U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
Quarterly Report Under
the Securities Exchange Act of 1934
For Quarter Ended: September 30, 2018
Commission File Number: 000-27055
CANNAPHARMARX, INC.
(Exact name of small business issuer as specified in its charter)
| Delaware | 27-4635140 | |
| (State of other jurisdiction of incorporation) | (IRS Employer ID No.) |
2 Park Plaza
Suite 1200B
Irvine, CA 92614
(Address of principal executive offices)
(949) 652-6838
(Issuer’s Telephone Number)
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: Yes þ No o
Indicate by check mark whether the registrant has submitted electronically 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). Yes þ No o
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 | o | Accelerated filer | o |
| Non-accelerated filer | o | Smaller reporting company | þ |
| Emerging growth company | þ |
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. þ Yes o No
The number of shares of the registrant’s only class of common stock issued and outstanding as of November 9, 2018, was 17,960,741 shares.
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CANNAPHARMARX, INC.
| September | December 31, | |||||||
| 2018 | 2017 | |||||||
| (unaudited) | (audited) | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 682,059 | $ | – | ||||
| Due from related party | 76,699 | – | ||||||
| Total current assets | 758,758 | – | ||||||
| Total Assets | $ | 758,758 | $ | – | ||||
| LIABILITIES & STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 643,294 | $ | 604,542 | ||||
| Accounts payable-related party | 6,000 | – | ||||||
| Accrued interest | 9,411 | – | ||||||
| Accrued legal settlement payable in cash | 190,000 | 190,000 | ||||||
| Accrued expense - related party | 150,000 | 150,000 | ||||||
| Convertible notes | 905,000 | – | ||||||
| Loan payable - related party | 19,758 | 19,758 | ||||||
| Total current liabilities | 1,923,463 | 964,300 | ||||||
| Total Liabilities | 1,923,463 | 964,300 | ||||||
| Stockholders' Equity: | ||||||||
| Preferred stock, $0.0001 par value, 10,000,000 shares authorized, 60,000 and -0- shares issued and outstanding, as of September 30, 2018 and December 31, 2017, respectively | 60,000 | – | ||||||
| Common stock, $0.0001 par value; 100,000,000 shares authorized, 17,960,741 and 17,960,741 issued and outstanding, respectively as of September 30, 2018 and December 31, 2017, respectively | 1,796 | 1,796 | ||||||
| Additional paid in capital | 33,835,067 | 32,930,067 | ||||||
| Retained earnings (deficit) | (35,061,568 | ) | (33,896,163 | ) | ||||
| Total Stockholders' Deficit | (1,164,705 | ) | (964,300 | ) | ||||
| Total Liabilities and Stockholders' Deficit | $ | 758,758 | $ | – | ||||
The accompanying notes are an integral part of these financial statements.
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CANNAPHARMARX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
| For the Three Months | For the Nine Months | |||||||||||||||
| Ended September 30, | Ended September 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Revenue | $ | – | $ | – | $ | – | $ | – | ||||||||
| Operating Expenses: | ||||||||||||||||
| General and administrative expenses | 3,924 | – | 4,075 | – | ||||||||||||
| Travel | 17,309 | – | 25,299 | – | ||||||||||||
| Rent | 3,000 | – | 6,000 | – | ||||||||||||
| Professional fees | 125,261 | – | 148,011 | – | ||||||||||||
| Consulting fees | – | – | 21,609 | – | ||||||||||||
| Consulting fees- related parties | 31,000 | – | 46,000 | 1,667 | ||||||||||||
| Total operating expenses | 180,494 | – | 250,994 | 1,667 | ||||||||||||
| Income (loss) from operations | (180,494 | ) | (250,994 | ) | (1,667 | ) | ||||||||||
| Other income (expense) | ||||||||||||||||
| Interest expense | (914,411 | ) | – | (914,411 | ) | – | ||||||||||
| Total other expense | (914,411 | ) | – | (914,411 | ) | – | ||||||||||
| Income (loss) before provision for income taxes | (1,094,905 | ) | – | (1,165,405 | ) | (1,667 | ) | |||||||||
| Provision (credit) for income tax | – | – | ||||||||||||||
| Net income (loss) | $ | (1,094,905 | ) | $ | – | $ | (1,165,405 | ) | (1,667 | ) | ||||||
| Net income (loss) per share | ||||||||||||||||
| (Basic and fully diluted) | $ | (0.06 | ) | $ | – | $ | (0.06 | ) | $ | (0.00 | ) | |||||
| Weighted average number of shares outstanding | 17,960,741 | 17,960,741 | 17,960,741 | 17,960,741 | ||||||||||||
The accompanying notes are an integral part of these financial statements.
