
| ( | ) |
Balance, September 30, 2024 |
| $ |
|
As at September 30, 2024 the Company had derivative conversion feature of $
A summary of the Company’s weighted average inputs used in the Black-Scholes option pricing model for derivative conversion feature valuation as at September 30, 2024 is as follows:
|
| 2024 |
| |
Stock price |
| $ |
| |
Exercise price |
| $ |
| |
Risk-free interest rate |
|
| % | |
Expected volatility |
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| % | |
Expected life |
|
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Expected annual dividend yield |
|
| % | |
The risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company uses the historical volatility of its common stock to estimate the future volatility of its common stock. The expected life of the conversion feature of the notes was based on the remaining term of the notes. The expected annual dividend yield was based on the fact that the Company has not customarily paid dividends in the past and does not expect to pay dividends in the future
NOTE 10 - RELATED PARTY TRANSACTIONS
A summary of the Company’s related party liabilities as at September 30, 2024, and December 31, 2023 is as follows:
|
| 2024 |
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| 2023 |
| ||
Loan payable - related party |
| $ |
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| $ |
| ||
Liability for right-of-use building, current portion |
|
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Liability for right-of-use building |
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Total loan payable, related parties |
| $ |
|
| $ |
| ||
The loan payable - related party is comprised of:
| • | A $ |
|
|
|
| • | A $ |
As at September 30, 2024, $
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CANNAPHARMARX, INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023 |
As at September 30, 2024, the Company has an obligation to issue an additional
Effective February 1, 2023, the Company entered into a lease agreement to lease one office at Suite 3600, 888 5th Avenue SW, Calgary, Alberta, Canada, T2P 3R7. The rent is $500 CAD per month. This space was provided by a company to which Mr. Orman, the chairman of the Company’s board of directors. During the three and nine months ended September 30, 2024, the Company incurred rent expense in total of $
As at September 30, 2024, accounts payable and accrued liabilities includes balances owing to related parties as follows:
| • | $ |
| • | $ |
| • | $ |
The related party liabilities as at December 31, 2023 also comprised promissory notes from Koze and from a shareholder of the Company who is the principal of Koze; and lease liabilities from a lease agreement with Formosa Mountain Ltd., a shareholder of which is the principal of Koze. The shareholder was previously considered to be related party of the Company.
NOTE 11 - LIABILITY FOR RIGHT-OF-USE BUILDING
The Company’s lease with Formosa Mountain Ltd. (“Formosa”) (Note 5, Note 11) was entered into on January 1, 2022 and consists of land and building used in the cultivation, processing, and warehousing of its products. The lease was classified as an operating lease in accordance with ASC 842 Leases and has an expected end date of December 31, 2041 with the option for two extension terms of five years each.
A summary of supplementary information of the Company’s operating lease liabilities is as follows:
|
| Three months ended September 30, |
|
| Nine months ended September 30, |
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Interest expense |
| $ |
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| $ |
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| $ |
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Depreciation |
| $ |
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| $ |
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| $ |
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Finance lease-related expenses included in accounts payable and accrued liabilities |
| $ |
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| $ |
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| $ |
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A summary of the maturity of contractual liabilities associated with the Company’s operating lease as at September 30, 2024 is as follows:
2025 |
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2026 |
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2027 |
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2028 |
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2029 |
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Thereafter |
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Total undiscounted liability for right-of-use building |
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Effects of discounting |
|
| ( | ) |
Total present value of minimum lease payments |
|
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| |
Liability for right-of-use building, current portion |
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Liability for right-of-use building |
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| 17 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023 |
NOTE 12 - STOCKHOLDERS’ DEFICIT
Preferred stock
The Company is authorized to issue up to
Series A preferred stock
In April 2018, the Company issued
The beneficial conversion feature (“BCF”) attributed to the purchase of Series A Stock was deemed to have no value on the date of purchase because there was no public trading market for the Series A Stock, and none is expected to develop in the future. Therefore, the BCF related to the Series A Stock was considered to have no value on the date of issuance.
On March 5, 2024,
As at September 30, 2024 and December 31, 2023,
Series B preferred stock
In August 2019, the Company closed an offering of up to $
Each Common Warrant is exercisable to purchase one share of common stock at the election of the holder at an exercise price of $2.00 per share, which offering is to be offered only to “accredited investors,” as that term is defined in Rule 501 of Regulation D of the Securities and Exchange Commission regulations. As at December 31, 2020, the Company had accepted $
On March 22, 2023,
As at September 30, 2024,
Series C preferred stock
In March 2023, the Company issued
Each share of Series C Stock entitles the holder to 1,250 votes on all matters submitted to a vote of the shareholders; is convertible into
| 18 |
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CANNAPHARMARX, INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023 |
In March 2024, the Company noted a historical accounting treatment error whereby the shares had been recorded at the stated value rather than the par value. As a result, the Company adjusted the value of the Series C stock to their par value of $
As at September 30, 2024 and December 31, 2023,
Common stock
The Company is authorized to issue
On March 5, 2024,
On March 8, 2024, the Company issued
During the nine months ended September 30, 2024, the Company issued
Stock purchase warrants
A summary of the Company’s stock purchase warrant activity is as follow:
|
| Number of stock purchase warrants |
|
| Weighted average exercise price |
| ||
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|
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| ||
Stock purchase warrants outstanding December 31, 2022 |
| # |
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| $ |
| ||
Stock purchase warrants issued |
|
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|
| ||
Stock purchase warrants outstanding December 31, 2023 |
| # |
|
| $ |
| ||
Stock purchase warrants granted |
|
|
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|
|
| ||
Stock purchase warrants redeemed |
|
| ( | ) |
|
|
| |
Stock purchase warrants expired |
|
| ( | ) |
|
|
| |
Stock purchase warrants outstanding September 30, 2024 |
| # |
|
| $ |
| ||
A summary of the Company’s number of stock purchase warrants outstanding and exercisable for period ended September 30, 2024 is as follows:
|
| Number of stock purchase warrants |
|
| Weighted average exercise price |
|
| Weighted average remaining life (Years) |
| |||
May 10, 2026 |
| # |
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| $ |
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February 15, 2028 |
| # |
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November 22, 2028 |
| # |
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During the nine months ended September 30, 2024,
During the year ended December 31, 2023, the Company corrected an error in the accounting treatment associated with the stock purchase warrants that were issued during the year ended December 31, 2019 as origination fees associated with a promissory note and loan granted during that year. The value of the stock purchase warrants should have been expensed upon issuance. The correction of the error resulted in a $
| 19 |
| Table of Contents |
CANNAPHARMARX, INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023 |
NOTE 13 - INCOME TAX
As at December 31, 2023, the Company had approximately $
The tax years from 2014 and forward remain open to examination by federal and state authorities due to net operating loss and credit carryforwards. The Company is currently not under examination by the Internal Revenue Service or any other taxing authorities. Since the company has never been profitable, the Company has established a full valuation allowance against the deferred tax asset associated with the NOLS.
NOTE 14 - GENERAL AND ADMINISTRATIVE
A summary of the Company’s general and administrative expenses for the three and nine months ended September 30, 2024 and 2023 is as follows:
|
| Three months ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
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| 2024 |
|
| 2023 |
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Advertising and promotion |
| $ |
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| $ |
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| $ |
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Insurance |
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Interest and bank charges |
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Office and administrative |
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Plant supplies |
|
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Repairs and maintenance |
|
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Taxes |
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|
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Exchange gain or loss |
|
| ( | ) |
|
|
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| ( | ) |
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Transfer agent fees |
|
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Utilities |
|
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| $ |
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| $ |
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| $ |
|
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NOTE 15 - COMMITMENTS AND CONTINGENCIES
Effective February 1, 2023, the Company entered into a lease agreement to lease one office at Suite 3600, 888 5th Avenue SW, Calgary, Alberta, Canada, T2P 3R7. The rent is $500 CAD per month. This space was provided by a company to which Mr. Orman, one of the Company’s directors, serves as a director.
NOTE 16 - SUBSEQUENT EVENTS
Management has performed an evaluation of subsequent events from September 30, 2024 through to the date of issuance of these financial statements and has determined that it does not have any material subsequent events to disclose in these financial statements.
| 20 |
| Table of Contents |
ITEM 1. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company’s financial condition and results of operations for the interim period as at and for the three and nine months ended September 30, 2024 should be read together with the Company’s financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and related footnotes included in our Transition Report on Form 10-K for the year ended December 31, 2023.
In connection with, and because we desire to take advantage of, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we caution readers regarding certain forward-looking statements in the following discussion and elsewhere in this Report and in any other statement made by, or on our behalf, whether or not in future filings with the Securities and Exchange Commission. Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on our behalf. We disclaim any obligation to update forward-looking statements.
Forward-Looking Statements
This Quarterly Report on Form 10-Q includes a number of “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, including statements concerning anticipated financial results and developments of our operations in future periods that reflect management's current views with respect to future events and financial performance. Forward-looking statements are projections in respect of future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. These statements include statements regarding the intent, belief or current expectations of us and members of our management team, as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks set forth in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 as filed with the U.S. Securities and Exchange Commission (the “SEC”) on June 25, 2024 any of which may cause our company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied in our forward-looking statements. These risks and factors include, by way of example and without limitation:
| • | our ability to successfully commercialize our products and services on a large enough scale to generate profitable operations; |
| • | our ability to maintain and develop relationships with customers and suppliers; |
| • | our ability to successfully integrate acquired businesses or new brands; |
| • | the impact of competitive products and pricing; |
| • | supply constraints or difficulties; |
| • | the retention and availability of key personnel; |
| • | general economic and business conditions; |
| • | substantial doubt about our ability to continue as a going concern; |
| • | our need to raise additional funds in the future; |
| • | our ability to successfully recruit and retain qualified personnel in order to continue our operations; |
| • | our ability to successfully implement our business plan; |
| • | our ability to successfully acquire, develop or commercialize new products and equipment; |
| • | intellectual-property claims brought by third parties; and |
| • | the impact of any industry regulation. |
This list is not exhaustive of the factors that may affect the Company’s forward-looking statements. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those described in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, estimated or expected. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Except as required by law, the Company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. The Company qualifies all the forward-looking statements contained in this Quarterly Report on Form 10-Q by the foregoing cautionary statements.
| 21 |
| Table of Contents |
During the three and nine months ended September 30, 2024 the Company had $312,164 (2023 - $nil) and $338,003 (2023 - $nil), respectively, of revenues from operations. Loss from operations for the three and nine months ended September 30, 2024 was $497,946 (2023 - $667,497) and $2,085,159 (2023 - $2,280,713), respectively. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, or performance. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Readers are urged to carefully review and consider the various disclosures made by us in this Report and in our other reports filed with the SEC. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time except as required by law. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions.
As used in this Quarterly Report on Form 10-Q and unless otherwise indicated, the terms “CannaPharmaRX”, CANNAPHARMARX”, the “Company”, “we”, “us”, and “our” refer to CannaPharmaRX, Inc. and our wholly owned subsidiaries. Unless otherwise specified, all dollar amounts are expressed in United States dollars (“USD”).
OVERVIEW AND HISTORY
CannaPharmaRX Inc. (“CPRX” or the “Company”) was originally incorporated in the state of Colorado in August 1998 as Network Acquisitions, Inc. and changed its name to Cavion Technologies, Inc. (“Cavion”) in February 1999. The Company focuses its business efforts on evaluation, negotiation, acquisition, and development cannabis cultivation projects in Canada.
On January 6, 2022, the Company entered into a 20-year operating lease with Formosa Mountain Ltd. to lease a 55,000 square foot cannabis production facility in Cremona, Alberta, Canada. CPRX recommissioned the facility into a new indoor cannabis farm with 11 growing rooms and 10 drying and packing rooms during 2022.
The Company received an operating license from Health Canada on December 9, 2022, and a cannabis license from the Canada Revenue Agency (“CRA”) on December 22, 2022.
Under the new license the Company commenced cannabis production during the year ended December 31, 2023.
PLAN OF OPERATION
The Company received an operating license from Health Canada on December 9, 2022, and a cannabis license from the Canada Revenue Agency (“CRA”) on December 22, 2022.
We anticipate developing a consistent cadence of growing, harvesting, cultivating, and delivering world class products on a regular basis and expects to begin to see a strong and accelerated revenue increase during the 2024 fiscal year (“FY2024”). Our production facility is operating at maximum capacity during FY2024, achieving regular plantings with staggered production so that we are constantly harvesting and delivering high-quality products to multiple sources. Our focus continues to be on international sales with high gross margin products, resulting in greater profitability using our state-of-the-art production facility to grow on demand against purchase contracts using smart inventory management which will contribute to higher turnover and regular deliveries. We will continue to collaborate with international partners on multiple continents and develop proprietary online, data-driven technology.
