The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are
an integral part of these consolidated financial statements.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Month Interim Periods
Ended June 30, 2021 and 2020
|
NOTE 1.
|
NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
|
Nature of Operations
CannaPharmaRx, Inc. (the “Company”)
is a Delaware corporation. In November 2018 it formed an Ontario corporation, Hanover CPMD Acquisition Corporation, to facilitate the
acquisition described below. As of the date of this Report, the Company intends to engage in acquisitions or joint ventures with a company
or companies that will allow to become a national or internationally branded cannabis cultivation company, or otherwise engage in the
cannabis industry. Management is engaged in seeking out and evaluating businesses for acquisition. However, if an opportunity in another
industry arises the Company will review that opportunity as well.
History
The Company was originally incorporated in the
State of Colorado in August 1998 under the name “Network Acquisitions, Inc.” It changed its name to Cavion Technologies, Inc.
in February 1999 and subsequently to Concord Ventures, Inc. in October 2006. On December 21, 2000, the Company filed for protection under
Chapter 11 of the United States Bankruptcy Code. In connection with the filing, on February 16, 2001, the Company sold its entire business,
and all of its assets, for the benefit of its creditors. After the sale, the Company still had liabilities of $8.4 million and was subsequently
dismissed by the Court from the Chapter 11 reorganization, effective March 13, 2001, at which time the last of the Company’s then
remaining directors resigned. On March 13, 2001, the Company had no business or source of income, no assets, no employees or directors,
outstanding liabilities of approximately $8.4 million, and had terminated its duty to file reports under securities law. In February 2008,
after filing of a Form 10 registration statement pursuant to the Securities Exchange Act of 1934, as amended, we were re-listed on the
OTC Bulletin Board.
In April 2010, the Company re-domiciled in Delaware
under the name CCVG, Inc. (“CCVG”). Effective December 31, 2010, the Company completed an Agreement and Plan of Merger and
Reorganization (the “Reorganization") which provided for the merger of two of the Company’s wholly-owned subsidiaries.
As a result of this reorganization, the Company’s name became “Golden Dragon Inc.,” which became the surviving publicly
quoted parent holding company.
On May 9, 2014, the Company entered into a Share
Purchase Agreement (the “Share Purchase Agreement”) with CannaPharmaRx, Inc., a Colorado corporation (“Canna
Colorado”), and David Cutler, a former President, Chief Executive Officer, Chief Financial Officer, and director of the Company.
Under the Share Purchase Agreement, Canna Colorado purchased 1,421,120 restricted shares of the Company’s common stock from Mr.
Cutler and an additional 9,000,000 common shares directly from the Company.
In October 2014, the Company changed its legal
name to “CannaPharmaRx, Inc.”
In April 2016, the Company ceased operations.
As a result, the Company was then considered a “shell” company as defined under the Securities Exchange Act of 1934, as amended,
as defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act.
Effective December 31, 2018, the Company and Hanover
CPMD Acquisition Corp. (“CPMD Hanover”) a newly formed, wholly-owned subsidiary, entered into a Securities Purchase Agreement
with Alternative Medical Solutions, Inc., an Ontario, Canada corporation (“AMS”), its shareholders, wherein the Company acquired
all of the issued and outstanding securities of AMS. AMS is a corporation organized under the laws of the Province of Ontario, Canada.
It is a late-stage marijuana licensed producer applicant in Canada. It is currently in the Pre-License Inspection and Licensing phase,
which is Stage 5 of 6, with a fully approved license. Upon completion of the final construction of the facility, Health Canada will inspect
the facility and relevant operating procedures to ensure it meets the standards that have been approved in the application. There can
be no assurances that the Company will receive this license.
The facility is a 48,750 square foot marijuana
grow facility built on a 6.7-acre parcel of land located in Hanover, Ontario Canada. To date, the exterior construction of the building
has been completed. However, no interior construction has begun. Upon full completion, the facility will contain up to 20 separate growing
rooms which we believe will provide an annual production capacity of 9,500 kilos of marijuana (20,900 lbs.). Completion of the build-out
of the facility is expected to take an estimated 20 weeks. Together with the remaining equipment needed to complete the grow the Company
estimates that it will require approximately CAD$20.0 million in additional financing which it may seek to raise via equity and debt.
There can be no assurances that the Company will successfully raise the financing required to complete the construction of the facility
and begin cultivation.
As a result of the completion of the acquisition
of AMS on December 31, 2019, the Company no longer fits the definition of a “shell company,” as defined in Rule 405 of the
Securities Act and Rule 12b-2 of the Exchange Act. It filed the required disclosure on Form 8-K/A with the SEC on February 14, 2019, advising
that it was no longer a shell company pursuant to the aforesaid Rule.
On January 6, 2021, the Company executed an Agreement
of Purchase and Sale through its wholly owned subsidiary, Alternative Medical Solutions Inc. for the sale of the lands and premises located
at Hanover, Ontario, Canada. The price is $2,000,000 CAD. As a result, and in anticipation of the closing, the Company recorded an impairment
of goodwill and fixed assets relating to the property of $7,962,694
at December 31, 2020. This property is security for a $1,000,000 US Note with Koze Investments, LLC by way of a first-ranking
charge. This transaction closed on July 9, 2021 and the note was repaid in full as principal of $1,000,000 principal plus accrued interest
of $124,735 and penalties of $475,265. The note was discharged accordingly.