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CANNAPHARMARX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
| For the Nine Months | ||||||||
| Ended September 30, | ||||||||
| 2018 | 2017 | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net income (loss) | $ | (1,165,405 | ) | $ | (1,667 | ) | ||
| Amortization of debt discount | 905,000 | – | ||||||
| Changes in operating assets and liabilities | ||||||||
| (Increase)/decrease in prepaid expenses | – | 1,667 | ||||||
| Increase/(Decrease) in accounts payable and accrued expenses | 54,163 | – | ||||||
| Net cash provided by (used for) operating activities | (206,242 | ) | – | |||||
| Cash Flows From Investing Activities: | ||||||||
| Net cash provided by (used for) investing activities | – | – | ||||||
| Cash Flows From Financing Activities: | ||||||||
| Refundable deposit on acquisition | (76,699 | ) | – | |||||
| Proceeds from the sale of convertible notes | 905,000 | – | ||||||
| Proceeds from the sale of preferred stock | 60,000 | – | ||||||
| Net cash provided by (used for) financing activities | 888,301 | – | ||||||
| Net Increase (Decrease) In Cash | 682,059 | – | ||||||
| Cash At The Beginning Of The Period | – | – | ||||||
| Cash At The End Of The Period | $ | 682,059 | $ | – | ||||
| Supplemental Disclosure | ||||||||
| Cash paid for interest | $ | – | $ | – | ||||
| Cash paid for income taxes | $ | – | $ | – | ||||
The accompanying notes are an integral part of these financial statements.
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CANNAPHARMARX, INC.
For the Three and Nine Month Interim Periods Ended September 30, 2018 and 2017
| NOTE 1. | NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES |
NATURE OF OPERATIONS
BUSINESS
CannaPharmaRx, Inc. (the “Company”) is a Delaware corporation. 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. The proposed business activities described herein classify us as a “shell” company. Rule 12b-2 of the 34 Act defines a shell company as a company that has:
(1) No or nominal operations; and
(2) Either:
(i) No or nominal assets;
(ii) Assets consisting solely of cash and cash equivalents; or
(iii) Assets consisting of any amount of cash and cash equivalents and nominal other assets.
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 other 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.”
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As a result of the aforesaid transactions, the Company became an early-stage pharmaceutical company whose purpose was to advance cannabinoid research and discovery using proprietary formulation and drug delivery technology then under development.
In April 2016, the Company ceased operations. Its then management resigned their respective positions with the Company, with the exception of Mr. Gary Herick, who remains as an officer and director.
As a result, the Company is now considered a “shell” company as defined under the Securities Exchange Act of 1934, as amended.
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 current presentation.
USE OF ESTIMATES
The preparation of our financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates. Due to uncertainties inherent in the estimation process, it is possible that these estimates could be materially revised within the next year.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly liquid debt instruments with original maturities of less than three months.
PROPERTY AND EQUIPMENT
As of September 30, 2018 and December 31, 2017, the Company had no fixed assets on hand.
Depreciation expenses have been calculated using the straight-line method over the estimated useful lives of the respective assets, ranging from three to seven years. The Company has not recorded any depreciation expense since December 31, 2015 since it has not had any fixed asserts since that time.
IMPAIRMENT OF LONG-LIVED AND INTANGIBLE ASSETS
In the event that facts and circumstances indicated that the cost of long-lived and intangible assets may be impaired, an evaluation of recoverability will be performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset will be compared to the asset’s carrying amount to determine if a write-down to market value or discounted cash flow value will be required. The Company had no intangible assets at September 30, 2018 or December 31, 2017.
FAIR VALUE MEASUREMENTS
The estimated fair value for financial instruments was determined at discrete points in time based on relevant market information. These estimates involved uncertainties and could not be determined with exact precision. The fair value of the Company’s financial instruments, which include cash, prepaid expenses, convertible notes, accounts payable and accrued expenses and the 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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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. | |||
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.
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.
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Stock options outstanding at September 30, 2018 to purchase 750,000 shares of common stock are excluded from the calculations of diluted net loss per share since their effect is antidilutive.
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.
BUSINESS SEGMENT
The Company’s activities during the three-month and nine month periods ended September 30, 2018, and the year ended December 31, 2017, 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.
| NOTE 2. | GOING CONCERN AND LIQUIDITY |
The Company had $682,059 cash on hand as of September 30, 2018 and no revenue-producing business or other sources of income. Additionally, as of September 30, 2018, the Company had outstanding liabilities totaling $1,923,463 and a stockholders’ deficit of $1,164,705. The Company had a working capital deficit of $1,164,705 at September 2018.
In the Company’s financial statements for the fiscal years ended December 31, 2017 and 2016, the Reports of the Independent Registered Public Accounting Firm include an explanatory paragraph that describes substantial doubt about our ability to continue as a going concern. 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 our current financial projections, we believe we do not have sufficient existing cash resources to fund our 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.
| NOTE 3. | DUE FROM RELATED PARTY |
As of September 30, 2018, the Company had a $76,699 receivable from a related party, compared to $-0- as of December 31, 2017. This amount was paid to a company controlled by the Company’s Chief Executive Officer to assist the Company in locating acquisition targets. In the event that no acquisition targets are located and consummated, the deposit made by the Company, becomes fully refundable. If an acquisition by the Company is successfully consummated due to the efforts of the related party; the full amount of $76,699 will be paid as a fee to the related party and immediately expensed by the Company, as an acquisition cost.
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| NOTE 4. | ACCOUNTS PAYABLE AND ACCRUED EXPENSES |
The following table sets forth the components of the Company’s accrued liabilities at September 30, 2018 and December 31, 2017:
| September 30, 2018 | December 31, 2017 | |||||||
| Accounts payable and accrued expenses | $ | 643,294 | $ | 604,592 | ||||
| Accounts payable related party | 6,000 | – | ||||||
| Accrued interest | 9,411 | – | ||||||
| Accrued expense related party | 150,000 | 150,000 | ||||||
| Notes payable-related party | 19,758 | 19,758 | ||||||
| Total | $ | 828,463 | $ | 774,300 | ||||
Accounts payable and accrued expenses, and accounts payable related parties are comprised primarily of accounts payable balances.