Our FY2024 growth goals were achieved and included delivering the first of several harvests during the first, second quarter. Additional goals for the remainder of FY2024 include continuing to increase our strategic partner network; receiving our European Union license for Good Manufacturing Practices (“GMP”) to allow us to expand distribution; expanding our customer network; becoming a world leader in unique genetic strains with a current catalogue of over 500 desirable strains developed and owned by CPRX; and continuing to improve our balance sheet.
| 22 |
| Table of Contents |
In support of these goals:
• | On February 16, 2024, the Company announced that we finalized a strategic supply agreement with Cantek Holdings, an Israeli corporation, whereby the Company will supply 1,000kgs of product annually. |
• | On February 23, 2024, the Company announced that we successfully obtained our Israel Medical Cannabis (“IMC”) Good Agricultural Practices (“GAP”) and Good Agricultural and Collection Practices (“GACP”) certifications. The IMC-GAP and IMC-GACP certifications are the standard for cannabis certification in Israel and are required for CPRX to sell cannabis in Israel, a world leader in the medical cannabis industry. |
• | On March 5, 2024, the Company announced that we finalized a supply agreement with ICAN Green S.A. de C.V. (“ICAN”), a division of ICAN Investing Group LLC to supply product for distribution in the Latin Americas with a primary focus on Mexico and Panama. The agreement is subject to certain minimum required annual levels of purchases by ICAN. |
• | On March 11, 2024, the Company shipped its first product to a Canadian LP for distribution within Canada. |
• | On March 12, 2024, the Company announced completion of its first five grows and harvests are ready for sale, with testing of the new grows underway with an independent certified laboratory to confirm that the products meet standards for distribution throughout Canada and internationally. |
• | On April 2, 2024, the Company announced repayment of its convertible notes with 1800 Diagonal Lending, LLC and Janbella Group, LLC with cash generated from debt financing with a private lender. |
• | On August 18, 2024, the Company announced that it had received three purchase orders for cannabis, for a total of 600KG, from Cantek Holdings. |
Recent Funding
During the nine months ended September 30, 2024, the Company:
• | Issued $213,488 in new convertible debentures to accredited investors with immediate maturity and interest rates of 10%, and converted $62,910 of the outstanding convertible notes into Common Shares. |
• | Entered into a $100,000 note payable agreement with a private individual bearing interest at 12% per annum and maturing April 9, 2025. |
• | Entered into two additional notes payable agreements for $50,001 ($68,326 CAD) and $70,001 ($95,460 CAD), respectively, with a second private individual, each bearing interest at 10% per annum, the $50,001 note payable maturing on May 10, 2024 and the $70,001 note payable on May 31, 2024. |
• | Entered into two additional notes payable agreements for $50,000 ($67,320 CAD) and $50,000 ($68,098 CAD), respectively, with a third and fourth private individual, each bearing interest at 15% per annum, maturing on April 14, 2025 and July 29, 2025, respectively. |
During the year ended December 31, 2023, the Company issued $213,750 in new convertible debentures to accredited investors with 12-month terms to maturity and interest rates between 10% and 12% and converted $222,096 of the outstanding convertible notes into Common Shares.
Going Concern
Substantial doubt exists as to our ability to continue as a going concern based on the fact that we do not have adequate working capital to finance our day-to-day operations. For the three and nine months ended September 30, 2024, the Company reported $312,164 (2023 - $nil) and $338,003 (2023 - $nil), respectively, in revenue.
The Company’s deficit of $97,443,301 as at September 30, 2024 indicates substantial uncertainty about the Company’s ability to continue as a going concern. Management’s plans include engaging in further research and development and raising additional capital in the short term to fund such activities through sales of its common stock. Management’s ability to implement its plans and continue as a going concern may be dependent upon raising additional capital. Our continued existence depends on the success of our efforts to raise additional capital necessary to meet our obligations as they come due and to obtain sufficient capital to execute our business plan. We may obtain capital primarily through issuances of debt or equity or entering into collaborative arrangements with corporate partners. There can be no assurance that we will be successful in completing additional financing or collaboration transactions or, if financing is available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we may be required to further scale down or perhaps even cease the operation of our business. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments. Our financial statements do not include adjustments that might result from the outcome of this uncertainty.
| 23 |
| Table of Contents |
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
The Company has commenced actively marketing products approved by Health Canada. The Company does not experience seasonality in its business operations.
During the three months ended September 30, 2024 and 2023, the Company’s financial results are as follows:
Revenue
During the three months ended September 30, 2024 and 2023, the Company reported revenue of $312,164 and $nil, respectively. Product sales commenced during 2024 and therefore the Company reported no revenue in the prior year comparable quarter.
Cost of Goods Sold
During the three months ended September 30, 2024 and 2023, the Company reported cost of goods sold of $668,322 and $nil, respectively. Product sales commenced during 2024 and therefore the Company reported no cost of sales in the prior year comparable quarter. Included in cost of goods sold for the three months ended September 30, 2024 and 2023 is loss on impairment of inventory of $79,178 and $nil, respectively, primarily due to lower net realizable value attributed to early batches of product as a result of suboptimal THC levels.
Gross Loss
During the three months ended September 30, 2024 and 2023, the Company reported a gross loss of $356,158 and $nil, respectively.
Operating Expenses
A summary of the Company’s operating expenses for the three months ended September 30, 2024 and 2023 is as follows:
|
| 2024 |
|
| 2023 |
| ||
Amortization and depreciation |
| $ | - |
|
| $ | 76,550 |
|
General and administrative |
|
| 51,225 |
|
|
| 336,620 |
|
Payroll and consulting fees |
|
| 25,389 |
|
|
| 164,292 |
|
Professional fees |
|
| 64,075 |
|
|
| 44,778 |
|
Rent |
|
| 1,099 |
|
|
| 12 |
|
Stock based compensation |
|
| - |
|
|
| 45,245 |
|
|
| $ | 141,788 |
|
| $ | 667,497 |
|
During the three months ended September 30, 2024 and 2023, the Company’s operating expenses consisted primarily of amortization and depreciation, general and administrative expenses, payroll and consulting fees, and professional fees associated with the costs for services or employees in finance, accounting, sales, administrative activities and the compliance of a public company. Overall operating expenses for the three months ended September 30, 2024 were $141,788 compared to operating expenses of $667,497 in the prior year comparable period, a decrease of $525,709. The decrease is primarily attributable the following:
• | A $76,550 decrease to amortization and depreciation primarily due to allocation of the majority of the expense to inventory during the current period and an overall decrease in depreciation expense due to fixed assets reaching or nearing the end of their useful lives. |
• | A $285,395 decrease to general and administrative expenses primarily due to an overall decrease in discretionary and extraneous spending, and to allocation of a portion of the expenses to inventory. |
• | A $138,903 reduction in payroll and consulting fees due to a change in management resulting in a reduction in payroll accruals for officers, as well as allocation of direct labour to inventory. |
| 24 |
| Table of Contents |
Other income (expenses)
A summary of the Company’s other income and expenses for the three months ended September 30, 2024 and 2023 is as follows:
|
| 2024 |
|
| 2023 |
| ||
Change in the fair value of derivative liability |
| $ | (6,216 | ) |
| $ | 457,991 |
|
Change in the fair value of obligation to issue shares |
|
| 1,324,327 |
|
|
| - |
|
Interest expense |
|
| (631,744 | ) |
|
| (354,862 | ) |
Loss on extinguishment of debt |
|
| - |
|
|
| - |
|
|
| $ | 686,367 |
|
| $ | 103,129 |
|
During the three months ended September 30, 2024, other income was $686,367 compared to $103,129 in the prior year comparable period, resulting in an increase of income of $583,238. The increase is primarily attributable the following:
• | A $464,207 decrease in change of fair value of derivative liability primarily due to the increase of the Company’s share price which resulted in a change in the stock price input and volatility input used in the Black Scholes option pricing model, which resulted in a substantial decrease in fair value at period end. |
• | A $1,324,327 increase in change in the fair value of obligation to issue shares primarily due to the increase of the Company’s share price which resulted in a change in inputs into the valuation model related to the obligation to issue shares, increasing the fair value at period end. |
• | A $276,882 increase in interest expense primarily due to additional debt taken on by the Company at a 24% rate of interest in order to continue operations. |
Net Loss
During the three months ended September 30, 2024, the Company recorded net income of $188,421 or $0.00 per share compared to a net loss of $564,368 or $0.00 in the prior year comparable period.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
The Company has commenced actively marketing products approved by Health Canada. The Company does not experience seasonality in its business operations.
During the nine months ended September 30, 2024 and 2023, the Company’s financial results are as follows:
Revenue
During the nine months ended September 30, 2024 and 2023, the Company reported revenue of $338,003 and $nil, respectively. Product sales commenced during 2024 and therefore the Company reported no revenue in the prior year.
Cost of Goods Sold
During the nine months ended September 30, 2024 and 2023, the Company reported cost of goods sold of $1,582,026 and $nil, respectively, due to the commencement of product sales during the current year. Included in cost of goods sold for the nine months ended September 30, 2024 and 2023 is loss on impairment of inventory of $529,634 and $nil, respectively, primarily due to lower net realizable value attributed to early batches of product as a result of suboptimal THC levels.
Gross Loss
During the nine months ended September 30, 2024 and 2023, the Company reported a gross loss of $1,244,023 and $nil, respectively.
| 25 |
| Table of Contents |
Operating Expenses
A summary of the Company’s operating expenses for the nine months ended September 30, 2024 and 2023 is as follows:
|
| 2024 |
|
| 2023 |
| ||
|
|
|
|
|
|
| ||
Amortization and depreciation |
| $ | 87,278 |
|
| $ | 223,904 |
|
General and administrative |
|
| 253,374 |
|
|
| 857,573 |
|
Payroll and consulting fees |
|
| 160,954 |
|
|
| 819,774 |
|
Professional fees |
|
| 336,222 |
|
|
| 241,113 |
|
Rent |
|
| 3,308 |
|
|
| 2,615 |
|
Stock based compensation |
|
| - |
|
|
| 135,734 |
|
|
| $ | 841,136 |
|
| $ | 2,280,713 |
|
During the nine months ended September 30, 2024 and 2023, the Company’s operating expenses consisted primarily of amortization and depreciation, general and administrative expenses, payroll and consulting fees, and professional fees associated with the costs for services or employees in finance, accounting, sales, administrative activities and the compliance of a public company. Overall operating expenses for the nine months ended September 30, 2024 were $841,136 compared to operating expenses of $2,280,713 in the prior year comparable period, a decrease of $1,439,577. The decrease is primarily attributable the following:
• | A $136,626 decrease to amortization and depreciation primarily due to allocation of the majority of the expense to inventory during the current period and to an overall decrease in depreciation expense due to fixed assets reaching or nearing the end of their useful lives. |
• | A $604,199 decrease to general and administrative expenses primarily due to a reduction in advertising and promotion expenditures, to an overall decrease in discretionary and extraneous spending, and to allocation of a portion of the expenses to inventory. |
• | A $658,820 reduction in payroll and consulting fees primarily due to a change in management resulting in a reduction in payroll accruals for officers, and to the allocation of a portion of the expenses to inventory. |
• | A $95,109 increase in professional fees due primarily to transition of accounting and assurance services to new providers resulting in initial cost increases, particularly related to the annual audit of the Company and the 2024 quarterly review engagement. |
Other income (expenses)
A summary of the Company’s other income and expenses for the nine months ended September 30, 2024 and 2023 is as follows:
|
| 2024 |
|
| 2023 |
| ||
Change in the fair value of derivative liability |
| $ | 612,874 |
|
| $ | 101,921 |
|
Change in the fair value of obligation to issue shares |
|
| (2,060,066 | ) |
|
| - |
|
Interest expense |
|
| (1,941,885 | ) |
|
| (1,169,502 | ) |
Loss on extinguishment of debt |
|
| (690,712 | ) |
|
| (429,471 | ) |
Loss on impairment of investment |
|
| - |
|
|
| (78,760 | ) |
|
| $ | (4,079,789 | ) |
| $ | (1,575,812 | ) |
During the nine months ended September 30, 2024, other expenses was $4,079,789 compared to $1,575,812 in the prior year comparable period, resulting in an increase in expense of $2,503,977. The increase is primarily attributable the following:
• | A $510,953 increase in change of fair value of derivative liability primarily due to the increase of the Company’s share price which resulted in a change in the stock price input and volatility input used in the Black Scholes option pricing model, which resulted in a substantial decrease in fair value at period end. |
• | A $2,060,066 increase in change in the fair value of obligation to issue shares primarily due to the increase of the Company’s share price which resulted in a change in inputs into the valuation model related to the obligation to issue shares, increasing the fair value at period end. |
• | A $772,383 increase in interest expense primarily due to additional debt taken on by the Company at a 24% rate of interest in order to continue operations. |
• | A $261,241 increase in the loss on extinguishment of debt primarily due to reversal of an accrual for penalties upon the settlement of certain convertible notes and settlement through conversion of certain convertible notes. |
| 26 |
| Table of Contents |
Net Loss
During the nine months ended September 30, 2024, the Company recorded a net loss of $6,164,948 or $0.01 per share compared to a net loss of $3,856,525 or $0.01 in the prior year comparable period.