Effective February 25, 2019, the Company acquired
3,936,500 shares and 2,500,000 Warrants to purchase 2,500,000 shares of Common Stock of GN Ventures, Ltd, Alberta, Canada, f/k/a Great
Northern Cannabis, Ltd. (“GN”), in exchange for an aggregate of 7,988,963 shares of its Common Stock, from a former shareholder
of GN who is now the Company’s President and CEO. While no assurances can be provided, the Company believes this is the initial
step in its efforts to acquire all or a significant portion of the issued and outstanding stock of GN. In May 2020, the Company exchanged
5,507,400 of its shares for 3,671,597 shares of GN.
GN owns a 60,000 square foot cannabis cultivation
and grow facility located on 38 acres in Stevensville, Ontario, Canada. Because the Company is a minority shareholder of GN and GN is
a privately held company, the Company cannot confirm that the information it currently has on GN’s operations is complete or fully
reliable. GN estimates annual total production capacity from the Stevensville facility of up to 12,500 kilograms of cannabis. GN believes
the Stevensville facility to be complete, and GN’s subsidiary, 9869247 Canada Limited, received a license to cultivate from the
Canadian Ministry of Health on July 5, 2019. As a result, in October 2019, GN commenced cultivation activities and began generating revenues
during the first calendar quarter of 2020. The Company expects that it will obtain additional information on the business activities of
GN as it has renewed discussions to acquire additional interests and is performing its due diligence procedures.
Effective June 11, 2019, the Company entered into
a Securities Purchase Agreement with Sunniva, Inc, a British Columbia, Canada corporation (“Sunniva”) wherein the Company
agreed to acquire all of the issued and outstanding securities of Sunniva’s wholly-owned subsidiaries Sunniva Medical Inc. (“SMI”)
and 1167025 B.C. LTD (“1167025”) for CAD $16.0 million in cash and a note in the principal amount of CAD $4.0 million. These
companies are the current owners of the Sunniva Canada Campus, which includes construction assets for a planned 759,000 square-foot greenhouse
located on an approximately 114-acre property in Okanagan Falls, British Columbia.
On June 8, 2020, the Company received a notice
of termination of this Purchase Agreement, as amended, from Sunniva. As a result, the Company incurred a charge of $1,881,126 due to the
write-off of its deposit to Sunniva, banking fees, and prepaid expenses associated with the failed acquisition of Sunniva. The Company
is in discussions with Sunniva, as well as an investment banker who received deposits from the Company, about recovering all or a portion
of its deposits, banking fees, and prepaid expenses.
COVID-19
On March 11, 2020, the World Health Organization
(“WHO”) declared the Covid-19 outbreak to be a global pandemic. In addition to the devastating effects on human life, the
pandemic is having a negative ripple effect on the global economy, leading to disruptions and volatility in the global financial markets.
Most US states and many countries have issued policies intended to stop or slow the further spread of the disease.
Covid-19 and the U.S. response to the pandemic
are significantly affecting the economy. There are no comparable events that provide guidance as to the effect the Covid-19 pandemic may
have, and, as a result, the ultimate effect of the pandemic is highly uncertain and subject to change. We do not yet know the full extent
of the effects on the economy, the markets we serve, our business, or our operations
Basis of Presentation
The accompanying financial statements have been
prepared in accordance with the Financial Accounting Standards Board (“FASB”) “FASB Accounting Standard Codification™”
(the “Codification”) which is the source of authoritative accounting principles recognized by the FASB to be applied
by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”)
in the United States. Certain amounts in prior periods have been reclassified to conform to the current presentation.
All figures are in U.S. dollars unless 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 purchase price allocation of acquired businesses, impairment of long-lived assets and goodwill, valuation
of financial instruments, 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 of 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 and Cash Equivalents
The Company considers all highly liquid temporary
cash investments with an original maturity of three months or less to be cash equivalents. On June 30, 2021, and December 31, 2020, the
Company cash and cash equivalents totaled $110,158 and $334,969 respectively.
Comprehensive Gain or Loss
ASC 220 “Comprehensive Income,” establishes
standards for the reporting and display of comprehensive income and its components in the financial statements. As of June 30, 2021, and
December 31, 2020, the Company determined that it had items that represented components of comprehensive income and, therefore, has included
a statement of comprehensive income in the financial statements.
Reclassifications
Certain prior year amounts have been reclassified
to conform to the current period presentation. These reclassifications had no impact on net earnings and financial position.
Derivative Financial Instruments
The Company does not use derivative instruments
to hedge exposures to cash flow, market, or foreign currency risk. 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 liabilities is required to be revalued at each reporting date, with
corresponding changes in fair value recorded in current period operating results. For the periods ended June 30, 2021, and December 31,
2020, the Company had derivative liabilities of $598,676
and $3,676,649,
respectively. These derivative liabilities decreased in 2021 due to price movement of the Company’s common stock.
Beneficial Conversion Features
In accordance with FASB ASC 470-20, “Debt
with Conversion and Other Options” the Company records a beneficial conversion feature (“BCF”) related to the issuance
of convertible debt or preferred stock instruments that have conversion features at fixed rates that are in-the-money when issued. The
BCF for the convertible instruments is recognized and measured by allocating a portion of the proceeds equal to the intrinsic value of
that feature to additional paid-in capital. The intrinsic value is generally calculated at the commitment date as the difference between
the conversion price and the fair value of the common stock or other securities into which the security is convertible, multiplied by
the number of shares into which the security is convertible. If certain other securities are issued with the convertible security, the
proceeds are allocated among the different components. The portion of the proceeds allocated to the convertible security is divided by
the contractual number of the conversion shares to determine the effective conversion price, which is used to measure the BCF. The effective
conversion price is used to compute the intrinsic value. The value of the BCF is limited to the basis that is initially allocated to the
convertible security.