Accrued interest relates to interest on convertible notes
Accrued expense related party is comprised of accrued salaries and fees for officers and former directors of the Company. Notes payable -related party represents advance made to the Company to pay certain expenses of the Company in prior periods when the Company had no cash on hand. During the nine month period ended September 30, 2018, the Company paid $46,000 in related party consulting fees to officers and directors.
Additionally, the accrued legal settlements payable as of September 30, 2018 and December 31, 2017 totaled $190,000 as discussed in Note 7 (Litigation and Accrued Settlement Liabilities).
NOTE 5. CONVERTIBLE NOTES
In July 2018, the Company commenced an offering of up to $2 million of one year maturity convertible notes (“Notes”). These Notes carry both a voluntary conversion feature, and an automatic conversion feature. The Notes carry an interest rate of 12%, and are convertible into shares of the Company’s common stock.
Automatic conversion feature
If the Company issues equity securities (“Equity Securities”) in a transaction or series of related transactions resulting in aggregate gross proceeds to the Company of at least $5,000,000, including conversion of the Notes and any other indebtedness, or issuance of Equity Securities in connection with any business combination, including a merger or acquisition (a “Qualified Financing”), then the Notes, and any accrued but unpaid interest thereon, will automatically convert into the equity securities issued pursuant to the Qualified Financing at a conversion price equal to the lesser of (i) 50% of the per share price paid by the purchasers of such equity securities in the Qualified Financing or (ii) $0.40 per share.
Voluntary conversion feature
If these Notes have not been previously converted pursuant to a Qualified Financing, then, upon Holders election prior to the Maturity Date or effective upon the Maturity Date, the Holder may elect to convert their Notes into shares of the Company’s Common Stock at a conversion price equal to the lesser of (i) 50% of the market price for the Company’s Common Stock as of the Maturity Date or (ii) $0.40 per share.
During the period ended September 30, 2018, the Company received $905,000 in proceeds from the sale of convertible notes to six accredited investors.
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Based on current activities Company believes it is highly probable that the Notes will be subject to the automatic conversion feature prior to the maturity date of the Notes. As a result, the Company did not record a derivate liability associated with these Notes. The Company calculated a beneficial conversion feature of $905,000 and record the full amount as interest expense during the period ended September 30, 2018 because the Notes can be immediately converted without a waiting period.
The offering remains open as of the date of this Report.
| NOTE 6. | OPERATING LEASE |
On April 1, 2018 the Company changed its principal place of business to 2 Park Plaza, Suite 1200 – B. Irvine, CA. 92614, phone 949-652-6838. This space is provided to us on a twelve-month term at the rate of $1,000 per month by a company to which Mr. Nicosia, one of the Company’s directors, serves as Chief Executive Officer. As of September 30, 2018, $6,000 was due under this operating lease.
| NOTE 7. | LITIGATION AND ACCRUED SETTLEMENT LIABILITIES |
At September 30, 2018, the Company was not party to any legal proceeding, nor had it received any notice of any pending action against it.
| NOTE 8. | INCOME TAXES |
As of September 30, 2018, the Company has approximately $6,580,000 of federal net operating loss carryforwards. 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 carry forwards could be subject to annual limitations against taxable income in future periods which could substantially limit the eventual utilization of such carry forwards. 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 carry forward 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 September 30, 2018, 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.
NOTE 9. STOCKHOLDERS’ EQUITY
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 $0.0001 per share. The Board of Directors may, without stockholder approval, determine the dividend rates, redemption prices, preferences on liquidation or dissolution, conversion rights, voting rights and any other preferences.
In April 2018, the Company issued 60,000 shares of its Series A Convertible Preferred Stock at a price of $1.00 per share to its current management, all of whom are accredited investors. 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 in to which each share of Series A Convertible Preferred Stock is convertible; |
| · | Each Series A Preferred Share is convertible into 1,250 shares of Common Stock; |
| · | not redeemable. |
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The beneficial conversion (“BCF”) feature attributed to the purchase of Preferred Stock was deemed to have no value on the date of purchase for the following reasons:
| Ø | There was no public trading market for the Convertible Preferred Stock and none is expected to develop in the future. |
| Ø | Any shares of Common Stock underlying the Preferred Stock to be issued upon conversion would not be eligible for any exemption from registration pursuant to Rule 144 for a period of one (1) year from the date which the Company ceases being deemed a shell company. |
| Ø | Currently, there is a very limited trading market for the Company's Common Stock. |
| Ø | The Company had no business activity for the prior twenty-four (24) month period; |
| Ø | The Company has limited assets and substantial liabilities. |
Therefore, therefore the BCF related to the Preferred Shares was considered to have no value on the date of issuance.
There were 60,000 shares of preferred stock issued and outstanding as of September 30, 2018 and December 31, 2017, respectively.
COMMON STOCK
The Company is authorized to issue 100,000,000 shares of common stock, par value $0.0001 per share. As of September 30, 2018 and December 31, 2017, 17,960,741 shares of common stock were issued and outstanding.
RECENT ISSUANCES OF COMMON STOCK
No common shares have been issued subsequent to June 25, 2015.