LIQUIDITY AND CAPITAL RESOURCES
The summary of the Company’s cash flows for the nine months ended September 30, 2024 and 2023 is as follows:
|
| 2024 |
|
| 2023 |
| ||
|
|
|
|
|
|
| ||
Cash used in operating activities |
| $ | (1,517,342 | ) |
| $ | (970,032 | ) |
Cash used in investing activities |
|
| - |
|
|
| (78,880 | ) |
Cash provided by financing activities |
|
| 1,523,691 |
|
|
| 1,046,595 |
|
|
| $ | 6,349 |
|
| $ | (2,317 | ) |
As of September 30, 2024, the Company had $6,999 in cash as compared to $650 as of December 31, 2023. The Company has working capital deficiency of $21,005,723 compared to $16,968,059 as of December 31, 2023.
Cash flows from operating activities
Cash used in operating activities for the nine months ended September 30, 2024 increased by $547,310 compared to the prior year comparable period, primarily due to increased spending on cannabis production in the current period.
Cash flows from investing activities
Cash used in investing activities for the nine months ended September 30, 2024 decreased by $78,880 compared to the prior year comparable period due to a lack of purchases of property, plant and equipment in the current period.
Cash flows from financing activities
Cash provided by financing activities for the nine months ended September 30, 2024 increased by $477,096 compared to the prior year comparable period primarily due to an increase of $1,819,973 in proceeds from notes payable and an increase in proceeds of $87,768 from proceeds from issuance of warrants, offset by a decrease of $1,412,227 in proceeds from related party loans, a decrease of $146,518 in proceeds from convertible loans, and repayment of $451,282 in convertible loans.
The Company has cash of $6,999 and current liabilities of $22,503,152. In order to fund its operation and continue as a going concern, the Company has an immediate need to raise capital through debt and/or equity.
Currently, the Company has no committed source for any funds to allow completion of any of our proposed acquisitions or projects in progress. No representation is made that any funds will be available when needed. In the event funds cannot be raised as required, we may not be able to carry out our business plan. Our inability to obtain funding for our projects will have a negative impact on our anticipated results of operations.
Subsequent Events
Management has performed an evaluation of subsequent events from September 30, 2024 through to the date of issuance of these financial statements and has determined that it does not have any material subsequent events to disclose in these financial statements.
INFLATION
Although our operations are influenced by general economic conditions, we do not believe that inflation had a material effect on our results of operations during the nine-month period ended September 30, 2024.
| 27 |
| Table of Contents |
CRITICAL ACCOUNTING ESTIMATES
The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The following represents a summary of our critical accounting policies, defined as those policies that we believe are the most important to the portrayal of our financial condition and results of operations and that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.
Recently Issued Accounting Pronouncements
Management has reviewed all other recently issued, but not yet effective, accounting pronouncements and do not believe the future adoption of any such pronouncements may be expected to cause a material impact on our financial condition or the results of our operations.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors.
ITEM 2. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is classified as a smaller reporting company and is not required to provide the information under this item pursuant to Regulation S-K.
ITEM 3. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures - Our management, with the participation of our Director and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as at the end of the period covered by this Report.
These controls are designed to ensure that information required to be disclosed in the reports we file or submit pursuant to the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
As evidenced by our late filing of the December 31, 2023 10-K, our director and CFO concluded that our disclosure controls and procedures were not effective as at December 31, 2023 at the reasonable assurance level.
We have implemented new procedures for the period ended September 30, 2024 to mitigate this ineffectiveness and will continue to monitor their effectiveness. We believe that our financial statements presented in this Form 10-Q fairly present, in all material respects, our financial position, results of operations, and cash flows for all periods presented herein.
Inherent Limitations - Our management, including our Director and Chief Financial Officer, do not expect that our disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdown can occur because of simple error or mistake. In particular, many of our current processes rely upon manual reviews and processes to ensure that neither human error nor system weakness has resulted in erroneous reporting of financial data.
Changes in Internal Control over Financial Reporting - Other than an emphasis on timely filing, there were no changes in our internal control over financial reporting during the period ended September 30, 2024, which were identified in conjunction with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| 28 |
| Table of Contents |
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Ataraxia
As part of our acquisition of AMS, we assumed an action filed against AMS by Ataraxia Canada, Inc. (“Ataraxia”), alleging breach of contract, specifically, breach of a non-binding term sheet providing for Ataraxia to acquire controlling interest in AMS. Ataraxia is seeking $15 million in damages. A Statement of Claim was prepared by Ataraxia, as plaintiff, and circulated to AMS, as defendant, on August 2, 2018, under the Ontario Superior Court of Justice (Court file no. CV-17-580157). The parties have engaged in discussions with respect to a potential settlement of this matter. Counsel has advised that it believes it is premature to speculate on any outcome of this litigation, including the likelihood of a settlement or any potential liability at this time.
Our agreement to acquire AMS contained a provision requiring 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 consent of the sellers, which consent is not to be unreasonably withheld, conditioned or delayed. The sellers are obligated to cooperate fully and make available to us all pertinent information and witnesses under their control, make such assignments and take such other steps as 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 situations with our legal counsel in order to ascertain whether we have claims against Steven Barber arising out of his default of the Consulting Agreement we entered into as part of the AMS acquisition more fully described in” Part I, Item 1,” Business, above and various claims against Gary Herick, a former officer and director. In January 2020, we received correspondence from counsel for Mr. Barber demanding payment on amounts purported to be due pursuant to his Consulting Agreement with us. We are currently reviewing whether Mr. Barber has performed pursuant to the terms of the Consulting Agreement.
No decision on whether to proceed on either of these situations has been reached as at the date of this Report.
BCI
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 Does 1 - 50, inclusive (Case No. 21st CV1 3696). The lawsuit alleges that CPRX breached the Amended and Restated Limited Liability Company Membership Purchase Agreement it had entered into with Bristol Capital Investors, LLC (BCI) to purchase BCI’s interest in Ramon Road Production Campus, LLC (RRPC), a single asset entity which owned an improved property, known as the Glass House, located in Cathedral City, California. BCI alleges causes of action for Fraud, Breach of Contract, Breach of the Implied Covenant of Good Faith and Fair Dealing, and Negligent Misrepresentation, and seeks compensatory and consequential damages in the amount of $10.5 million dollars plus attorneys’ fees and costs. CPRX intends to vigorously defend against BCI’s lawsuit, going forward. The parties conducted a court-ordered mediation, and the parties are engaging in on-going discussions.
Deloitte
On July 18, 2024, Deloitte LLP (“Deloitte”) filed a civil claim in the Alberta Court of Justice, alleging a breach of contract. Deloitte was engaged by CannapharmaRX to assist with fiscal year 2022 Finance Backfill and Diagnostic services and in accordance with a signed engagement letter dated August 29, 2022, proceeded to perform the professional services. Deloitte pleads that it has discharged its responsibilities and delivered its accounts to CannapharmaRX. CannapharmaRX acknowledged its satisfactory completion of services and the debts rendered but made no further payment as agreed other than an instalment payment on April 18, 2024. Deloitte is seeking recovery of the amount owing.
Former executives
Former executives of the company John Cassels and Andrew Steedman have filed a lawsuit against the company alleging damages and back pay due to them. The company has engaged legal counsel to resolve these matters. In the meantime, the company is working to settle the matters with both Mr. Steedman and Mr. Cassels.
We are not a party to any other legal proceeding or aware of any other threatened action as at the date of this Report.
| 29 |
| Table of Contents |
ITEM 1A. RISK FACTORS
We are a smaller reporting company and are not required to provide the information under this item pursuant to Regulation S-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the nine months ended September 30, 2024, the Company issued 204,353,254 common shares pursuant to conversions of convertible debt to common stock. The Company also exchanged 10,000 shares of Preferred A Stock for 12,500,000 shares of common stock, and executed a cashless exercise of approximately 5,000,000 warrants for 4,895,849 shares of common stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. OTHER INFORMATION
During the three and nine months ended September 30, 2024, no director or officer adopted or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement, as each term is defined in Item 408(a) of Regulation S-K.
ITEM 5. EXHIBITS
Exhibit No. | Description | |
|
| |
| Certification of Director Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
|
|
|
| Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
|
|
|
| ||
|
|
|
101.INS |
| Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document |
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
| Cover Page Interactive Data File (formatted in IXBRL, and included in exhibit 101). |
| 30 |
| Table of Contents |
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on November 14, 2024.
| CannaPharmaRx, Inc. |
| |
|
|
|
|
| By: | /s/ Rick Orman |
|
|
| Rick Orman, |
|
|
| Director |
|
|
|
|
|
| By: | /s/ Oliver Foeste |
|
|
| Oliver Foeste, Principal Financial Officer |
|
| 31 |
EXHIBIT 31.1
CERTIFICATION PURSUANT TO
18 USC, SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES OXLEY ACT OF 2002
I, Rick Orman, certify that:
|
| 1. | I have reviewed this quarterly report on Form 10-Q of CannaPharmaRx, Inc.; |
|
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
| c. | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based upon such evaluation; and |
|
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions): |
|
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Dated: November 14, 2024 | /s/ Rick Orman |
|
|
| Rick Orman, Director |
|
EXHIBIT 31.2
CERTIFICATION PURSUANT TO
18 USC, SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES OXLEY ACT OF 2002
I, Oliver Foeste, certify that:
|
| 1. | I have reviewed this quarterly report on Form 10-Q of CannaPharmaRx, Inc.; |
|
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
| c. | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based upon such evaluation; and |
|
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions): |
|
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Dated: November 14, 2024 | /s/ Oliver Foeste |
|
|
| Oliver Foeste, Chief Financial Officer (Principal Financial Officer) |
|
EXHIBIT 32
CERTIFICATION PURSUANT TO
18 USC, SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this quarterly report of CannaPharmaRx Inc. (the “Company”) on Form 10-Q for the three months period ended September 30, 2024, as filed with the Securities and Exchange Commission on November 14, 2024 (the “Report”), we, the undersigned, in the capacities and on the date indicated below, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge:
| 1. | The Report fully complies with the requirements of Rule 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Dated: November 14, 2024 | /s/ Rick Orman |
|
|
| Rick Orman, Director |
|
|
|
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| Dated: November 14, 2024 | /s/ Oliver Foeste |
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| Oliver Foeste, Chief Financial Officer (Principal Financial Officer) |
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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2024 |
Sep. 30, 2023 |
Sep. 30, 2024 |
Sep. 30, 2023 |
|