Foreign Currency Translation
The functional currency and the reporting currency
of CannaPharmaRx US operations is United States dollars, (“USD”). The functional currency of the Company’s Canadian
operations in Canadian dollars (“CAD”), Management has 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, United States dollars, at the exchange rate in effect at the balance sheet dates.
Revenue and expenses are translated at average rates in effect during the reporting periods. Equity transactions are recorded at the historical
rate when the transaction occurred. The resulting translation adjustment is reflected as accumulated other comprehensive income, a separate
component of stockholders' equity in the statement of stockholders' equity. These translation adjustments are reflected in accumulated
other comprehensive income, a separate component of the Company's stockholders' equity.
Harmonized Sales Tax
The Harmonized Sales Tax (“HST”) is
a combination of the Canadian Goods and Services Tax (“GST”) and Provincial Sales Tax (“PST”) that is applied
to taxable goods and services. By fusing sales tax at the federal level with sales tax at the provincial level, the participating provinces
harmonized both taxes into a single federal-provincial sales tax. HST is a consumption tax paid by the consumer at the point of sale (POS).
The vendor or seller collects the tax proceeds from consumers by adding the HST rate to the cost of goods and services. They then remit
the total collected tax to the government periodically.
The HST is in effect in five of the ten Canadian
provinces: New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, and Prince Edward Island. The HST is collected by the Canada
Revenue Agency (CRA), which remits the appropriate amounts to the participating provinces. The HST may differ across these five provinces,
as each province will set its own PST rates within the HST. In provinces and territories which have not enacted the HST, the CRA collects
only the 5% goods and services tax. The current rate in Ontario is 13%.
Capital Assets- Construction In Progress
As of June 30, 2021, and December 31, 2020, the
Company had $1,608,994 and $1,566,316 in construction in progress (“CIP”), respectively, comprised entirely of the building
acquired relating to the acquisition of AMS. The Company did not record any depreciation expense on CIP for the periods ended June 30,
2021, and June 30, 2020.
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 cost 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 the 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 stock warrants was determined at the date of grant using the Black-Scholes option-pricing model. The Black-Scholes
option model requires management to make various estimates and assumptions, including expected term, expected volatility, risk-free rate,
and dividend yield. The Company had no stock options outstanding at June 30, 2021.
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.
The Company evaluated the recoverability of its
long-lived assets on December 31, 2020 on its subsidiaries with material amounts on their respective balance sheets and determined that
an impairment $146,084 in land had occurred.
The Company had a net balance at June 30, 2021
of $7,717 relating to office equipment.
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.
The Company may also be required, from time to
time, to measure certain other financial assets at fair value on a nonrecurring basis. These adjustments to fair value usually result
from the application of lower-of-cost-or-market accounting or write-downs of individual assets. During the period ended December 31, 2020,
the Company wrote down its fixed assets at the Hanover facility of approximately $186,000 which was included in the impairment charge
of goodwill and intangibles noted above.
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, prepaid expenses, accounts
payable, and the related party loan, 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.
Income (Loss) Per Share
Income (loss) per share is presented in accordance
with Accounting Standards Update (“ASU”), Earning per Share (Topic 260) which requires the presentation of both
basic and diluted earnings per share (“EPS”) on the income statements. Basic EPS would exclude any dilutive effects
of options, warrants, and convertible securities but does include the restricted shares of common stock issued. 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.
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 calculations are determined by dividing net income by the weighted average number of common shares and dilutive
common share equivalents outstanding.
Business Segments
The Company’s activities during the three months ended June 30,
2021 and the year ended December 31, 2020, comprised a single segment.
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. The Company adopted ASC 842
on January 1, 2019. However, the adoption of the standard had no impact on the Company’s financial statements since all Company
leases are month to month or short-term rental. The Company adopted ASU 2019-12, Income Taxes, Topic 740 on January 1, 2021. There is
no material impact on the Company’s financial statements.
|
NOTE 2.
|
GOING CONCERN AND LIQUIDITY
|
As of June 30, 2021 and December 31, 2020,
the Company had $110,158 and $334,969
cash on hand, respectively, and no revenue-producing business or other sources of income. Additionally, as of June 30, 2021, the
Company had negative working capital totaling $14,761,780
and a total stockholders’ deficit of $6,394,290.
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 its current financial projections, the Company believes it does not have sufficient existing cash resources
to fund its current limited operations.
It is the Company’s current intention to
raise debt and/or 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.
As of June 30, 2021, and December 31, 2020, the
Company had deposits of $80,680 and $0,
respectively, which are included in Accounts Payable and Accrued Expenses. On June 8, 2020, the Company received a notice of termination
of from Sunniva. The $1,308,830
deposit related to this potential Sunniva acquisition, which was not consummated, was non-refundable and was subsequently written
off.
On January 6, 2021 the Company executed an Agreement
of Purchase and Sale through its wholly owned subsidiary, Alternative Medical Solutions Inc. for the sale of lands and premises located
at Hanover, Ontario, Canada. A description of the property is detailed in Note 1 of these financial statements. The purchase price is
$2,000,000 CAD. As a result, and in anticipation of the closing,
the Company has recorded an impairment of goodwill and fixed assets relating to the property of $7,962,694 at December 31, 2020. This
property is the security for a $1,000,000 US Note with Koze Investments, LLC by way of a first-ranking charge. At closing,
which occurred on July 9, 2021, the Note was retired in full with repayment of $1,000,000
principal plus accrued interest of $124,735 plus $475,265 in penalties and as such fully discharged. The Company has received a
deposit of $80,680 towards the purchase of this property included in Accounts Payable and Accrued expenses at June 30, 2021.