STOCK OPTIONS
During the nine month periods ended September 30, 2018 and 2017, the Company did not record any stock-based compensation expense.
NOTE 10. SUBSEQUENT EVENTS
Subsequent to September 30, 2018 through the date of this Report, the Company accepted aggregate subscriptions from accredited investors for $1,157,000 of one year maturity 12% convertible notes. The terms of these Notes are described in Note #5. “Convertible Notes” of the Company’s financial statements. None of the Notes have been converted.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial statements and notes thereto included herein. In connection with, and because we desire to take advantage of, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we caution readers regarding certain forward looking statements in the following discussion and elsewhere in this report and in any other statement made by, or on our behalf, whether or not in future filings with the Securities and Exchange Commission. Forward looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward looking statements made by, or on our behalf. We disclaim any obligation to update forward-looking statements.
Overview and History
We were originally incorporated in the State of Colorado in August 1998 under the name “Network Acquisitions, Inc.” We changed our name to Cavion Technologies, Inc. in February 1999 and subsequently to Concord Ventures, Inc. in October 2006.
On December 21, 2000, we filed for protection under Chapter 11 of the United States Bankruptcy Code. In connection with the filing, on February 16, 2001, we sold our entire business, and all of our assets, for the benefit of our creditors. After the sale, we still had liabilities of $8.4 million and were subsequently dismissed by the Court from the Chapter 11 reorganization, effective March 13, 2001, at which time the last of our remaining directors resigned. On March 13, 2001, we had no business or other source of income, no assets, no employees or directors, outstanding liabilities of approximately $8.4 million and had terminated our duty to file reports under securities law. In February 2008, we were re-listed on the OTC Bulletin Board.
In April 2010, we re-domiciled in Delaware under the name CCVG, Inc. (“CCVG”). Effective December 31, 2010, CCVG completed an Agreement and Plan of Merger and Reorganization (the “Reorganization") which provided for the merger of two of our wholly owned subsidiaries. As a result of this reorganization our name was changes to “Golden Dragon Inc.”, which became the surviving publicly quoted parent holding company.
On May 9, 2014, we entered into a Share Purchase Agreement (the “Share Purchase Agreement”) with CannaPharmaRx, Inc., a Colorado corporation (“Canna Colorado”), and David Cutler, a former President, Chief Executive Officer, Chief Financial Officer and director of our Company. Under the Share Purchase Agreement, Canna Colorado purchased 1,421,120 shares of our common stock from Mr. Cutler and an additional 9,000,000 restricted common shares directly from us.
On May 15, 2014, as amended and effective January 29, 2015, we entered into an Agreement and Plan of Merger (the “Merger”) pursuant to which Canna Colorado became a subsidiary of our Company. In October 2014, we changed our legal name to “CannaPharmaRx, Inc.”
Pursuant to the Merger, all of the shares of our common stock previously owned by Canna Colorado were cancelled. As a result of the aforesaid transactions we became an early-stage pharmaceutical company whose purpose was to advance cannabinoid research and discovery using proprietary formulation and drug delivery technology then under development.
In April 2016, we ceased operations. Our then management resigned their respective positions with our Company, with the exception of Mr. Gary Herick, who remains as one of our officers and directors.
Our executive offices are located at Our principal place of business is located at 2 Park Plaza, Suite 1200B, Irvine, CA, 92614, phone (949) 652-6838. Our website address is www.cannapharmarx.com.
Because we have not generated any revenues during our prior two years, following is our Plan of Operation.
PLAN OF OPERATION
As of the date of this Report we intend to engage in what we believe to be synergistic acquisitions or joint ventures with a company or companies that we believe will enhance our business plan. Ultimately, our intent is to become a national or internationally branded cannabis cultivation company, or otherwise engage in the cannabis industry. However, if an opportunity in another industry arises we will review that opportunity as well. One of the benefits to our being a reporting and publicly traded company, is to allow us to utilize our securities as consideration for some, or all of the purchase price of these potential acquisitions. There are no assurances we will be able to consummate any acquisitions using our securities as consideration, or at all.
There are numerous things that will need to occur in order to allow us to implement this aspect of our business plan and there are no assurances that any of these developments will occur, or if they do occur, that we will be successful in fully implementing our plan.
| 13 |
Management will seek out and evaluate businesses for acquisition. The integrity and reputation of any potential acquisition candidate will first be thoroughly reviewed to ensure it meets with management’s standards. Once targeted as a potential acquisition candidate, we will enter into negotiations with the potential candidate and commence due diligence evaluation, including its financial statements, cash flow, debt, location and other material aspects of the candidate’s business. If we are successful in our attempts to acquire a company or companies utilizing our securities as part or all of the consideration to be paid, our current shareholders will incur dilution.
In implementing a structure for a particular acquisition, we may become a party to a merger, consolidation, reorganization, joint venture, asset purchase, or licensing agreement with another corporation or entity. We may also acquire stock or assets of an existing business. Upon the consummation of a transaction, it is likely that our present management and shareholders will no longer be in control of our Company.
As part of our investigation, our officers and directors will meet personally with management and key personnel, may visit and inspect material facilities, obtain independent analysis of verification of certain information provided, check references of management and key personnel, and take other reasonable investigative measures, to the extent of our limited financial resources and management expertise. The manner in which we participate in an acquisition will depend on the nature of the opportunity, the respective needs and desires of us and other parties, the management of the acquisition candidate and our relative negotiation strength.