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||
| Revenue | $ 312,164 | $ 0 | $ 338,003 | $ 0 |
| Cost of goods sold | 668,322 | 0 | 1,582,026 | 0 |
| Gross loss | (356,158) | 0 | (1,244,023) | 0 |
| Operating expenses | ||||
| Depreciation | 0 | 76,550 | 87,278 | 223,904 |
| General and administrative | 51,225 | 336,620 | 253,374 | 857,573 |
| Payroll and consulting fees | 25,389 | 164,292 | 160,954 | 819,774 |
| Professional fees | 64,075 | 44,778 | 336,222 | 241,113 |
| Rent | 1,099 | 12 | 3,308 | 2,615 |
| Stock-based compensation | 0 | 45,245 | 0 | 135,734 |
| Total operating expenses | 141,788 | 667,497 | 841,136 | 2,280,713 |
| Loss from operations | (497,946) | (667,497) | (2,085,159) | (2,280,713) |
| Other income (expenses) | ||||
| Change in the fair value of derivative conversion feature | (6,216) | 457,991 | 612,874 | 101,921 |
| Change in the fair value of obligation to issue shares | 1,324,327 | 0 | (2,060,066) | 0 |
| Interest expense | (631,744) | (354,862) | (1,941,885) | (1,169,502) |
| Loss on the extinguishment of debt | 0 | 0 | (690,712) | (429,471) |
| Loss on impairment of investment | 0 | 0 | 0 | (78,760) |
| Total other income (expenses) | 686,367 | 103,129 | (4,079,789) | (1,575,812) |
| Net income (loss) | 188,421 | (564,368) | (6,164,948) | (3,856,525) |
| Foreign currency translation adjustment | (104,442) | 33,132 | 75,495 | (135,768) |
| Net comprehensive income (loss) | $ 83,979 | $ (531,236) | $ (6,089,453) | $ (3,992,293) |
| Basic and diluted income (loss) per share of common stock | $ 0.00 | $ (0.00) | $ (0.01) | $ (0.01) |
| Weighted average number of common stock outstanding | 662,501,405 | 295,096,003 | 612,777,502 | 292,670,792 |
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) - USD ($) |
Total |
Additional Paid-In Capital |
Accumulated Deficit |
Preferred Stock |
Accumulated other comprehensive loss |
Series B preferred stock [Member] |
Series C preferred stock [Member] |
Treasury Stock |
Common Stock |
|---|---|---|---|---|---|---|---|---|---|
| Balance, shares at Dec. 31, 2022 | 84,416 | 2,475,000 | 133,200 | 274,124,622 | |||||
| Balance, amount at Dec. 31, 2022 | $ (17,344,456) | $ 74,523,642 | $ (94,695,339) | $ 84,416 | $ 240,426 | $ 2,475,000 | $ 0 | $ (13) | $ 27,412 |
| Conversion of preferred stock series B to common stock, shares | (20,000) | 20,000 | |||||||
| Conversion of preferred stock series B to common stock, amount | 0 | 19,998 | 0 | $ (20,000) | 0 | 0 | $ 2 | ||
| Conversion of convertible notes to common stock, shares | 20,619,992 | ||||||||
| Conversion of convertible notes to common stock, amount | 507,015 | 504,953 | 0 | 0 | 0 | 0 | $ 2,062 | ||
| Stock based compensation related to warrant issuances | 45,245 | 45,245 | 0 | 0 | 0 | 0 | 0 | ||
| Foreign currency translation adjustment | (5,656) | 0 | 0 | (5,656) | 0 | 0 | 0 | 0 | |
| Net income (loss) | (1,412,573) | 0 | (1,412,573) | $ 0 | 0 | $ 0 | $ 0 | ||
| Balance, shares at Mar. 31, 2023 | 84,416 | 2,455,000 | 133,200 | 294,764,614 | |||||
| Balance, amount at Mar. 31, 2023 | (18,210,425) | 75,093,838 | (96,107,912) | $ 84,416 | 234,770 | $ 2,455,000 | 0 | $ (13) | $ 29,476 |
| Balance, shares at Dec. 31, 2022 | 84,416 | 2,475,000 | 133,200 | 274,124,622 | |||||
| Balance, amount at Dec. 31, 2022 | (17,344,456) | 74,523,642 | (94,695,339) | $ 84,416 | 240,426 | $ 2,475,000 | 0 | $ (13) | $ 27,412 |
| Net income (loss) | (3,856,525) | ||||||||
| Balance, shares at Sep. 30, 2023 | 84,416 | 2,455,000 | 6,230,761 | 294,764,614 | |||||
| Balance, amount at Sep. 30, 2023 | (20,629,975) | 75,247,742 | (98,551,864) | $ 84,416 | 104,658 | $ 2,455,000 | 0 | $ 597 | $ 29,476 |
| Balance, shares at Mar. 31, 2023 | 84,416 | 2,455,000 | 133,200 | 294,764,614 | |||||
| Balance, amount at Mar. 31, 2023 | (18,210,425) | 75,093,838 | (96,107,912) | $ 84,416 | 234,770 | $ 2,455,000 | 0 | $ (13) | $ 29,476 |
| Conversion of convertible notes to common stock, shares | 6,097,561 | ||||||||
| Conversion of convertible notes to common stock, amount | 64,025 | 63,415 | 0 | 0 | 0 | 0 | $ 610 | ||
| Stock based compensation related to warrant issuances | 45,244 | 45,244 | 0 | ||||||
| Foreign currency translation adjustment | (163,244) | 0 | 0 | (163,244) | 0 | 0 | 0 | 0 | |
| Net income (loss) | (1,879,584) | 0 | (1,879,584) | $ 0 | 0 | $ 0 | $ 0 | ||
| Balance, shares at Jun. 30, 2023 | 84,416 | 2,455,000 | 133,200 | 300,862,175 | |||||
| Balance, amount at Jun. 30, 2023 | (20,143,984) | 75,202,497 | (97,987,496) | $ 84,416 | 71,526 | $ 2,455,000 | 0 | $ (13) | $ 30,086 |
| Stock based compensation related to warrant issuances | 45,245 | 45,245 | |||||||
| Foreign currency translation adjustment | 33,132 | 33,132 | |||||||
| Net income (loss) | (564,368) | 0 | (564,368) | 0 | 0 | $ 0 | $ 0 | ||
| Common stock returned to treasury, shares | 6,097,561 | (6,097,561) | |||||||
| Common stock returned to treasury, amount | 0 | 0 | 0 | $ 0 | 0 | $ 610 | $ (610) | ||
| Balance, shares at Sep. 30, 2023 | 84,416 | 2,455,000 | 6,230,761 | 294,764,614 | |||||
| Balance, amount at Sep. 30, 2023 | (20,629,975) | 75,247,742 | (98,551,864) | $ 84,416 | 104,658 | $ 2,455,000 | $ 0 | $ 597 | $ 29,476 |
| Balance, shares at Dec. 31, 2023 | 84,416 | 2,455,000 | 100,000 | 6,230,761 | 440,752,302 | ||||
| Balance, amount at Dec. 31, 2023 | (12,153,213) | 75,826,669 | (91,278,353) | $ 84,416 | (35,617) | $ 2,455,000 | $ 750,000 | $ 597 | $ 44,075 |
| Conversion of convertible notes to common stock, shares | 101,496,114 | ||||||||
| Conversion of convertible notes to common stock, amount | 130,354 | 120,204 | 0 | 0 | 0 | 0 | 0 | 0 | $ 10,150 |
| Foreign currency translation adjustment | 121,332 | 121,332 | |||||||
| Net income (loss) | (11,715,633) | (11,715,633) | |||||||
| Exercise of warrants on cashless basis, shares | 4,895,849 | ||||||||
| Exercise of warrants on cashless basis, amount | 0 | (4,489) | 0 | $ 0 | 0 | 0 | 0 | 0 | $ 4,489 |
| Conversion of preferred stock series A to common stock, shares | (10,000) | 12,500,000 | |||||||
| Conversion of preferred stock series A to common stock, amount | 0 | 8,750 | 0 | $ (10,000) | 0 | $ 0 | 0 | 0 | $ 1,250 |
| Cancellation of preferred stock series B, shares | (2,000,000) | ||||||||
| Cancellation of preferred stock series B, amount | 0 | 2,000,000 | 0 | 0 | 0 | $ (2,000,000) | 0 | 0 | 0 |
| Issuance of warrants in convertible notes | 87,768 | 87,768 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Adjustment to issuance of preferred stock series C for LTB investment | 650,000 | 0 | $ 0 | 0 | $ 0 | $ (650,000) | $ 0 | $ 0 | |
| Balance, shares at Mar. 31, 2024 | 74,416 | 455,000 | 100,000 | 6,230,761 | 559,644,265 | ||||
| Balance, amount at Mar. 31, 2024 | (23,529,392) | 78,688,902 | (102,993,986) | $ 74,416 | 85,715 | $ 455,000 | $ 100,000 | $ 597 | $ 59,964 |
| Balance, shares at Dec. 31, 2023 | 84,416 | 2,455,000 | 100,000 | 6,230,761 | 440,752,302 | ||||
| Balance, amount at Dec. 31, 2023 | (12,153,213) | 75,826,669 | (91,278,353) | $ 84,416 | (35,617) | $ 2,455,000 | $ 750,000 | $ 597 | $ 44,075 |
| Net income (loss) | (6,164,948) | ||||||||
| Balance, shares at Sep. 30, 2024 | 74,416 | 455,000 | 100,000 | 6,230,761 | 662,501,405 | ||||
| Balance, amount at Sep. 30, 2024 | (16,584,544) | 80,122,590 | (97,443,301) | $ 74,416 | 39,878 | $ 455,000 | $ 100,000 | $ 623 | $ 66,250 |
| Balance, shares at Mar. 31, 2024 | 74,416 | 455,000 | 100,000 | 6,230,761 | 559,644,265 | ||||
| Balance, amount at Mar. 31, 2024 | (23,529,392) | 78,688,902 | (102,993,986) | $ 74,416 | 85,715 | $ 455,000 | $ 100,000 | $ 597 | $ 59,964 |
| Conversion of convertible notes to common stock, shares | 102,857,140 | ||||||||
| Conversion of convertible notes to common stock, amount | 1,440,000 | 1,433,714 | $ 6,286 | ||||||
| Foreign currency translation adjustment | 58,605 | 58,605 | |||||||
| Net income (loss) | 5,362,264 | 5,362,264 | |||||||
| Adjustment of treasury stock to par value | 26 | $ 26 | |||||||
| Balance, shares at Jun. 30, 2024 | 74,416 | 455,000 | 100,000 | 6,230,761 | 662,501,405 | ||||
| Balance, amount at Jun. 30, 2024 | (16,668,523) | 80,122,590 | (97,631,722) | $ 74,416 | 144,320 | $ 455,000 | $ 100,000 | $ 623 | $ 66,250 |
| Foreign currency translation adjustment | (104,442) | (104,442) | |||||||
| Net income (loss) | 188,421 | 188,421 | |||||||
| Balance, shares at Sep. 30, 2024 | 74,416 | 455,000 | 100,000 | 6,230,761 | 662,501,405 | ||||
| Balance, amount at Sep. 30, 2024 | $ (16,584,544) | $ 80,122,590 | $ (97,443,301) | $ 74,416 | $ 39,878 | $ 455,000 | $ 100,000 | $ 623 | $ 66,250 |
NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES |
9 Months Ended | ||||||||||
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Sep. 30, 2024 | |||||||||||
| NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES | |||||||||||
| NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES | NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
CannaPharmaRX Inc. (“CPRX” or the “Company”) was originally incorporated in the state of Colorado in August 1998 as Network Acquisitions, Inc. The Company focuses its business efforts on evaluation, negotiation, acquisition, and development of cannabis cultivation projects in Canada.
On January 6, 2022, the Company entered into a 20-year operating lease with Formosa Mountain Ltd. for the use of a leased facility located in Cremona, Alberta, Canada. The facility was built in 2015 and was previously operating as a cannabis production facility until it was decommissioned, and the license cancelled by the previous owner making the facility ready for sale in 2020.
CPRX recommissioned the 55,000 square foot facility which contains 11 growing rooms and 10 drying and packing rooms into a new indoor cannabis farm during 2022. The Company received an operating license from Health Canada on December 9, 2022, and a cannabis license from the Canada Revenue Agency (“CRA”) on December 22, 2022.
Preliminary discussions with export partners would set conditional per gram pricing for optimal product at approximately $3.30 Canadian dollars (“CAD”) per gram. This price would be based on achieving satisfactory test results associated to tetrahydrocannabinol (“THC”) and cannabidiol (“CBD”) content of the dried flower.
Basis of presentation
The accompanying condensed interim consolidated financial statements (the “financial statements”) have been prepared in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification, the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“US GAAP”).
All figures are in United States (“US”) dollars (“USD”) unless indicated otherwise.
Use of estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. The most significant estimates relate to the purchase price allocation of acquired businesses, the impairment of long-lived assets, the valuation of financial instruments, the provision of income taxes and contingencies. The Company bases its estimates on historical experience, known or expected trends, and various other assumptions that are believed to be reasonable given the quality of information available as at the date of these financial statements. The results of these assumptions provide the basis for making estimates about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.
Cash
The Company considers all its cash in bank accounts and its highly liquid temporary cash investments with an original maturity of three months or less to be cash and cash equivalents. On September 30, 2024, the Company had cash of $6,999 (December 31, 2023 - $650).
Comprehensive income or loss
ASC 220 Comprehensive Income establishes standards for the reporting and display of comprehensive income and its components in the financial statements. As at September 30, 2024, and December 31, 2023, the Company’s financial statements include the translation of foreign operations to the presentation currency giving rise to foreign currency translation differences. The statement of comprehensive income includes the effects of translation of the Company’s foreign operations. Inventory
Inventory is valued at the lower of cost and net realizable value, with cost determined using the weighted average cost method. Net realizable value is calculated as the estimated selling price in the ordinary course of business, less any estimated costs to complete and sell the goods. Costs are capitalized to inventory, until substantially ready for sale. Costs include direct and indirect labor, raw materials, consumables, packaging supplies, utilities, facility costs, quality and testing costs, production related depreciation, and other overhead costs.If costs of inventory exceed its net realizable value, the difference is recorded as a net realizable value adjustment and included within cost of goods sold.
Leases
At the inception of a lease, the Company determines if the lease will be classified as an operating lease or a finance lease. If the lease transfers ownership by the end of the term, contains a purchase option that is reasonably certain to be exercised, is for a term representing the major part of the underlying asset’s useful life, or if the present value of lease payments represents substantially all of the fair value of the underlying asset, then the lease is classified as a finance lease. Otherwise, the lease is classified as an operating lease. This classification of operating or finance lease determines the presentation of corresponding expenses over the lifetime of the lease.