The following table sets forth the components
of the Company’s prepaid expenses on June 30, 2021, and December 31, 2020:
Schedule
of prepaid expenses
|
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
|
Prepaid expenses(a)
|
|
|
159,654
|
|
|
|
132,031
|
|
|
Prepaid financing(b)
|
|
|
209,500
|
|
|
|
–
|
|
|
Total
|
|
$
|
369,154
|
|
|
$
|
132,031
|
|
|
|
a)
|
This prepayment remains in trust, from proceeds of the Astor Street, LLC promissory notes, currently being held with the intention of forming part of the initial payment of the pending Cremona acquisition. On March 29, 2021, the Company received the acceptance our Offer to Purchase certain assets and facilities located in Cremona, Alberta, Canada. The purchase price is $12,550,000 CAD. The Company has paid a $200,000 CAD deposit and closing is expected on April 29, 2021. The 55,200 square foot facility is capable of producing 5,200 kilograms of cannabis biomass per year. The facility previously held Health Canada licenses for cultivation and sales of medical dried flower, as well as extract and edible sales. After closing of the transaction, the Company intends to apply for new Health Canada licenses. Funding for this acquisition is in the due diligence phase.
|
|
|
b)
|
The Company has paid $209,500 in commitment fees to two arms length parties to arrange financing for pending
Cremona acquisition. This financing is currently in the due diligence phase.
|
As of June 30, 2021, and December 31, 2020, the
balance of investments was 6,750,779 and $6,711,289, respectively.
On February 25, 2019, the Company acquired 3,936,500
shares and 2,500,000 Warrants to purchase 2,500,000 shares of common stock at a price of CAD$1.00 of GN Ventures, Ltd., Alberta, Canada,
f/k/a Great Northern Cannabis, Ltd. (“GN”), in exchange for an aggregate of 7,988,963 shares of the Company’s Common
Stock from a former shareholder of GN. On the date of purchase, the Company’s Common Stock was trading at $1.41 which values the
purchase at $11,264,438. The Company has treated this purchase using the cost method because the purchase consists
of an investment in a private company in which the Company does not have the ability to exercise significant influence over GN’s
operating and financial activities. The Company recorded a write-down of the investment by $7,070,841 to a current value of $4,193,597.
On May, 2020, the Company exchanged 5,507,400
of its common shares for 3,671,597 common shares of GN. These shares were valued at $0.675 each which represents the value of the GN shares
as determined by the Company’s year end impairment analysis and were recorded as an investment of $2,478,422. As of December 31,
2020 the Company’s investment in GN was $6,672,019.
On October 6, 2020, the Company invested $50,000
CAD in exchange for 83,333 Class A Common Shares at $0.60 CAD per share. The Company entered into a cooperation agreement with Klonetics
Plant Science Inc, a Company that engages in the business of genetics research and development, tissue culture propagation, plantlet production,
ready to flower production within the cannabis industry throughout the world. The parties consider it advantageous to pool their respective
experience, expertise, knowhow and capabilities in the area of land acquisition, financing, development, operations, and respective areas
of industry focus. The parties wish to commence their intended long-term cooperation by pursuing projects in selected areas of focus initially
before extending it to a larger scale merger between the parties, which may be discussed at a later date with terms to be determined and
agreed to by the parties. CannaPharmaRx will invest up to a maximum percentage of Thirty Percent (30%) of the issued and outstanding shares
of Klonetics.
On January 15, 2021, the Company invested an
additional $50,000
CAD in exchange for an additional 83,333
Class A Common Shares at $0.60 CAD per share.
|
NOTE 6.
|
PROPERTY, PLANT, AND EQUIPMENT
|
The following table sets forth the components
of the Company’s property and equipment on June 30, 2021, and December 31, 2020:
|
Property and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
December 31, 2020
|
|
|
|
|
Gross Carrying Amount
|
|
|
Accumulated Depreciation
|
|
|
Net Book Value
|
|
|
Gross Carrying Amount
|
|
|
Accumulated Depreciation
|
|
|
Net Book Value
|
|
|
Computers, software, and office equipment
|
|
$
|
11,408
|
|
|
$
|
(3,691
|
)
|
|
$
|
7,717
|
|
|
$
|
4,869
|
|
|
$
|
(2,435
|
)
|
|
$
|
2,435
|
|
|
Land
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Construction in progress
|
|
|
1,608,994
|
|
|
|
–
|
|
|
|
1,608,994
|
|
|
|
1,566,316
|
|
|
|
–
|
|
|
|
1,566,316
|
|
|
Total fixed assets
|
|
$
|
1,620,402
|
|
|
$
|
(3,691
|
)
|
|
$
|
1,616,711
|
|
|
$
|
1,571,185
|
|
|
$
|
(2,435
|
)
|
|
$
|
1,566,316
|
|
For the periods ended June 30, 2021, and 2020,
the Company recorded depreciation expense of $1,184 and $758 respectively.
As of June 30, 2021 and December 31, 2020, the
Company had $1,608,994 and $1,566,316 respectively, in construction in progress. The facility acquired as part of the AMS acquisition
is a 48,750 square foot marijuana grow facility built on a 6.7-acre parcel of land located in Hanover, Ontario Canada. To date, the exterior
construction of the building has been completed, however, no interior construction has begun.
