NOTE 7.

LITIGATION AND ACCRUED SETTLEMENT LIABILITIES

On October 30, 2014, Gary M. Cohen (“Cohen”), former President, Chief Operating Officer and board member of CannaPharmaRx, Inc., at the time a privately held Colorado corporation, sued the above-referenced CannaPharmaRx, Inc. and individual officer and board member, Gary Herick. On November 26, 2014, Cohen filed an amended complaint naming the remaining corporate entities and officers and board members referenced above. In his amended complaint, Cohen has alleged various employment-related contract and wrongful termination claims, as well as claims alleging breach of fiduciary duty, misappropriation of assets, violations of corporate law regarding his access to internal corporate information, and alleged violations of U.S. federal securities laws, the Sarbanes-Oxley Act of 2002 and the U.S. Internal Revenue Code. Cohen’s claims arose out of the Company’s Board of Directors’ removal of Cohen as an officer and board member of CannaPharmaRx, Inc., which occurred on or about October 23, 2014. All the named defendants in the lawsuit continue to maintain that Cohen’s claims and allegations are false and lack legal merit. To date, the defendants have removed Cohen’s lawsuit from state court in Hillsborough County, Florida—where it was filed originally—to the U.S. District Court in Tampa, Florida. In addition, all of the defendants have filed a motion to dismiss Cohen’s entire lawsuit, which motion is still pending. Settlement negotiations between the parties are active and ongoing. If the case is not settled, all the defendants intend to continue vigorously defending against Cohen’s claims and to assert counterclaims of their own.

On November 11, 2014, Golden Dragon Holding Co. (“GDHC”), now named CannaPharmaRx, Inc., a Delaware corporation, sued Cohen for having published on the Internet fake press releases concerning his false allegations filed in his lawsuit against CannaPharmaRx, Inc. et al. in Florida. In the fake press releases, Cohen published various false statements about the Company and some of its officers and directors. To date, Cohen informed the Court of his intent to file a motion to dismiss, which he decided against doing after the judge assigned to the case informed him that the Court would view such a motion as frivolous. Cohen has since filed an answer, and a case scheduling and discovery conference is scheduled with the Court on March 31, 2015. Settlement negotiations are active and ongoing. If the case is not settled, GDHC intends to continue vigorously pursuing its claims.

On March 25, 2015, the Company and Mr. Cohen agreed in principle to the terms of a settlement agreement that would resolve the aforementioned lawsuits and on March 30, 2015, the parties entered into a settlement and release of claims agreement. As part of that agreement, the Company agreed to purchase all of Mr. Cohen’s 2,250,000 shares of CannaRx for a purchase price of $350,000, with $85,000 payable up front and the remainder payable in equal installments of $15,000 per month over the next 17 months, and a payment of $10,000 in the eighteenth month. The amount of cash payable in the next year of $205,000 is included in current liabilities on the balance sheet. In addition, the Company would grant 600,000 unregistered restricted shares of its common stock to Mr. Cohen as part of the settlement. The Company has valued those shares at $1,597,500 which is included in current liabilities on the balance sheet. The Company will record a charge of $1,597,500 based on the trading average of the Company’s stock over the preceding ten days, in connection with the issuance of the restricted shares.