Finance lease assets represent the right to use an underlying asset for the lease term, and finance lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are recognized based on the present value of future payments over the lease term at commencement date. A collateralized incremental borrowing rate based on the information available at commencement date, including lease term, is used in determining the present value of future payments. This incremental borrowing rate is updated in the event of a lease modification such as a renewal or option that adds time and payments to a lease. A lease term generally does not include an option to extend or terminate the lease, unless there is a reasonable certainty that the option will be exercised. Fixed payments may contain predetermined fixed rent escalations. The Company recognizes the expense related to finance leases using the effective interest rate method from the commencement date to the end of the lease term. Certain lease contracts contain non-lease components such as maintenance, utilities, fuel and other services. The Company recognizes both the lease and non-lease component for each right-of-use asset.
Short-term leases (that have an initial term less than 12 months or that are cancellable by the lessor and lessee without significant penalties) are expensed as they are incurred.
Derivative financial instruments
Terms of convertible and other promissory notes are reviewed to determine whether they contain embedded derivative instruments that are required to be accounted for separately from the host contract and recorded on the balance sheet at fair value. The fair value of derivative instruments is required to be revalued at each reporting date, with corresponding changes in fair value recorded in the current period operating results. Derivative liabilities arose due to the issuance of variably priced convertible notes. For the nine months ended September 30, 2024, the Company had derivative liabilities of $651,514 (December 31, 2023 - $1,264,388).
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risk.
Revenue Recognition
The Company recognizes revenue from the sale of products in accordance with ASC 606, “Revenue Recognition” following the five steps procedure:
Step 1: Identify the contract(s) with customers
Step 2: Identify the performance obligations in the contract - The performance obligation is the delivery of products in accordance with the terms of the contract.
Step 3: Determine the transaction price - The transaction price is the amount agreed upon for the sale of goods and represents the amount invoiced to the customer.
Step 4: Allocate the transaction price to performance obligations - Transaction price is allocated to performance obligations on the same basis as invoice itemization. Step 5: Recognize revenue when the entity satisfies a performance obligation - The Company has shipped out the product and, therefore, satisfied the performance obligation. The risk of loss is passed to the customers at the point of shipment.
Foreign currency translation
The functional currency and the reporting currency of the Company’s US operations is USD. The functional currency of the Company’s Canadian operations is CAD. Management adopted ASC 830 Foreign Currency Matters for transactions that occur in foreign currencies. Monetary assets denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Average monthly rates are used to translate revenues and expenses.
Transactions denominated in currencies other than 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 respective periods.
Assets and liabilities of the Company’s operations are translated into the reporting currency, USD, 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 historical rate when the transaction occurred. The resulting translation adjustment is reflected as accumulated other comprehensive income, a separate component of stockholders' deficit in the statements of changes in stockholders' deficit.
These translation adjustments are reflected in accumulated other comprehensive income, a separate component of the Company's stockholders' deficit.
Sales tax
The Canadian Goods and Services Tax (“GST”) is a 5% tax applied to taxable goods and services. GST is a consumption tax paid by the consumer at the point of sale. The vendor or seller collects the tax proceeds from consumers by adding the GST rate to the cost of goods and services; they then remit the total collected tax, less input tax credits for GST paid to vendors, to the government periodically.
The GST is in effect Canada-wide, although is sometimes combined with a Provincial Sales Tax and referred to as a Harmonized Sales Tax. The GST is collected by the Canada Revenue Agency, which remits the appropriate amounts to the participating provinces.
Stock-based compensation
The Company has adopted ASC Topic 718 Compensation—Stock Compensation, which establishes a fair value method of accounting for stock-based compensation plans. In accordance with guidance now incorporated in ASC Topic 718, the fair value of stock options and warrants issued to employees and non-employees is measured on the grant date based on the fair value. The fair value is determined using the Black-Scholes option pricing model. The resulting amount is charged to expense on a straight-line basis over the period in which the Company expects to receive the benefit, which is generally the vesting period. The fair value of share purchase warrants issued as a form of compensation or payment was determined at the date of grant using the Black-Scholes option pricing model. The Black-Scholes option pricing 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 as at September 30, 2024 or December 31, 2023.
Long-lived assets
The Company evaluates the recoverability of its long-lived assets whenever events or changes in circumstances have indicated that an asset may not be recoverable. The long-lived asset is grouped with other assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. If the sum of the projected undiscounted cash flows is less than the carrying value of the assets, the assets are written down to the estimated fair value. Fair values of assets and liabilities
The Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded, and the reliability of the assumptions used to determine fair value.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
Financial instruments
The estimated fair value for financial instruments was determined at discrete points in time based on relevant market information. These estimates involve uncertainties and could not be determined with exact precision. The fair value of the Company’s financial instruments, which include cash, accounts receivable, prepaid expenses, accounts payable and accrued liabilities, and related party loans, each approximate their carrying value due either to their short length to maturity or interest rates that approximate prevailing market rates.
Income taxes
The Company accounts for income taxes under the liability method, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
Earnings (loss) per share
Earnings (loss) per share is presented in accordance with Accounting Standards Update (“ASU”), Earnings per Share (Topic 260), which requires the presentation of both basic and diluted earnings per share (“EPS”) on the income statements.
Basic EPS excludes any dilutive effects of options, warrants, and convertible securities but does include the restricted shares of common stock issued. Basic EPS calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding during the year.
Diluted EPS reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted to common stock. Diluted EPS calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding.
Recently issued accounting pronouncements
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new pronouncements that have been issued that might have a material impact on its financial position or results of operations. |
GOING CONCERN AND LIQUIDITY |
9 Months Ended |
|---|---|
Sep. 30, 2024 | |
| GOING CONCERN AND LIQUIDITY | |
| GOING CONCERN AND LIQUIDITY | NOTE 2 - GOING CONCERN AND LIQUIDITY
As at September 30, 2024, the Company had cash of $6,999 (December 31, 2023 - $650), a working capital deficiency totaling $21,005,723 (December 31, 2023 - $16,968,059), and an accumulated deficit of $97,443,301 (December 31, 2023 - $91,278,353).
These financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. Based on current financial projections, the Company does not have sufficient existing cash resources to fund its current limited operations. Accordingly, there is substantial doubt about the Company’s ability to continue as a going concern.
It is the Company’s intention to incur debt and/or raise additional funding through equity financing to fund ongoing operating expenses. There is no assurance that these events will be satisfactorily completed or at terms acceptable to the Company. Any issuance of equity securities, if accomplished, could cause substantial dilution to existing stockholders. Any failure by the Company to successfully implement these plans would have a material adverse effect on its business, including the possible inability to continue operations. |
INVENTORY |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||
| INVENTORY | ||||||||||||||||||||||||||||||||||||||||||||||
| INVENTORY | NOTE 3 - INVENTORY
A summary of the Company’s inventory as at September 30, 2024, and December 31, 2023 is as follows:
During the three and nine months ended September 30, 2024, the Company recorded a provision in cost of goods sold of $79,178 (2023 - $nil) and $529,634 (2023 - $nil), respectively, to record inventory at net realizable value.
During the three and nine months ended September 30, 2024, depreciation expense allocated to inventory was $86,729 (2023 - $nil) and $174,096 (2023 - $nil). |
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PROPERTY, PLANT AND EQUIPMENT |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| PROPERTY, PLANT AND EQUIPMENT | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| PROPERTY, PLANT AND EQUIPMENT | NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
A summary of the Company’s property, plant and equipment as at September 30, 2024 is as follows:
A summary of the Company’s property, plant and equipment as at December 31, 2023 is as follows:
During the three and nine months ended September 30, 2024, the Company recorded depreciation expense on fixed assets of $7,678 (2023 - $7,256) and $23,586 (2023 - $19,544) respectively, related to these fixed assets.
For the three and nine months ended September 30, 2024, depreciation expense allocated to inventory was $7,678 (2023 - $nil) and $22,612 (2023 - $nil), respectively. |
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RIGHT-OF-USE BUILDING |
9 Months Ended | ||||||||||||||||||||||||||||||||||||
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Sep. 30, 2024 | |||||||||||||||||||||||||||||||||||||
| RIGHT-OF-USE BUILDING | |||||||||||||||||||||||||||||||||||||
| RIGHT-OF-USE BUILDING | NOTE 5 - RIGHT-OF-USE BUILDING
A summary of the Company’s right-of-use building asset at September 30, 2024 and December 31, 2023 is as follows:
For the three and nine months ended September 30, 2024, the Company recorded depreciation expense on the right-of-use building of $79,051 (2023 - $80,387) and $237,788 (2023 - $240,406), respectively.
For the three and nine months ended September 30, 2024, depreciation expense allocated to inventory was $79,051 (2023 - $nil) and $151,484 (2023 - $nil), respectively. |
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INVESTMENTS |
9 Months Ended |
|---|---|
Sep. 30, 2024 | |
| INVESTMENTS | |
| INVESTMENTS | NOTE 6 - INVESTMENTS
On November 22, 2023, the Company closed a deal with LTB Management, LLC (“LTB”) whereby the Company obtained 100 Class B units of LTB in exchange for total consideration of $4,518,127, comprised of 27,224,962 warrants with a fair value of $162,129, each entitling the holder to purchase one share of common stock of the Company at $0.02 per share until November 22, 2028; $3,000,000 in promissory notes payable (Note 8 and Note 10) to the sellers; 100,000 Class C preferred shares with a fair value of $750,000, each convertible into 1,250 common shares; contingent consideration recorded as an obligation to issue shares with a fair value of $605,998.
Contingent consideration includes a quarterly true up of the sellers’ preferred share proportional ownership to 33% of the outstanding shares of the Company’s common stock, and an earn out whereby the sellers can earn up to an additional 12% pro-rata preferred share proportional ownership (which, if earned, will result in the true up increasing by the pro-rata preferred share proportional ownership earned) based on the Company reaching a threshold of $2,500,000 annual revenue at any time until November 22, 2025. As at September 30, 2024, the Company has an obligation to issue an additional 210,631 (December 31, 2023 - 96,104) Class C preferred shares to the sellers under the true up, valued at $2,264,286 (December 31, 2023 - $204,220). |
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES |
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| ACCOUNTS PAYABLE AND ACCRUED LIABILITIES | NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable are initially recognized at the transaction price and subsequently measured at the undiscounted amount of cash or other consideration expected to be paid. Accrued liabilities are recognized based on the expected amount required to settle the obligation or liability.
A summary of the Company’s accounts payable and accrued liabilities as at September 30, 2024, and December 31, 2023 is as follows:
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NOTES PAYABLE |
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| NOTES PAYABLE | NOTE 8 - NOTES PAYABLE
A summary of the Company’s notes payable as at September 30, 2024, and December 31, 2023 is as follows:
Notes payable
On April 9, 2024, the Company entered into a note payable agreement (“Note A”) bearing interest at 12% per annum and maturing within 12 months from the date of issuance with a private individual in the amount of $100,000. During the three and nine months ended September 30, 2024, the Company recorded $3,025 (2023 - $nil) and $5,655 (2023 - $nil), respectively, in interest expense on Note A.
On May 10, 2024 and May 31, 2024, the Company entered into notes payable agreements (“Note B” and “Note C”, respectively) bearing interest at 10% per annum and maturing within 12 months from the date of issuance with a second private individual in the amounts of $50,001 ($68,326 CAD) and $70,001 ($95,460 CAD), respectively. During the three and nine months ended September 30, 2024, the Company recorded $1,260 (2023 - $nil) and $1,959 (2023 - $nil), respectively, in interest expense on Note B, and $1,764 (2023 - $nil) and $2,340 (2023 - $nil), respectively, in interest expense on Note C.
On July 29, 2024 and August 13, 2024, the Company entered into notes payable agreements (“Note D” and “Note E”, respectively) bearing interest at 15% per annum and maturing within 12 and 8 months, respectively, from the date of issuance with a third and fourth private individual in the amounts of $50,000 ($67,320 CAD) and $50,000 ($68,098 CAD), respectively. During the three and nine months ended September 30, 2024, the Company recorded $1,278 (2023 - $nil) and $1,278 (2023 - $nil), respectively, in interest expense on Note D, and $985 (2023 - $nil) and $985 (2023 - $nil), respectively, in interest expense on Note E.