For construction in-progress assets, no depreciation
is recorded until the asset is placed in service. When construction is completed, the asset should be reclassified as building, building
improvements, or land improvement and should be capitalized and depreciated. Construction in progress includes all costs related to the
construction of a medical cannabis facility. Cost also includes soft costs such as loan fees and interest and consulting fees and related
expenses. The facility is not available for use and therefore not being amortized. The Company entered into a Purchase and Sale Agreement
with a prospective buyer on January 6, 2021. This transaction closed on July 9, 2021 for proceeds of $2,000,000 CAD. Proceeds were used
to retire and discharge the note for a repayment of principal of $1,000,000, interest of $124,735 and penalties of $475,265.
|
NOTE 7.
|
ACCOUNT PAYABLE AND ACCRUED LIABILITIES
|
Accounts payables are recognized initially at
the transaction price and subsequently measured at the undiscounted amount of cash or other consideration expected to be paid. Accrued
expenses are recognized based on the expected amount required to settle the obligation or liability.
The following table sets forth the components
of the Company’s accrued liabilities on June 30, 2021 and December 31, 2020.
|
Schedule of accounts payable and accrued liabilities
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
|
Accounts payable and accrued expenses
|
|
$
|
4,116,507
|
|
|
$
|
3,585,000
|
|
|
Accrued interest (a)
|
|
|
152,238
|
|
|
|
96,477
|
|
|
Accrued legal settlement (b)
|
|
|
190,000
|
|
|
|
190,000
|
|
|
Total accounts payable and accrued liabilities
|
|
$
|
4,458,745
|
|
|
$
|
3,871,477
|
|
|
|
(a)
|
Represents
interest accrued on the outstanding convertible notes and other notes - see Note 11, Notes Payables)
|
|
|
(b)
|
The Company had 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 2,250,000 shares of its Common Stock from Mr. Cohen in consideration for $350,000. Mr. Cohen passed away while there was a remaining balance of $190,000 remaining to be paid in accordance with the Settlement Agreement. The Company has taken the position that his death has discharged any obligation the Company might have to make the balance of the payments. The Company has not received any demand for payment or otherwise been involved in any attempt to collect this balance for a period of greater than two years prior to the date of this Report.
|
|
NOTE 8.
|
RELATED PARTY TRANSACTIONS
|
The following table sets forth the components
of the Company’s related party liabilities on June 30, 2021 and December 31, 2020.
Schedule
of related party transactions
|
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
|
Loan payable, related parties
|
|
$
|
41,219
|
|
|
$
|
274,758
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loan payable, related parties
|
|
$
|
41,219
|
|
|
$
|
274,758
|
|
|
|
|
Interest-free loans of $41,219 from the Company’s CEO and a director, respectively, amounting to $21,461 and $19,758 due to former directors.
|
Effective March 22, 2019, the Company established
its principal place of business and leases offices at 3600, 888 – 3rd St SW, Calgary, Alberta, Canada, T2P 5C5. The lease may be
terminated by either party on 30 days’ notice. Rent is $2,000 CAD per month effective October 1, 2020 (retroactively reduced from
$4,000 per month). This space was provided by a company to which, Mr. Orman, one of the Company’s directors, serves as a Director.
See Note 14, Subsequent Events, below, for additional
related party transactions.
|
NOTE 9.
|
CONVERTIBLE NOTES AND DERIVATIVE LIABILITIES
|
The following tables set forth the components
of the Company’s, convertible debentures as of June 30, 2021 and December 31, 2020:
|
Components of convertible debentures
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
|
Principal value of convertible notes
|
|
$
|
1,093,728
|
|
|
$
|
1,662,000
|
|
|
Note discount
|
|
|
(280,938
|
)
|
|
|
(664,442
|
)
|
|
Total convertible notes, net current
|
|
$
|
812,790
|
|
|
$
|
997,558
|
|
On July 8, 2019, the Company commenced a private
offering of Units at a price of $50,000 per Unit, each Unit consisting of 50,000 shares of the Company’s Common Stock and one $50,000
unsecured Convertible Note (“a Convertible Note”), which mature one year from the date of issuance and accrue interest at
5% per annum. These Convertible Notes are convertible into shares of the Company’s Common Stock at a conversion price of $1.00 per
share. During the year ended December 31, 2019, the Company issued 31 Units in this offering for and received proceeds of $1,550,000 from
six accredited investors. Since the Company’s stock price exceeded the conversion feature of the Convertible Notes and was immediately
exercisable, the Company recorded a beneficial conversion feature (“BCF”) and expense of $1,550,000 which was charged to interest
expense with an offset to paid-in capital.
In addition, the 5,505,530 shares of Common Stock
included in the Units were valued at $5,075,000. The excess above the $1,550,000 face value of the Convertible Notes or, $3,525,000, was
charged to interest expense with an offset to paid-in capital. The remaining $1,550,000 was recorded as a Note discount of $1,550,000
to be amortized over the three years from the date of the Note to the maturity date. The Company recorded $552,602 in interest expense
related to the amortization of note discount during the year ended December 31, 2019.
During the year ended December 31, 2020, the Company
issued a total of 24 notes to accredited investors of which $582,500 was in the form of unsecured 5% convertible notes, and $595,500 was
in unsecured 8% convertible notes, and $1,000,500 at 10%. Under the terms of each convertible note, the investors received the right to
convert their to common stock commencing the year after the date of issuance ranging from 55%-75%, respectively, of the lowest closing
price for the Company’s common stock measured 20 business days prior to conversion. One of the noteholders also received 153,940
“returnable” shares in connection with issuance of the convertible notes. These shares are returnable to the Company if the
underlying convertible note ($160,000) is redeemed before the passage of 180 days. During the three months ended September 30, 2020 the
Company repaid the $160,000 Note, received the 153,940 shares back from the noteholder, and converted a $100,000 note plus accrued interest
into 135,000 Common Shares of the Company.