We will participate in an acquisition only after the negotiation and execution of appropriate written agreements. Although the terms of such agreements cannot be predicted, generally such agreements will require some specific representations and warranties by all of the parties thereto, will specify certain events of default, will detail the terms of closing and the conditions which must be satisfied by each of the parties prior to and after such closing, will outline the manner of bearing costs, including costs associated with our attorneys and accountants, will set forth remedies on default and will include miscellaneous other terms.
Depending upon the nature of the acquisition, including the financial condition of the acquisition company, as a reporting company under the Securities Exchange Act of 1934 (“34 Act “), it will be necessary for such acquisition candidate to provide independent audited financial statements. We will not acquire any entity which cannot provide independent audited financial statements within a reasonable period of time after closing of the proposed transaction. If such audited financial statements are not available at closing, or within time parameters necessary to insure our compliance with the requirements of the 34 Act, or if the audited financial statements provided do not conform to the representations made by the candidate to be acquired in the closing documents, the closing documents will provide that the proposed transaction will be voidable, at the discretion of our present management. If such transaction is voided, the agreement will also contain a provision providing for the acquisition entity to reimburse us for all costs associated with the proposed transaction.
As of the date of this Report we are engaged in discussions with various companies but there are no assurances that these discussions will result in any definitive agreement. There is no significant material acquisition that is probable to be consummated and there are no assurances that any such acquisition will occur in the future.
We believe there are certain perceived benefits to being a public company whose securities are publicly traded, including the following:
| · | increased visibility in the financial community; |
| · | increased valuation; |
| · | greater ease in raising capital; |
| · | compensation of key employees through stock options for which there may be a market valuation; and |
| · | enhanced corporate image. |
There are also certain perceived disadvantages to being a trading company including the following:
| · | required publication of corporate information; |
| · | required filings of periodic and episodic reports with the Securities and Exchange Commission. |
| 14 |
Business entities, if any, which may be interested in a combination with us may include the following:
| · | a company for which a primary purpose of becoming public is the use of its securities for the acquisition of assets or businesses; |
| · | a company which is unable to find an underwriter of its securities or is unable to find an underwriter of securities on terms acceptable to it; |
| · | a company which wishes to become public with less dilution of its securities than would occur upon an underwriting; |
| · | a company which believes that it will be able to obtain investment capital on more favorable terms after it has become public; |
| · | a foreign company which may wish an initial entry into the United States securities market; |
| · | a special situation company, such as a company seeking a public market to satisfy redemption requirements under a qualified Employee Stock Option Plan; |
| · | a company seeking one or more of the other perceived benefits of becoming a public company. |
A business combination with a private company will normally involve the transfer to the private company of the majority of our issued and outstanding common stock and the substitution by the private company of its own management and board of directors.
The proposed business activities described herein classify us as a “shell” company. The Securities and Exchange Commission and certain states have enacted statutes, rules and regulations regarding the sales of securities of shell companies, as well as limitations on a shareholder’s ability to sell their “restricted” securities. Rule 144 is not available to a shareholder of a shell company unless and until the Company files a registration statement with the SEC that includes certain specific information about existing business operations of a registrant and thereafter must wait an additional one year to take advantage of that exemption from registration.
Rule 12b-2 of the 34 Act defines a shell company as a company that has:
(1) No or nominal operations; and
(2) Either:
(i) No or nominal assets;
(ii) Assets consisting solely of cash and cash equivalents; or
(iii) Assets consisting of any amount of cash and cash equivalents and nominal other assets.
We will continue to file all reports required of us under the Exchange Act until a business combination has occurred, or we organically build our business from cash raised from investors. A business combination will normally result in a change in control and management of our Company. Since a principal benefit of a business combination with us would normally be considered our status as a reporting company, it is anticipated that we will continue to file reports under the Exchange Act following a business combination. No assurance can be given that this will occur or, if it does, for how long.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2018, we had $682,059 in cash.
We have no revenue-producing operations or other source of income as of the date of this Report, nor have we had any revenue during the past 3 years. See “Plan of Operation” above herein for an explanation of our current business activities.
| 15 |
Recent Financings
In April 2018, we issued 60,000 shares of our Series A Convertible Preferred Stock at a price of $1.00 per share to our current management, all of whom are accredited investors. Each share of Series A Convertible Preferred Stock is convertible into 1,250 shares of common stock and vote on an as converted basis. The rights and designations of these Preferred Shares include the following:
| · | entitles the holder thereof to 1,250 votes on all matters submitted to a vote of the shareholders; |
| · | The holders of outstanding Series A Convertible Preferred Stock shall only be entitled to receive dividends upon declaration by the Board of Directors of a dividend payable on our Common Stock whereupon the holders of the Series A Convertible Preferred Stock shall receive a dividend on the number of shares of Common Stock in to which each share of Series A Convertible Preferred Stock is convertible; |
| · | Each Series A Preferred Share is convertible into 1,250 shares of Common Stock; and |
| · | not redeemable. |
In July 2018, we commenced a private offering of up to $2,000,000 of 12% Convertible Debentures. Each Convertible Debenture is convertible into shares of our common stock at the lesser of $0.40 or a 50% of the closing market price on the date a business combination valued at greater than $5,000,000 is completed., Through the period ended September 30, 2018 we received $905,000 in subscriptions under this offering. Subsequent to September 30, 2018 through the date of this Report we received an additional $1,157,000 in subscriptions under this offering. The Convertible Debenture is being offered in reliance upon Rule 506 of Regulation D. We intend to use the proceeds from this offering for working capital.