CEBA loan
Due to the global COVID 19 outbreak, the Government of Canada introduced the Canada Emergency Business Account (“CEBA”) program. The Company participated in this program and received $60,000 CAD. The loan was interest-free until January 18, 2024 at which time it was converted to a non-amortizing term loan with the full principal repayment due on December 31, 2026. As at September 30, 2024 and December 31, 2023 the Company’s CEBA Loan balance is $44,448 ($60,000 CAD) and $45,365 ($60,000 CAD), respectively. During the three and nine months ended September 30, 2024, the Company recorded $554 (2023 - $nil) and $1,540 (2023 - $nil), respectively, in interest expense on the CEBA loan.
Promissory notes (secured investors)
During the year ended December 31, 2021, the Company entered into promissory note agreements with secured investors for non-interest-bearing notes maturing within 12 months with a total value of $238,560 ($300,000 CAD). These notes are secured by a general security agreement over all present and after acquired property, assets, and undertakings. As at September 30, 2024, and December 31, 2023, the notes are past due and owing in the amount of $270,530 ($300,000 CAD) and $288,560 ($300,000 CAD), respectively.
The Company has a $947,478 promissory note with a shareholder of the Company, which bears interest at 24% compounded monthly. As at September 30, 2024, the accrued interest on the promissory note is $304,986.
On May 25, 2023, the Company entered into a promissory note with Koze Investments LLC (“Koze”) whereby it was agreed that up to $2,000,000 in funding would be advanced to the Company to pay for certain documented Company expenses. The promissory note bears interest at 24% compounded monthly. As at September 30, 2024, the balance owing on the promissory note is $2,712,534, and accrued interest owing is $535,187. Promissory notes (LTB Transaction)
On November 22, 2023, the Company entered into promissory notes of $3,000,000 as part of the LTB transaction (Note 6), of which $450,000 was with a related party of the Company (Note 10) and $2,550,000 was with a second investor. The promissory notes bear interest at 13% per annum and mature on November 22, 2024. During the three and nine months ended September 30, 2024, the Company recorded interest of $83,556 (2023 - $nil) and $248,852 (2023 - $nil), respectively on the promissory notes. |
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CONVERTIBLE NOTES AND DERIVATIVE CONVERSION FEATURE |
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| CONVERTIBLE NOTES AND DERIVATIVE CONVERSION FEATURE | NOTE 9 - CONVERTIBLE NOTES AND DERIVATIVE CONVERSION FEATURE
A summary of the Company’s convertible notes is as follows:
During the three and nine months ended September 30, 2024, the Company recorded a loss on conversion of $nil (2023 - $nil) and $690,712 (2023 - $429,471), respectively, and interest expense of $34,862 (2023 - $74,310) and $92,809 (2023 - $148,620), respectively.
A summary of the terms and conditions of the convertible notes outstanding which have a derivative conversion feature as at September 30, 2024 is as follows:
As at September 30, 2024, the Company had $324,776 (December 31, 2023 - $348,577) in accrued interest on these notes, recorded in accrued interest.
As at the date of this 10-Q Report, all convertible notes were past their maturity date. Additionally, as a result of the late filing of previous Reports, and the loss of the Company’s active listing in the OTC market, the penalty provisions of all convertible notes outstanding became effective. The Company estimated that the maximum penalty provisions amounted to one time the face value of all convertible notes outstanding and recorded an accrued liability for penalties amounting to $1,303,452, which has been recorded in accounts payable and accrued liabilities. As at September 30, 2024, the accrued liability for penalties was reduced to $735,002 due to the settlement of certain convertible notes. The convertible notes were determined to be compound instruments, comprising separate financial instruments, being the debt obligation and the conversion option, which were bifurcated and are presented separately on the consolidated balance sheets. As the number of common shares to be issued on exercise of the conversion option is contingent on a variable share price, the conversion option has been classified as derivative conversion feature.
A summary of Company’s derivative conversion feature as at September 30, 2024 is as follows:
As at September 30, 2024 the Company had derivative conversion feature of $651,514 (December 31, 2023 - $1,264,388).
A summary of the Company’s weighted average inputs used in the Black-Scholes option pricing model for derivative conversion feature valuation as at September 30, 2024 is as follows:
The risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company uses the historical volatility of its common stock to estimate the future volatility of its common stock. The expected life of the conversion feature of the notes was based on the remaining term of the notes. The expected annual dividend yield was based on the fact that the Company has not customarily paid dividends in the past and does not expect to pay dividends in the future |
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RELATED PARTY TRANSACTIONS |
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| RELATED PARTY TRANSACTIONS | NOTE 10 - RELATED PARTY TRANSACTIONS
A summary of the Company’s related party liabilities as at September 30, 2024, and December 31, 2023 is as follows:
The loan payable - related party is comprised of:
As at September 30, 2024, $212,555 (December 31, 2023 - $231,250) of the Company’s convertible notes balance was attributable to amounts owed to Mr. Tal. During the three months ended September 30, 2024 and 2023, Mr. Tal did not convert any of the convertible notes to common shares of the Company. During the nine months ended September 30, 2024, Mr. Tal converted $18,695 (2023 - $nil) of the convertible notes to 23,368,212 (2023 – nil) common shares of the Company. As at September 30, 2024, the Company has an obligation to issue an additional 105,315 (December 31, 2023 - 48,052) Class C preferred shares to Mr. Tal as part of the LTB transaction (Note 6), valued at $1,132,143 (December 31, 2023 - $102,110).
Effective February 1, 2023, the Company entered into a lease agreement to lease one office at Suite 3600, 888 5th Avenue SW, Calgary, Alberta, Canada, T2P 3R7. The rent is $500 CAD per month. This space was provided by a company to which Mr. Orman, the chairman of the Company’s board of directors. During the three and nine months ended September 30, 2024, the Company incurred rent expense in total of $1,099 (2023 - $12) and $3,308 (2023 - $2,615), respectively.
As at September 30, 2024, accounts payable and accrued liabilities includes balances owing to related parties as follows:
The related party liabilities as at December 31, 2023 also comprised promissory notes from Koze and from a shareholder of the Company who is the principal of Koze; and lease liabilities from a lease agreement with Formosa Mountain Ltd., a shareholder of which is the principal of Koze. The shareholder was previously considered to be related party of the Company. |
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LIABILITY FOR RIGHT-OF-USE BUILDING |
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| LIABILITY FOR RIGHT-OF-USE BUILDING | NOTE 11 - LIABILITY FOR RIGHT-OF-USE BUILDING
The Company’s lease with Formosa Mountain Ltd. (“Formosa”) (Note 5, Note 11) was entered into on January 1, 2022 and consists of land and building used in the cultivation, processing, and warehousing of its products. The lease was classified as an operating lease in accordance with ASC 842 Leases and has an expected end date of December 31, 2041 with the option for two extension terms of five years each.
A summary of supplementary information of the Company’s operating lease liabilities is as follows:
A summary of the maturity of contractual liabilities associated with the Company’s operating lease as at September 30, 2024 is as follows:
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STOCKHOLDERS DEFICIT |
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| STOCKHOLDERS' DEFICIT | NOTE 12 - STOCKHOLDERS’ DEFICIT
Preferred stock
The Company is authorized to issue up to 10,000,000 shares of one or more series of preferred stock at a par value of $1.00 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 any other preferences.
Series A preferred stock
In April 2018, the Company issued 60,000 shares of its series A convertible preferred stock (“Series A Stock”) for $1.00 per share to certain investors who then became members of management and the Board of Directors. Each share of Series A Stock is non-redeemable, entitles the holder to 1,250 votes on all matters submitted to a vote of the shareholders; is convertible into 1,250 shares of common stock and each vote is on an as-converted basis. In addition, the holders of outstanding Series A Stock will 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 Stock will receive a dividend on the number of shares of common stock into which each share of Series A Stock is convertible.
The beneficial conversion feature (“BCF”) attributed to the purchase of Series A Stock was deemed to have no value on the date of purchase because there was no public trading market for the Series A Stock, and none is expected to develop in the future. Therefore, the BCF related to the Series A Stock was considered to have no value on the date of issuance.
On March 5, 2024, 10,000 shares of Series A Stock were converted into common stock. There were no conversions during the year ended December 31, 2023.
As at September 30, 2024 and December 31, 2023, 74,416 and 84,416 shares, respectively, of Series A Stock were issued and outstanding.
Series B preferred stock
In August 2019, the Company closed an offering of up to $3 million of units at a price of $1.00 per unit. Each unit consisted of one share of series B convertible preferred stock (“Series B Stock”) and one common stock purchase warrant (“Common Warrant”) with no expiry date. Each Series B Stock is convertible into one share of the Company’s common stock at the election of the holder.
Each Common Warrant is exercisable to purchase one share of common stock at the election of the holder at an exercise price of $2.00 per share, which offering is to be offered only to “accredited investors,” as that term is defined in Rule 501 of Regulation D of the Securities and Exchange Commission regulations. As at December 31, 2020, the Company had accepted $475,000 in subscriptions in this offering.
On March 22, 2023, 20,000 Series B Stock was converted into common stock at $0.0001 per common share. On March 28, 2024, the Company cancelled 2,000,000 shares of Series B Preferred Stock originally issued during the year ended December 31, 2022 as a deposit on the acquisition of LTB.
As at September 30, 2024, 455,000 (December 31, 2023 - 2,455,000) shares of Series B Stock and Common Warrants were issued and outstanding.
Series C preferred stock
In March 2023, the Company issued 100,000 shares of its Series C preferred stock (“Series C Stock”) in connection with the investment in LTB (Note 6). The shares of Series C Stock are each convertible into 1,250 shares of the Company’s common stock.
Each share of Series C Stock entitles the holder to 1,250 votes on all matters submitted to a vote of the shareholders; is convertible into 1,250 shares of common stock and each vote is on an as-converted basis. In addition, the holders of outstanding Series C Stock will 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 C Stock will receive a dividend on the number of shares of common stock into which each share of Series C Stock is convertible. In March 2024, the Company noted a historical accounting treatment error whereby the shares had been recorded at the stated value rather than the par value. As a result, the Company adjusted the value of the Series C stock to their par value of $1 per share, for a total par value of $100,000, with the remaining $650,000 of stated value being reclassified to additional paid in value.
As at September 30, 2024 and December 31, 2023, 100,000 shares of Series C Stock were issued and outstanding.
Common stock
The Company is authorized to issue 5,000,000,000 shares of common stock at a par value $0.0001 per share. As at September 30, 2024, 662,501,405 (December 31, 2023 - 440,752,302) shares of common stock were issued and outstanding.
On March 5, 2024, 10,000 shares of Series A Stock were converted into 12,500,000 shares of the Company’s common stock.
On March 8, 2024, the Company issued 4,895,849 common shares from the cashless exercise of 5,000,000 warrants.
During the nine months ended September 30, 2024, the Company issued 204,353,254 from the conversion of convertible notes.
Stock purchase warrants
A summary of the Company’s stock purchase warrant activity is as follow:
A summary of the Company’s number of stock purchase warrants outstanding and exercisable for period ended September 30, 2024 is as follows:
During the nine months ended September 30, 2024, 17,222,200 stock purchase warrants were issued. During the year ended December 31, 2023, 27,224,962 stock purchase warrants, each entitling the holder to purchase one common stock of the Company at $0.02 per share, with an expiration date of November 22, 2028, were issued in respect of the LTB transaction (Note 3) and 17,222,200 stock purchase warrants, each entitling the holder to purchase one common stock of the Company at $0.01 per share, with an expiration date of February 15, 2028.
During the year ended December 31, 2023, the Company corrected an error in the accounting treatment associated with the stock purchase warrants that were issued during the year ended December 31, 2019 as origination fees associated with a promissory note and loan granted during that year. The value of the stock purchase warrants should have been expensed upon issuance. The correction of the error resulted in a $271,470 increase to additional paid-in capital and an equivalent decrease to opening accumulated deficit for the year ended December 31, 2023. |
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INCOME TAX |
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Sep. 30, 2024 | |
| INCOME TAX | |
| INCOME TAX | NOTE 13 - INCOME TAX
As at December 31, 2023, the Company had approximately $93,000,000 of federal net operating loss carryforwards (“NOLS”) in the United States. State net operating loss carryforwards begin to expire in 2034. Due to the change in ownership provisions of the Internal Revenue Code, the availability of the Company’s net operating loss carryforwards could be subject to annual limitations against taxable income in future periods which could substantially limit the eventual utilization of such carryforwards. The Company has not analyzed the historical or potential impact of its equity financings on beneficial ownership and therefore no determination has been made whether the net operating loss carryforward is subject to any IRC Section 382 limitation. To the extent there is a limitation, there could be a substantial reduction in the deferred tax asset with an offsetting reduction in the valuation allowance. As at December 31, 2023, the Company had approximately $900,000 of Canadian non-capital losses which begin to expire in 2037. As at September 30, 2024 and 2023, the Company has no unrecognized income tax benefits.