During the year ended December 31, 2020 the Company
recorded $257,345 in interest expense on these Notes and amortized $1,690,933 of note discount which was charged to interest expense.
As of December 31, 2020, there was $35,048 in accrued interest on these notes, and $664,442 in unamortized note discount related to these
notes. As of the date of this Report, there was one note for $100,000 that past due its maturity date. The Company has not received any
notice of default on these notes and continues to accrue interest on these notes past the maturity date.
During the year ended December 31, 2020 the Company
issued 4,067,332 common shares upon the conversion of $1,984,000 in convertible notes and recorded a gain of $566,408.
June 30, 2021 Activity
During the six-month period ended June 30, 2021,
the Company received proceeds from convertible notes of $388,083.
During the six months ended June 30, 2021 the
Company recorded $43,030 in interest expense on its convertible notes and amortized $735,949 of note discount which was charged to interest
expense. As of June 30, 2021, there was $27,503 in accrued interest on these notes, and $280,938 in unamortized note discount related
to these notes. As of the date of this Report, there was one note for $100,000 that past due its maturity date. The Company has not received
any notice of default on these note and continues to accrue interest on these notes past the maturity date.
During the six months ended June 30, 2021 the
Company issued 18,973,801 common shares upon the conversion of $956,355 in convertible notes and recorded a loss on conversion of $989,263.
As of June 30, 2021, derivative liabilities were
valued using a probability-weighted average Black-Scholes-Merton pricing model with the following assumptions:
|
Schedule of assumptions used
|
|
|
|
|
|
|
|
June 30,
2021
|
|
|
Exercise Price
|
|
$
|
0.0276 – 0.0345
|
|
|
Stock Price
|
|
$
|
0.05
|
|
|
Risk-free interest rate
|
|
|
.08%
|
|
|
Expected volatility
|
|
|
128.50%
|
|
|
Expected life (in years)
|
|
|
0.50 - 1.00
|
|
|
Expected dividend yield
|
|
|
0%
|
|
|
Fair Value:
|
|
$
|
598,676
|
|
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
for its common stock. The expected life of the conversion feature of the notes was based on the remaining term of the notes. The expected
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.
During the six months ended June 30, 2021 the
Company recognized a gain of $3,077,973, and a loss for the six months ended June 30, 2020 of $969,102 as “Other Expense”
on its Consolidated Statements of Operations, which represented the net change in the value of the derivative liability.
The following tables set forth the components
of the Company’s, notes payable as of June 30, 2021 and December 31, 2020:
|
Schedule of notes payable
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
|
Principal value of Promissory Note
|
|
$
|
9,459,536
|
|
|
$
|
8,977,721
|
|
|
Loan discounts
|
|
|
(127,878
|
)
|
|
|
(248,972
|
)
|
|
Promissory Note, long term net of discount
|
|
$
|
9,331,658
|
|
|
$
|
8,728,749
|
|
Pursuant to the terms of the Securities Purchase
Agreement with AMS the Company issued a non-interest bearing CAD $10,000,000 ($7,330,000 USD) promissory note secured only by the shares
acquired in AMS. Principal payments under the Promissory Note are due quarterly commencing upon AMS receiving a license to cultivate and
are computed based upon 50% of AMS' cash flow, defined as EBITDA less all capital expenditures, taxes incurred, non-recurring items, and
other non-cash items for the relevant fiscal quarter, including the servicing of all senior debt payment obligations of the Company. The
Promissory Note matures the earlier of two years from the date AMS receives a license to cultivate, or December 31, 2021. Since AMS had
not received its cultivation license as of December 31, 2020, the Note Payable will have a maturity date of December 31, 2021.
The Company performed a valuation study as part
of the AMS acquisition. The valuation study determined that the Promissory Note should be valued at $6,632,917 since it was non-interest
bearing. As a result, the Company recorded a note discount of $697,083. The note discount will be amortized to interest expense over the
three-year term of the Promissory Note. During the six months ended June 30, 2021, the Company has recorded $735,949 in amortization expense
related to Note discount.
On July 3, 2019, the Company entered into a 12%
$1,000,000 Loan Agreement with Koze Investments LLC (“Koze”), payable in full on June 28, 2020. The Company is currently in
discussions with Koze to extend the maturity date of the Note. While the Company believes it will be successful in extending the maturity
date, there are no assurances this will occur. Under the terms of the 12% Note, Koze took a first security interest against the Company’s
Hanover, Ontario cannabis facility in progress and required the Company to pay off its existing mortgage of approximately $650,000 CAD.
Additionally, the Company agreed to pay a 3% origination fee, prepay the year of interest ($60,000) and to issue to Koze five-year warrants
to purchase 1,001,000 shares of the Company’s Common Stock at an exercise price of $1.00 per share. After paying the origination
fees, the prepayment and paying off the original mortgage, the Company used a portion of the remaining proceeds as payment against the
SMI purchase price of CAD $1,000,000. During the period ended December 31, 2020, the Company recorded an additional amount of $890,570
relating to penalties for late payment. As of the date this Report the Company has continued to accrue interest on the Koze Note and is
in discussion to renegotiate the final payout amount, which is anticipated to occur when the property is sold. Koze has not asserted that
a default has occurred.