We must raise additional funds to support our expected operating plan and our continued operations. We cannot provide any assurances that we will be able to raise such funds or whether we would be able to raise such funds on terms that are favorable to us. We may seek to borrow monies from lenders at commercial rates, but such lenders will probably be at higher than bank rates, which higher rates could, depending on the amount borrowed, render the net operating income of any of our planned profitable businesses insufficient to cover the interest burden.
Currently, we have no committed source for any funds as of the date hereof. No representation is made that any funds will be available when needed. In the event funds cannot be raised if and when needed, we may not be able to carry out our business plan and could fail in business as a result of these uncertainties.
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, 2018.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are a smaller reporting company and are not required to provide the information under this item pursuant to Regulation S-K.
| 16 |
ITEM 4. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures - Our management, with the participation of our Chief Executive Officer 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 of 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.
Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2018 at the reasonable assurance level. 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 Chief Executive Officer 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 - There were no changes in our internal control over financial reporting during the period ended September 30, 2018 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.
| 17 |
We are not party to any material legal proceedings, nor have any such actions been threatened against us.
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
In April 2018, we issued 60,000 shares of our Series A Convertible Preferred Stock at a price of $1.00 per share to our current management, all of whom are accredited investors. Each share of Series A Convertible Preferred Stock is convertible into 1,250 shares of common stock and vote on an as converted basis. The rights and designations of these Preferred Shares include the following:
| · | entitles the holder thereof to 1,250 votes on all matters submitted to a vote of the shareholders; |
| · | The holders of outstanding Series A Convertible Preferred Stock shall only be entitled to receive dividends upon declaration by the Board of Directors of a dividend payable on our Common Stock whereupon the holders of the Series A Convertible Preferred Stock shall receive a dividend on the number of shares of Common Stock in to which each share of Series A Convertible Preferred Stock is convertible; |
| · | Each Series A Preferred Share is convertible into 1,250 shares of Common Stock; and |
| · | not redeemable. |
In order to cover the costs associated with identifying and performing due diligence on prospective acquisitions candidates, in July 2018, we commenced a private offering of up to $2,000,000 of 12% Convertible Debentures. Each Convertible Debenture is convertible into shares of our common stock at the lesser of $0.40 or a 50% of the closing market price on the date a business combination valued at greater than $5,000,000 is completed. To date, we have received $905,000 in subscriptions under this offering. The Convertible Debenture is being offered in reliance upon Rule 506 of Regulation D. We intend to use the proceeds from this offering on working capital.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURE
Not Applicable
None
| 18 |
| Exhibit No. | Description | |
| 31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS | XBRL Instances Document | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
| 19 |
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 13, 2018.
| CannaPharmaRx, Inc. | |||
| By: | /s/ Dominic Colvin | ||
| Dominic Colvin, | |||
| Principal Executive Officer | |||
| By: | /s/ Gary Herick | ||
|
Gary Herick, Principal Financial Officer and |
|||
| Principal Accounting Officer | |||
| 20 |
EXHIBIT 31.1
CERTIFICATION PURSUANT TO
18 USC, SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES OXLEY ACT OF 2002
I, Dominic Colvin, 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 procedure to be designed under our supervision, to ensure that material information relating to the registrant, 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 13, 2018 | /s/ Dominic Colvin | |
| Dominic Colvin, Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION PURSUANT TO
18 USC, SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES OXLEY ACT OF 2002
I, Gary Herick, 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 procedure to be designed under our supervision, to ensure that material information relating to the registrant, 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 13, 2018 | /s/ Gary Herick | |
| Gary Herick, Chief 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 period ended September 30, 2018, as filed with the Securities and Exchange Commission on November 13, 2018 (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 13, 2018 | /s/ Dominic Colvin |
| Dominic Colvin, Chief Executive Officer | |
| Dated: November 13, 2018 | /s/ Gary Herick |
| Gary Herick, Chief Financial Officer |
Document and Entity Information - shares |
9 Months Ended | |
|---|---|---|
Sep. 30, 2018 |
Nov. 09, 2018 |
|
| Document And Entity Information | ||
| Entity Registrant Name | CannaPharmaRX, Inc. | |
| Entity Central Index Key | 0001081938 | |
| Document Type | 10-Q | |
| Document Period End Date | Sep. 30, 2018 | |
| Amendment Flag | false | |
| Current Fiscal Year End Date | --12-31 | |
| Is Entity's Reporting Status Current? | No | |
| Entity Filer Category | Non-accelerated Filer | |
| Entity Common Stock, Shares Outstanding | 17,960,741 | |
| Document Fiscal Period Focus | Q3 | |
| Document Fiscal Year Focus | 2018 | |
| Entity Emerging Growth Company | true | |
| Entity Small Business | true | |
| Entity Ex Transition Period | false |
Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Preferred shares, par value | $ 0.0001 | $ .0001 |
| Preferred shares, authorized | 10,000,000 | 10,000,000 |
| Preferred shares, issued | 60,000 | 0 |
| Preferred shares, outstanding | 60,000 | 0 |
| Common stock, par value | $ 0.0001 | $ .0001 |
| Common stock, authorized | 100,000,000 | 100,000,000 |
| Common stock, issued | 17,960,741 | 17,960,741 |
| Common stock, outstanding | 17,960,741 | 17,960,741 |
Consolidated Statements of Operations (Unaudited) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
| Income Statement [Abstract] | ||||
| Revenue | $ 0 | $ 0 | $ 0 | $ 0 |
| Operating Expenses: | ||||
| General & administrative | 3,924 | 0 | 4,075 | 0 |
| Travel | 17,309 | 0 | 25,299 | 0 |
| Rent | 3,000 | 0 | 6,000 | 0 |
| Professional fees | 125,261 | 0 | 148,011 | 0 |
| Consulting fees | 0 | 0 | 21,609 | 1,667 |
| Consulting fees - related parties | 31,000 | 0 | 46,000 | 0 |
| Total operating expenses | 180,494 | 0 | 250,994 | 1,667 |
| Income (loss) from operations | (180,494) | 0 | (250,994) | (1,667) |
| Other income (expense) | ||||
| Interest expense | (914,411) | 0 | (914,411) | 0 |
| Total other expense | (914,411) | 0 | (914,411) | 0 |
| Income (loss) before provision for income taxes | (1,094,905) | 0 | (1,165,405) | (1,667) |
| Provision (credit) for income tax | 0 | 0 | 0 | 0 |
| Net income (loss) | $ (1,094,905) | $ 0 | $ (1,165,405) | $ (1,667) |
| Weighted average number of shares outstanding | 17,960,741 | 17,960,741 | 17,960,741 | 17,960,741 |
1. Nature of Operations and Significant Accounting Policies |
9 Months Ended | |||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | ||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||
| Nature of Operations and Significant Accounting Policies |
NATURE OF OPERATIONS
BUSINESS
CannaPharmaRx, Inc. (the “Company”) is a Delaware corporation. 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. The proposed business activities described herein classify us as a “shell” company. Rule 12b-2 of the 34 Act defines a shell company as a company that has:
(1) No or nominal operations; and (2) Either: (i) No or nominal assets; (ii) Assets consisting solely of cash and cash equivalents; or (iii) Assets consisting of any amount of cash and cash equivalents and nominal other assets.
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 other 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.”
As a result of the aforesaid transactions, the Company became an early-stage pharmaceutical company whose purpose was to advance cannabinoid research and discovery using proprietary formulation and drug delivery technology then under development.
In April 2016, the Company ceased operations. Its then management resigned their respective positions with the Company, with the exception of Mr. Gary Herick, who remains as an officer and director.
As a result, the Company is now considered a “shell” company as defined under the Securities Exchange Act of 1934, as amended.
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 current presentation.
USE OF ESTIMATES
The preparation of our financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates. Due to uncertainties inherent in the estimation process, it is possible that these estimates could be materially revised within the next year.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly liquid debt instruments with original maturities of less than three months.
PROPERTY AND EQUIPMENT
As of September 30, 2018 and December 31, 2017, the Company had no fixed assets on hand.
Depreciation expenses have been calculated using the straight-line method over the estimated useful lives of the respective assets, ranging from three to seven years. The Company has not recorded any depreciation expense since December 31, 2015 since it has not had any fixed asserts since that time.
IMPAIRMENT OF LONG-LIVED AND INTANGIBLE ASSETS
In the event that facts and circumstances indicated that the cost of long-lived and intangible assets may be impaired, an evaluation of recoverability will be performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset will be compared to the asset’s carrying amount to determine if a write-down to market value or discounted cash flow value will be required. The Company had no intangible assets at September 30, 2018 or December 31, 2017.
FAIR VALUE MEASUREMENTS
The estimated fair value for financial instruments was determined at discrete points in time based on relevant market information. These estimates involved uncertainties and could not be determined with exact precision. The fair value of the Company’s financial instruments, which include cash, prepaid expenses, convertible notes, accounts payable and accrued expenses and the related party loans, each approximate their carrying value due either to their short length to maturity or interest rates that approximate prevailing market rates.
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.
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.
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.
Stock options outstanding at September 30, 2018 to purchase 750,000 shares of common stock are excluded from the calculations of diluted net loss per share since their effect is antidilutive.
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.
BUSINESS SEGMENT
The Company’s activities during the three-month and nine month periods ended September 30, 2018, and the year ended December 31, 2017, 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. |
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2. Going Concern and Liquidity |
9 Months Ended | ||
|---|---|---|---|
Sep. 30, 2018 | |||
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||
| Going Concern and Liquidity |
The Company had $682,059 cash on hand as of September 30, 2018 and no revenue-producing business or other sources of income. Additionally, as of September 30, 2018, the Company had outstanding liabilities totaling $1,923,463 and a stockholders’ deficit of $1,164,705. The Company had a working capital deficit of $1,164,705 at September 2018.