The tax years from 2014 and forward remain open to examination by federal and state authorities due to net operating loss and credit carryforwards. The Company is currently not under examination by the Internal Revenue Service or any other taxing authorities. Since the company has never been profitable, the Company has established a full valuation allowance against the deferred tax asset associated with the NOLS. |
GENERAL AND ADMINISTRATIVE |
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| GENERAL AND ADMINISTRATIVE | NOTE 14 - GENERAL AND ADMINISTRATIVE
A summary of the Company’s general and administrative expenses for the three and nine months ended September 30, 2024 and 2023 is as follows:
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COMMITMENTS AND CONTINGENCIES |
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| COMMITMENTS AND CONTINGENCIES | |
| COMMITMENTS AND CONTINGENCIES | NOTE 15 - COMMITMENTS AND CONTINGENCIES
Effective February 1, 2023, the Company entered into a lease agreement to lease one office at Suite 3600, 888 5th Avenue SW, Calgary, Alberta, Canada, T2P 3R7. The rent is $500 CAD per month. This space was provided by a company to which Mr. Orman, one of the Company’s directors, serves as a director. |
SUBSEQUENT EVENTS |
9 Months Ended |
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Sep. 30, 2024 | |
| SUBSEQUENT EVENTS | |
| SUBSEQUENT EVENTS | NOTE 16 - SUBSEQUENT EVENTS
Management has performed an evaluation of subsequent events from September 30, 2024 through to the date of issuance of these financial statements and has determined that it does not have any material subsequent events to disclose in these financial statements. |
NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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Sep. 30, 2024 | |||||||||||
| NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES | |||||||||||
| Basis of Presentation | The accompanying condensed interim consolidated financial statements (the “financial statements”) have been prepared in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification, the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“US GAAP”).
All figures are in United States (“US”) dollars (“USD”) unless indicated otherwise. |
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| Use of Estimates | The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. The most significant estimates relate to the purchase price allocation of acquired businesses, the impairment of long-lived assets, the valuation of financial instruments, the provision of income taxes and contingencies. The Company bases its estimates on historical experience, known or expected trends, and various other assumptions that are believed to be reasonable given the quality of information available as at the date of these financial statements. The results of these assumptions provide the basis for making estimates about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates. |
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| Cash | The Company considers all its cash in bank accounts and its highly liquid temporary cash investments with an original maturity of three months or less to be cash and cash equivalents. On September 30, 2024, the Company had cash of $6,999 (December 31, 2023 - $650). |
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| Comprehensive income or loss | ASC 220 Comprehensive Income establishes standards for the reporting and display of comprehensive income and its components in the financial statements. As at September 30, 2024, and December 31, 2023, the Company’s financial statements include the translation of foreign operations to the presentation currency giving rise to foreign currency translation differences. The statement of comprehensive income includes the effects of translation of the Company’s foreign operations. |
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| Inventory | Inventory is valued at the lower of cost and net realizable value, with cost determined using the weighted average cost method. Net realizable value is calculated as the estimated selling price in the ordinary course of business, less any estimated costs to complete and sell the goods. Costs are capitalized to inventory, until substantially ready for sale. Costs include direct and indirect labor, raw materials, consumables, packaging supplies, utilities, facility costs, quality and testing costs, production related depreciation, and other overhead costs.If costs of inventory exceed its net realizable value, the difference is recorded as a net realizable value adjustment and included within cost of goods sold. |
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| Leases | At the inception of a lease, the Company determines if the lease will be classified as an operating lease or a finance lease. If the lease transfers ownership by the end of the term, contains a purchase option that is reasonably certain to be exercised, is for a term representing the major part of the underlying asset’s useful life, or if the present value of lease payments represents substantially all of the fair value of the underlying asset, then the lease is classified as a finance lease. Otherwise, the lease is classified as an operating lease. This classification of operating or finance lease determines the presentation of corresponding expenses over the lifetime of the lease.
Finance lease assets represent the right to use an underlying asset for the lease term, and finance lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are recognized based on the present value of future payments over the lease term at commencement date. A collateralized incremental borrowing rate based on the information available at commencement date, including lease term, is used in determining the present value of future payments. This incremental borrowing rate is updated in the event of a lease modification such as a renewal or option that adds time and payments to a lease. A lease term generally does not include an option to extend or terminate the lease, unless there is a reasonable certainty that the option will be exercised. Fixed payments may contain predetermined fixed rent escalations. The Company recognizes the expense related to finance leases using the effective interest rate method from the commencement date to the end of the lease term. Certain lease contracts contain non-lease components such as maintenance, utilities, fuel and other services. The Company recognizes both the lease and non-lease component for each right-of-use asset. |
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| Derivative financial instruments | Terms of convertible and other promissory notes are reviewed to determine whether they contain embedded derivative instruments that are required to be accounted for separately from the host contract and recorded on the balance sheet at fair value. The fair value of derivative instruments is required to be revalued at each reporting date, with corresponding changes in fair value recorded in the current period operating results. Derivative liabilities arose due to the issuance of variably priced convertible notes. For the nine months ended September 30, 2024, the Company had derivative liabilities of $651,514 (December 31, 2023 - $1,264,388).
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risk. |
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| Revenue Recognition | The Company recognizes revenue from the sale of products in accordance with ASC 606, “Revenue Recognition” following the five steps procedure:
Step 1: Identify the contract(s) with customers
Step 2: Identify the performance obligations in the contract - The performance obligation is the delivery of products in accordance with the terms of the contract.
Step 3: Determine the transaction price - The transaction price is the amount agreed upon for the sale of goods and represents the amount invoiced to the customer.
Step 4: Allocate the transaction price to performance obligations - Transaction price is allocated to performance obligations on the same basis as invoice itemization. Step 5: Recognize revenue when the entity satisfies a performance obligation - The Company has shipped out the product and, therefore, satisfied the performance obligation. The risk of loss is passed to the customers at the point of shipment. |
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| Foreign currency translation | The functional currency and the reporting currency of the Company’s US operations is USD. The functional currency of the Company’s Canadian operations is CAD. Management adopted ASC 830 Foreign Currency Matters for transactions that occur in foreign currencies. Monetary assets denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Average monthly rates are used to translate revenues and expenses.
Transactions denominated in currencies other than 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 respective periods.
Assets and liabilities of the Company’s operations are translated into the reporting currency, USD, 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 historical rate when the transaction occurred. The resulting translation adjustment is reflected as accumulated other comprehensive income, a separate component of stockholders' deficit in the statements of changes in stockholders' deficit.
These translation adjustments are reflected in accumulated other comprehensive income, a separate component of the Company's stockholders' deficit. |
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| Sales tax | The Canadian Goods and Services Tax (“GST”) is a 5% tax applied to taxable goods and services. GST is a consumption tax paid by the consumer at the point of sale. The vendor or seller collects the tax proceeds from consumers by adding the GST rate to the cost of goods and services; they then remit the total collected tax, less input tax credits for GST paid to vendors, to the government periodically.
The GST is in effect Canada-wide, although is sometimes combined with a Provincial Sales Tax and referred to as a Harmonized Sales Tax. The GST is collected by the Canada Revenue Agency, which remits the appropriate amounts to the participating provinces. |
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| Stock-based compensation | The Company has adopted ASC Topic 718 Compensation—Stock Compensation, which establishes a fair value method of accounting for stock-based compensation plans. In accordance with guidance now incorporated in ASC Topic 718, the fair value of stock options and warrants issued to employees and non-employees is measured on the grant date based on the fair value. The fair value is determined using the Black-Scholes option pricing model. The resulting amount is charged to expense on a straight-line basis over the period in which the Company expects to receive the benefit, which is generally the vesting period. The fair value of share purchase warrants issued as a form of compensation or payment was determined at the date of grant using the Black-Scholes option pricing model. The Black-Scholes option pricing 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 as at September 30, 2024 or December 31, 2023. |
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| Long-lived assets | The Company evaluates the recoverability of its long-lived assets whenever events or changes in circumstances have indicated that an asset may not be recoverable. The long-lived asset is grouped with other assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. If the sum of the projected undiscounted cash flows is less than the carrying value of the assets, the assets are written down to the estimated fair value. |
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| Fair values of assets and liabilities | The Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded, and the reliability of the assumptions used to determine fair value.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. |
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| Financial instruments | The estimated fair value for financial instruments was determined at discrete points in time based on relevant market information. These estimates involve uncertainties and could not be determined with exact precision. The fair value of the Company’s financial instruments, which include cash, accounts receivable, prepaid expenses, accounts payable and accrued liabilities, and related party loans, each approximate their carrying value due either to their short length to maturity or interest rates that approximate prevailing market rates. |
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| Income taxes | The Company accounts for income taxes under the liability method, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. |
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| Earnings (loss) per share | Earnings (loss) per share is presented in accordance with Accounting Standards Update (“ASU”), Earnings per Share (Topic 260), which requires the presentation of both basic and diluted earnings per share (“EPS”) on the income statements.
Basic EPS excludes any dilutive effects of options, warrants, and convertible securities but does include the restricted shares of common stock issued. Basic EPS calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding during the year.
Diluted EPS reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted to common stock. Diluted EPS calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding. |
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| Recent Accounting Pronouncements | The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new pronouncements that have been issued that might have a material impact on its financial position or results of operations. |
INVENTORY (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||
| INVENTORY | ||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of inventory |
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PROPERTY, PLANT AND EQUIPMENT (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| PROPERTY, PLANT AND EQUIPMENT | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of property, plant and equipment |
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RIGHT-OF-USE BUILDING (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||
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Sep. 30, 2024 | |||||||||||||||||||||||||||||||||||||
| RIGHT-OF-USE BUILDING | |||||||||||||||||||||||||||||||||||||
| Schedule of right-of-use building asset |
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ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||
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Sep. 30, 2024 | |||||||||||||||||||||||||||||||||||||