On April 21, 2020, the Company received a loan
from the Government of Canada under the Canada Emergency Business Account program (CEBA). This loan was in the amount of $40,000 CAD (USD
$29,352). These funds are interest-free until December 31, 2022, at which time the remaining balance will convert to a 3-year term loan
at an interest rate of 5% per annum. An additional amount of $20,000 CAD (USD $15,708) was received on December 29, 2020. If the Company
repays the loan prior to December 31, 2022, there will be loan forgiveness of 33% or $20,000 CAD.
During the six months ended June 30, 2021 the
Company entered into Note Agreements with secured investors amounting to $238,560. These notes are non-interest bearing and mature in
12 months. Repayment includes principal amount plus $50,000 CAD settlement cash fee plus 58,140 Common Shares at $0.43 per share plus
59,524 Common Shares at $0.42 per share. These notes are secured by a GSA over all present and after acquired property, assets, and undertakings.
As of June 30, 2021, the Company has approximately
$75,600,000 of federal net operating loss carryforwards (“NOLS”) in the United States. The federal net operating loss carryforwards
begin to expire in 2030. 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 Internal Revenue Code 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 of June 30, 2021, 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.
|
NOTE 12.
|
COMMITMENTS AND CONTINGENCIES
|
Effective March 22, 2019, the Company entered
into a lease agreement to lease three offices at 3600 888 3 St SW, Calgary, Alberta, Canada, T2P 5C5. The lease may be terminated by either
party on 30 days’ notice. Rent is $2,000 CAD per month (reduced from $4,000 per month effective October 1, 2020 retroactively adjusted).
This space was provided by a company to which, Mr. Orman, one of the Company’s directors, serves as a Director.
On March 29, 2021, the Company received the acceptance
our Offer to Purchase certain assets and facilities located in Cremona, Alberta, Canada. The purchase price is $12,550,000 CAD. The Company
has paid a $200,000 CAD deposit and closing is expected on April 29, 2021. The 55,200 square foot facility is capable of producing 5,200
kilograms of cannabis biomass per year. The facility previously held Health Canada licenses for cultivation and sales of medical dried
flower, as well as extract and edible sales. After closing of the transaction, the Company intends to apply for new Health Canada licenses.
Funding for this acquisition is in the due diligence phase.
|
NOTE 13.
|
STOCKHOLDERS’ EQUITY
|
Series A Preferred Stock
In April 2018, the Company issued 60,000 shares
of its Series A Convertible Preferred 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 Convertible Preferred Stock is convertible into 1,250 shares of Common Stock and vote on an as-converted
basis. The rights and designations of these Preferred Shares include the following:
|
|
·
|
entitles the holder thereof to 1,250 votes on all matters submitted to a vote of the shareholders:
|
|
|
·
|
The holders of outstanding Series A Convertible Preferred Stock shall only be entitled to receive dividends upon declaration by the Board of Directors of a dividend payable on the Company’s Common Stock, whereupon the holders of the Series A Convertible Preferred Stock shall receive a dividend on the number of shares of Common Stock into which each share of Series A Convertible Preferred Stock is convertible;
|
|
|
·
|
Each Series A Preferred Share is convertible into 1,250 shares of Common Stock;
|
The beneficial conversion (“BCF”)
feature attributed to the purchase of Preferred Stock was deemed to have no value on the date of purchase because there was no public
trading market for the Convertible Preferred Stock, and none is expected to develop in the future. Therefore, the BCF related to the Preferred
Shares was considered to have no value on the date of issuance.
The Company is authorized to issue up to 100,000
shares of Series A Preferred Stock, par value of $1.00.
There were 58,180 shares of Series A Preferred
Stock issued and outstanding as of June 30, 2021 and 60,000 shares outstanding at December 31, 2020, respectively.
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 B Preferred Stock / Common Stock
In February 2019, the Company commenced an offering
of up to $3 million in principal amount of Units at a price of $1.00 per Unit, each Unit consisting of one share of Series “B”
Convertible Preferred Stock, each Convertible Preferred Share convertible into one share of the Company’s Common Stock at the election
of the holder and one Common Stock Purchase Warrant exercisable to purchase one share of Common Stock 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.
This Offering was closed at the end of August 2019. As of December 31, 2020, the Company had accepted $475,000 in subscriptions in this
offering.
The Company is authorized to issue 3,000,000 shares
of Series B Preferred Stock, par value of $1.00.
There were 475,000 shares of Series B Convertible
Preferred Stock issued and outstanding as of June 30, 2021, and December 31, 2020, respectively.
The Company is authorized to issue 300,000,000
shares of Common Stock, par value $0.0001
per share. As of June 30, 2021, and December 31, 2020, 73,760,595
and 46,986,794 shares of Common Stock were issued and outstanding, respectively.
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.
Shares Issued in Connection with the Assignment
Agreement with Great Northern Ltd
On September 28, 2018, Great Northern Cannabis,
Ltd (“GN”), entered a Letter of Intent with P2P Green Power Energy Solutions and certain individuals to acquire all of the
issued and outstanding shares of AMS. On October 10, 2018, the Company entered into an Assignment and Assumption Agreement (“the
AA Agreement”) with GN. Under the terms of the AA Agreement, the Company essentially purchased the right to acquire AMS from GN
for the following consideration:
|
|
·
|
A refundable payment of CAD $200,000
|
|
|
·
|
An accountable reimbursement of GN expenses and fees related to the AMS acquisition not to exceed CAD $300,000
|
|
|
·
|
In the event that we didn’t enter into a management agreement with GN post-closing, we agreed to issue GN, 2,500,000 shares of our Common Stock trading under symbol “CPMD”
|
All of the above consideration was expressly contingent
upon the closing of the AMS acquisition which was consummated by the Company on December 31, 2019. The payments of $200,000 and $300,000
were made to GN. On August 30, 2019, the parties determined that no management agreement had been entered into so the Company issued 2,500,000
shares to GN valued at $5,800,000 as required pursuant to the Agreement. Under the guidelines of ASC 805, Business Combinations, since
we disclosed that the AMS transaction was complete, the goodwill re-measurement period ended and therefore we could not adjust goodwill
for this transaction. As a result, we recorded an acquisition expense on the Company’s income statement for $5,800,000.