| ACCOUNTS PAYABLE AND ACCRUED LIABILITIES | |||||||||||||||||||||||||||||||||||||
| Schedule of accounts payable and accrued liabilities |
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NOTES PAYABLE (Table) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| NOTES PAYABLE | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of notes payable |
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CONVERTIBLE NOTES AND DERIVATIVE CONVERSION FEATURE (Table) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CONVERTIBLE NOTES AND DERIVATIVE CONVERSION FEATURE | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of convertible notes |
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| Schedule of terms and conditions of the convertible notes outstanding |
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| Schedule of derivative liabilities |
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| Schedule of weighted average inputs for derivative liabilities valuation |
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RELATED PARTY TRANSACTIONS (Table) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||
| RELATED PARTY TRANSACTIONS | ||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of related party liabilities |
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LIABILITY FOR RIGHT-OF-USE BUILDING (Table) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| LIABILITY FOR RIGHT-OF-USE BUILDING | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of operating lease liabilities |
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| Schedule of operating lease |
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STOCKHOLDERS DEFICIT (Table) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| STOCKHOLDERS DEFICIT | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of stock purchase warrant activity |
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| Schedule of stock purchase warrants outstanding and exercisable |
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GENERAL AND ADMINISTRATIVE (Table) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| GENERAL AND ADMINISTRATIVE | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of general and administrative expenses |
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NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) |
Sep. 30, 2024 |
Jun. 30, 2024 |
Dec. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|---|---|
| NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES | ||||
| Cash and cash equivalents | $ 6,999 | $ 650 | ||
| Derivative liability | $ 651,514 | $ 645,298 | $ 1,264,388 | $ 1,008,868 |
| Stock options outstanding | 0 | 0 |
GOING CONCERN AND LIQUIDITY (Details Narrative) - USD ($) |
Sep. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| GOING CONCERN AND LIQUIDITY | ||
| Cash and cash equivalents | $ 6,999 | $ 650 |
| Working capital | 21,005,723 | 16,968,059 |
| Accumulated deficit | $ 97,443,301 | $ 91,278,353 |
INVENTORY (Details) - USD ($) |
Sep. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| INVENTORY | ||
| Finished goods | $ 460,966 | $ 472,361 |
| Work in process | 758,864 | 661,307 |
| Total inventory | $ 1,219,830 | $ 1,133,668 |
INVENTORY (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2024 |
Sep. 30, 2023 |
Sep. 30, 2024 |
Sep. 30, 2023 |
|
| Loss on impairment of inventory | $ 79,178 | $ 0 | $ 529,634 | $ 0 |
| Depreciation expense | 0 | 76,550 | 87,278 | 223,904 |
| Inventories [Member] | ||||
| Depreciation expense | $ 86,729 | $ 0 | $ 174,096 | $ 0 |
PROPERTY PLANT AND EQUIPMENT (Details) - USD ($) |
Sep. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| PROPERTY, PLANT AND EQUIPMENT | ||
| Computers, office and plant equipment, gross | $ 224,753 | $ 209,449 |
| Computers, office and plant equipment, accumulated depreciation | (70,710) | (47,909) |
| Computers, office and plant equipment, net | $ 154,043 | $ 161,540 |
PROPERTY PLANT AND EQUIPMENT (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2024 |
Sep. 30, 2023 |
Sep. 30, 2024 |
Sep. 30, 2023 |
|
| Depreciation expense | $ 0 | $ 76,550 | $ 87,278 | $ 223,904 |
| Property, Plant and Equipment [Member] | ||||
| Depreciation expense | 7,678 | 0 | 22,612 | 0 |
| Depreciation expense on fixed assets | $ 7,678 | $ 7,256 | $ 23,586 | $ 19,544 |
RIGHTOFUSE BUILDING (Details) - Building [Member] - USD ($) |
Sep. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Gross carrying amount | $ 6,341,737 | $ 6,472,637 |
| Accumulated depreciation | (829,953) | (602,496) |
| Net book value | $ 5,511,784 | $ 5,870,141 |
RIGHTOFUSE BUILDING (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2024 |
Sep. 30, 2023 |
Sep. 30, 2024 |
Sep. 30, 2023 |
|
| Depreciation expense | $ 0 | $ 76,550 | $ 87,278 | $ 223,904 |
| Building [Member] | ||||
| Depreciation expense | 79,051 | 0 | 151,484 | 0 |
| Depreciation Expense on Reclassified Assets | $ 79,051 | $ 80,387 | $ 237,788 | $ 240,406 |
INVESTMENTS (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | ||||
|---|---|---|---|---|---|---|
Nov. 22, 2023 |
Sep. 30, 2024 |
Sep. 30, 2023 |
Sep. 30, 2024 |
Sep. 30, 2023 |
Dec. 31, 2023 |
|
| Revenues | $ 312,164 | $ 0 | $ 338,003 | $ 0 | ||
| Obligation to issue an additional shares | 210,631 | 210,631 | 96,104 | |||
| Obligation to issue shares | $ 2,264,286 | $ 2,264,286 | $ 204,220 | |||
| Annual [Member] | ||||||
| Revenues | $ 2,500,000 | |||||
| Klonetics Inc [Member] | ||||||
| Ownership percentage | 33.00% | 33.00% | ||||
| LTB Management [Member] | ||||||
| Investment shares, owned | 100 | |||||
| Payment of investment | $ 4,518,127 | |||||
| Warrants received, shares | 27,224,962 | |||||
| Warrants received, value | $ 162,129 | |||||
| Promissory note payable | $ 3,000,000 | |||||
| LTB Management [Member] | Class C Preferred Stock [Member] | ||||||
| Stock issued for acquisition, shares | 100,000 | |||||
| Convertible common shares | 1,250 | |||||
| Change in the fair value of obligation to issue shares | 605,998 | |||||
| Per share | $ 0.02 | |||||
| Stock issued for acquisition, value | $ 750,000 | |||||
| Obligation to issue an additional shares | 105,315 | 105,315 | 48,052 | |||
| Obligation to issue shares | $ 1,132,143 | $ 1,132,143 | $ 102,110 | |||
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (Details) - USD ($) |
Sep. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| ACCOUNTS PAYABLE AND ACCRUED LIABILITIES | ||
| Accounts payable and accrued expenses | $ 8,952,717 | $ 8,781,169 |
| Accrued legal settlement (a) | 190,000 | 190,000 |
| Total accounts payable and accrued liabilities | $ 9,142,717 | $ 8,971,169 |
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (Details Narrative) |
1 Months Ended |
|---|---|
|
Mar. 30, 2015
USD ($)
shares
| |
| ACCOUNTS PAYABLE AND ACCRUED LIABILITIES | |
| Repurchase shares of common stock | shares | 2,250,000 |
| Cash consideration | $ | $ 350,000 |
NOTES PAYABLE (Details) - Convertible Debentures [Member] - USD ($) |
Sep. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Notes payable | $ 320,750 | $ 0 |
| CEBA loan | 44,448 | 45,365 |
| Promissory notes (secured investors) | 3,930,542 | 288,560 |
| Promissory notes (LTB Transaction) | 2,550,000 | 3,000,000 |
| Total notes payable | $ 6,845,740 | $ 3,333,925 |
CONVERTIBLE NOTES AND DERIVATIVE CONVERSION FEATURE (Details) - USD ($) |
9 Months Ended | 12 Months Ended |
|---|---|---|
Sep. 30, 2024 |
Dec. 31, 2023 |
|
| CONVERTIBLE NOTES AND DERIVATIVE CONVERSION FEATURE | ||
| Convertible notes, beginning balance | $ 1,520,858 | $ 1,141,060 |
| Proceeds received | 213,448 | 439,501 |
| Debt converted, amount converted | (134,910) | (222,096) |
| Increase (decrease) in note discount | 162,393 | |
| Note discount | 451,282 | |
| Convertible notes, ending balance | $ 1,148,114 | $ 1,520,858 |
CONVERTIBLE NOTES AND DERIVATIVE CONVERSION FEATURE (Details 1) |
9 Months Ended |
|---|---|
|
Sep. 30, 2024
USD ($)
| |
| Principal at inception | $ 622,500 |
| Principal outstanding | $ 585,110 |
| Convertible Debt 3 [Member] | |
| Maturity Date | Dec. 11, 2022 |
| Interest Rate | 24.00% |
| Conversion price description | Lowest of the 60-day share price before the conversion date |
| Principal at inception | $ 231,250 |
| Principal outstanding | $ 212,555 |
| Convertible Debt 4 [Member] | |
| Maturity Date | May 05, 2024 |
| Interest Rate | 12.00% |
| Conversion price description | Lesser of $0.0025 or 70% of lowest 5-day share price before the conversion date |
| Principal at inception | $ 60,000 |
| Principal outstanding | $ 60,000 |
| Convertible Debt 2 [Member] | |
| Maturity Date | Dec. 11, 2022 |
| Interest Rate | 24.00% |
| Conversion price description | Lowest of the 60-day share price before the conversion date |
| Principal at inception | $ 231,250 |
| Principal outstanding | $ 212,555 |
| Convertible Debt 1 [Member] | |
| Maturity Date | Dec. 17, 2021 |
| Interest Rate | 5.00% |
| Convertible Debt [Member] | |
| Maturity Date | Jan. 07, 2021 |
| Interest Rate | 8.00% |
| Conversion price description | 75% of the lowest 20-day share price before the conversion date |
| Principal at inception | $ 100,000 |
| Principal outstanding | $ 100,000 |
CONVERTIBLE NOTES AND DERIVATIVE CONVERSION FEATURE (Details 2) - USD ($) |
9 Months Ended | 12 Months Ended |
|---|---|---|
Sep. 30, 2024 |
Dec. 31, 2023 |
|
| CONVERTIBLE NOTES AND DERIVATIVE CONVERSION FEATURE | ||
| Derivative liability, beginning balance | $ 1,264,388 | $ 1,008,868 |
| Changes in fair value of derivative conversion feature | (612,874) | 255,520 |
| Derivative liability, ending balance | $ 651,514 | $ 1,264,388 |
CONVERTIBLE NOTES AND DERIVATIVE CONVERSION FEATURE (Details 3) - Derivative Liabilities [Member] |
9 Months Ended |
|---|---|
Sep. 30, 2024 | |
| Measurement Input, Share Price [Member] | |
| Derivatives, determination of fair value | 0.011 |
| Measurement Input, Exercise Price [Member] | |
| Derivatives, determination of fair value | 0.008 |
| Measurement Input, Risk Free Interest Rate [Member] | |
| Derivatives, determination of fair value | 2.90 |
| Measurement Input, Price Volatility [Member] | |
| Derivatives, determination of fair value | 308.00 |
| Measurement Input, Expected Term [Member] | |
| Derivatives, determination of fair value | 1.00 years |
| Measurement Input, Expected Dividend Rate [Member] | |
| Derivatives, determination of fair value | 0.00 |
CONVERTIBLE NOTES AND DERIVATIVE CONVERSION FEATURE (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | |||||
|---|---|---|---|---|---|---|---|
Sep. 30, 2024 |
Sep. 30, 2023 |
Sep. 30, 2024 |
Sep. 30, 2023 |
Jun. 30, 2024 |
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| Loss on conversion of convertible notes | $ 0 | $ 0 | $ 690,712 | $ 429,471 | |||
| Interest expense | 34,862 | $ 74,310 | 92,809 | $ 148,620 | |||
| Accrued liability for penalties on convertible notes | 735,002 | 735,002 | |||||
| Decrease in accrued liability penalties on convertible notes | 1,303,452 | 1,303,452 | |||||
| Derivative liability | 651,514 | 651,514 | $ 645,298 | $ 1,264,388 | $ 1,008,868 | ||
| Convertible Debt [Member] | |||||||
| Accrued interest | $ 324,776 | $ 324,776 | $ 348,577 | ||||
RELATED PARTY TRANSACTIONS (Details) - USD ($) |
Sep. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| RELATED PARTY TRANSACTIONS | ||
| Loan payable - related party | $ 463,642 | $ 2,155,484 |
| Liability for right-of-use building, current portion | 0 | 190,177 |
| Liability for right-of-use building | 0 | 5,734,962 |
| Total loan payable, related parties | $ 463,642 | $ 8,080,623 |
LIABILITY FOR RIGHTOFUSE BUILDING (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2024 |
Sep. 30, 2023 |
Sep. 30, 2024 |
Sep. 30, 2023 |
|
| LIABILITY FOR RIGHT-OF-USE BUILDING | ||||
| Interest expense | $ 247,115 | $ 243,246 | $ 737,605 | $ 721,451 |
| Depreciation | 79,051 | 80,387 | 237,789 | 240,406 |
| Finance lease-related expenses included in accounts payable and accrued liabilities | $ 202,191 | $ 192,215 | $ 606,572 | $ 576,646 |
LIABILITY FOR RIGHTOFUSE BUILDING (Details 1) - USD ($) |
Sep. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| LIABILITY FOR RIGHT-OF-USE BUILDING | ||
| 2025 | $ 839,011 | |
| 2026 | 880,936 | |
| 2027 | 923,393 | |
| 2028 | 968,903 | |
| 2029 | 1,017,304 | |
| Thereafter | 17,464,434 | |
| Total undiscounted liability for right-of-use building | 22,039,981 | |
| Effects of discounting | (16,151,892) | |
| Total present value of minimum lease payments | 5,942,089 | |
| Liability for right-of-use building, current portion | 179,314 | $ 190,177 |
| Liability for right-of-use building | $ 5,762,152 |
STOCKHOLDERS DEFICIT (Details) - Warrants [Member] - $ / shares |
9 Months Ended | 12 Months Ended |
|---|---|---|
Sep. 30, 2024 |
Dec. 31, 2023 |
|
| Number of stock purchase warrants outstanding at beginning | 28,722,740 | 1,497,778 |
| Number of stock purchase warrants issued | 27,224,962 | |
| Number of stock purchase warrants granted | 17,222,200 | |
| Number of stock purchase warrants redeemed | (5,000,000) | |
| Number of stock purchase warrants expired | (1,020,000) | |
| Number of stock purchase warrants outstanding at ending | 39,924,940 | 28,722,740 |
| Weighted average exercise price outstanding at beginning | $ 0.06 | $ 0.79 |
| Weighted average exercise price issued | 0.02 | |
| Weighted average exercise price granted | 0.01 | |
| Weighted average exercise price redeemed | 0.03 | |
| Weighted average exercise price expired | 1.02 | |
| Weighted average exercise price outstanding at ending | $ 0.02 | $ 0.06 |
STOCKHOLDERS DEFICIT (Details 1) - Stock Purchase Warrants [Member] - $ / shares |
9 Months Ended | |
|---|---|---|
Sep. 30, 2024 |
Jun. 30, 2024 |
|
| May 10, 2026 [Member] | ||
| Number of stock purchase warrants outstanding at beginning | 477,778 | |
| Weighted average exercise price outstanding at beginning | $ 0.30 | |
| Weighted average remaining life (Years) | 1 year 7 months 9 days | |
| February 15, 2028 [Member] | ||
| Number of stock purchase warrants outstanding at beginning | 12,222,200 | |
| Weighted average exercise price outstanding at beginning | $ 0.01 | |
| Weighted average remaining life (Years) | 3 years 4 months 17 days | |
| November 22, 2028 [Member] | ||
| Number of stock purchase warrants outstanding at beginning | 27,224,962 | |
| Weighted average exercise price outstanding at beginning | $ 0.02 | |
| Weighted average remaining life (Years) | 4 years 1 month 20 days |
INCOME TAX (Details Narrative) - USD ($) |
Sep. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Net operating loss carryforwards | $ 93,000,000 | |
| Unrecognized income tax benefits | $ 0 | 0 |
| Canadian Non Capital Losses [Member] | ||
| Operating loss carryforward | $ 900,000 |