Shares Reserved for Issuance
As of June 30, 2021, the Company had 272,654,379
Common Shares reserved for issuance. These shares are comprised of 72,725,000 Common Shares issuable upon the conversion of the Series
A Preferred Stock; 475,000 Common Shares issuable upon the conversion of Series B Preferred Stock; 197,131,851 shares issuable upon a
conversion of the convertible notes, and 2,322,528 Common Shares issuable upon the exercise of warrants. None of these shares were used
in the calculation of earnings per share because their inclusion would be anti-dilutive since the Company is operating at a loss. There
are no assurances that the conversion rights will be utilized or that the options or the warrants will be exercised.
Stock Options
During the period ended June 30, 2021 and December
31, 2020, the Company did not record any stock-based compensation expense related to stock options, as there were none outstanding.
Stock Purchase Warrants
The following table reflects all outstanding
and exercisable warrants on June 30, 2021 and December 31, 2020:
|
Warrant activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Warrants Outstanding (a)
|
|
|
Weighted Average Exercise Price
|
|
|
Average Remaining Contractual Life (Years)
|
|
|
Warrants outstanding, January 1, 2018
|
|
|
–
|
|
|
$
|
–
|
|
|
|
–
|
|
|
Warrants issued
|
|
|
350,000
|
|
|
|
0.57
|
|
|
|
1.50
|
|
|
Warrants exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Warrant forfeited
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Warrants outstanding, December 31, 2018
|
|
|
350,000
|
|
|
$
|
0.57
|
|
|
|
.12
|
|
|
Warrants issued (a)
|
|
|
1,519,750
|
|
|
$
|
1.01
|
|
|
|
.59
|
|
|
Warrants outstanding December 31, 2019
|
|
|
1,869,750
|
|
|
$
|
0.92
|
|
|
|
.80
|
|
|
Warrants exercised
|
|
|
(25,000
|
)
|
|
|
–
|
|
|
|
–
|
|
|
Warrants outstanding December 31, 2020
|
|
|
1,844,750
|
|
|
$
|
0.92
|
|
|
|
.50
|
|
|
Warrants issued (b)
|
|
|
477,778
|
|
|
$
|
0.30
|
|
|
|
5.00
|
|
|
Warrants outstanding June 30, 2021
|
|
|
2,322,528
|
|
|
|
-
|
|
|
|
|
|
Stock purchase warrants are exercisable for two-five
years from the date of issuance.
|
(a)
|
The number of warrants reflected in this table does not include 475,000 warrants that were issued at various times during 2019 in connection with the issuance of the Company’s Series B Preferred stock. These warrants are exercisable for three years at a strike price of $2.00 per share. The Company accounts for warrants issued to purchase shares of its common stock or preferred stock as equity in accordance with FASB ASC 480, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, Distinguishing Liabilities from Equity. Therefore, no stock-based compensation expense was recorded for the issuance of these 475,000 warrants.
|
|
|
|
|
(b)
|
The Company issued 477,448 common share purchase warrants during the second quarter to an accredited investor
as part of a convertible debenture. These warrants are exercisable at $0.30 per share and expire at the end of five years.
|
The value of the stock purchase warrants for
the periods ended June 30, 2021, and December 31, 2020, was determined using the following Black-Scholes methodology:
|
Assumptions used
|
|
|
Expected dividend yield (1)
|
0.00%
|
|
Risk-free interest rate range (2)
|
1.75 - 2.91%
|
|
Volatility range (3)
|
1.23% - 442.92%
|
|
Expected life (in years)
|
2.00 - 5.00
|
_____________
|
(1)
|
The Company has no history or expectation of paying cash dividends on its Common Stock.
|
|
(2)
|
The risk-free interest rate is based on the U.S. Treasury yield for a term consistent with the expected life of the awards in effect at the time of grant.
|
|
(3)
|
The volatility of the Company’s Common Stock is based on trading activity for the previous three year period ended at each stock purchase warrant contract date.
|
During the six month period ended June 30, 2021
and June 30, 2020, the Company recorded $193,399 and $413,158, respectively, in stock-based compensation.
|
NOTE 14.
|
SUBSEQUENT EVENTS
|
On July 2, 2021, the Company issued 1600 Preferred
A shares to an accredited investor at $31.25 per share for net proceeds of $49,997.
On July 9, 2021, the Company closed the sale of
the Hanover property originally executed on January 6, 2021 to an arms-length party for proceeds of $2,000,000 CAD. These proceeds were
used to repay the Koze mortgage against the property for $1,600,000 USD which included the original principal of $1,000,000 USD plus accrued
interest of $124,735 USD and penalties of $475,265. This mortgage has now been discharged.
On July 13, 2021, the Company issued 2400 Preferred
A shares to an accredited investor at $31.25 per share for net proceeds of $75,000.
On July 23, 2021, the Company issued 2400 Preferred
A shares to an accredited investor at $31.25 per share for net proceeds of $75,000.