In the Company’s financial statements for the fiscal years ended December 31, 2017 and 2016, the Reports of the Independent Registered Public Accounting Firm include an explanatory paragraph that describes substantial doubt about our ability to continue as a going concern. 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 our current financial projections, we believe we do not have sufficient existing cash resources to fund our 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. |
3. Due from Related Party |
9 Months Ended | ||
|---|---|---|---|
Sep. 30, 2018 | |||
| Related Party Transactions [Abstract] | |||
| Due from Related Party |
As of September 30, 2018, the Company had a $76,699 receivable from a related party, compared to $-0- as of December 31, 2017. This amount was paid to a company controlled by the Company’s Chief Executive Officer to assist the Company in locating acquisition targets. In the event that no acquisition targets are located and consummated, the deposit made by the Company, becomes fully refundable. If an acquisition by the Company is successfully consummated due to the efforts of the related party; the full amount of $76,699 will be paid as a fee to the related party and immediately expensed by the Company, as an acquisition cost. |
4. Accounts Payable and Accrued Expenses |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Payables and Accruals [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounts Payable and Accrued Expenses |
The following table sets forth the components of the Company’s accrued liabilities at September 30, 2018 and December 31, 2017:
Accounts payable and accrued expenses, and accounts payable related parties are comprised primarily of accounts payable balances.
Accrued interest relates to interest on convertible notes
Accrued expense related party is comprised of accrued salaries and fees for officers and former directors of the Company. Notes payable -related party represents advance made to the Company to pay certain expenses of the Company in prior periods when the Company had no cash on hand. During the nine month period ended September 30, 2018, the Company paid $46,000 in related party consulting fees to officers and directors.
Additionally, the accrued legal settlements payable as of September 30, 2018 and December 31, 2017 totaled $190,000 as discussed in Note 7 (Litigation and Accrued Settlement Liabilities). |
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5. Convertible Notes |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| Debt Disclosure [Abstract] | |
| Convertible Notes |
NOTE 5. CONVERTIBLE NOTES
In July 2018, the Company commenced an offering of up to $2 million of one year maturity convertible notes (“Notes”). These Notes carry both a voluntary conversion feature, and an automatic conversion feature. The Notes carry an interest rate of 12%, and are convertible into shares of the Company’s common stock.
Automatic conversion feature
If the Company issues equity securities (“Equity Securities”) in a transaction or series of related transactions resulting in aggregate gross proceeds to the Company of at least $5,000,000, including conversion of the Notes and any other indebtedness, or issuance of Equity Securities in connection with any business combination, including a merger or acquisition (a “Qualified Financing”), then the Notes, and any accrued but unpaid interest thereon, will automatically convert into the equity securities issued pursuant to the Qualified Financing at a conversion price equal to the lesser of (i) 50% of the per share price paid by the purchasers of such equity securities in the Qualified Financing or (ii) $0.40 per share.
Voluntary conversion feature
If these Notes have not been previously converted pursuant to a Qualified Financing, then, upon Holders election prior to the Maturity Date or effective upon the Maturity Date, the Holder may elect to convert their Notes into shares of the Company’s Common Stock at a conversion price equal to the lesser of (i) 50% of the market price for the Company’s Common Stock as of the Maturity Date or (ii) $0.40 per share.
During the period ended September 30, 2018, the Company received $905,000 in proceeds from the sale of convertible notes to six accredited investors.
Based on current activities Company believes it is highly probable that the Notes will be subject to the automatic conversion feature prior to the maturity date of the Notes. As a result the Company did not record a derivate liability associated with these Notes. The Company calculated a beneficial conversion feature of $905,000 and record the full amount as interest expense during the period ended September 30, 2018 because the Notes can be immediately converted without a waiting period.
The offering remains open as of the date of this Report. |
6. Operating Lease |
9 Months Ended | ||
|---|---|---|---|
Sep. 30, 2018 | |||
| Lessee Disclosure [Abstract] | |||
| Operating Lease |
On April 1, 2018 the Company changed its principal place of business to 2 Park Plaza, Suite 1200 – B. Irvine, CA. 92614, phone 949-652-6838. This space is provided to us on a twelve-month term at the rate of $1,000 per month by a company to which Mr. Nicosia, one of the Company’s directors, serves as Chief Executive Officer. As of September 30, 2018, $6,000 was due under this operating lease. |
7. Litigation and Accrued Settlement Liabilities |
9 Months Ended | ||
|---|---|---|---|
Sep. 30, 2018 | |||
| Commitments and Contingencies Disclosure [Abstract] | |||
| Litigation and Accrued Settlement Liabilities |
At September 30, 2018, the Company was not party to any legal proceeding, nor had it received any notice of any pending action against it. |
9. Stockholders' Equity |
9 Months Ended | |||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | ||||||||||||||||||||||||||||
| Equity [Abstract] | ||||||||||||||||||||||||||||
| Stockholders' Equity |
NOTE 9. STOCKHOLDERS’ EQUITY
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 $0.0001 per share. The Board of Directors may, without stockholder approval, determine the dividend rates, redemption prices, preferences on liquidation or dissolution, conversion rights, voting rights and any other preferences.
In April 2018, the Company issued 60,000 shares of its Series A Convertible Preferred Stock at a price of $1.00 per share to its current management, all of whom are accredited investors. 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:
The beneficial conversion (“BCF”) feature attributed to the purchase of Preferred Stock was deemed to have no value on the date of purchase for the following reasons:
Therefore, therefore the BCF related to the Preferred Shares was considered to have no value on the date of issuance.
There were 60,000 shares of preferred stock issued and outstanding as of September 30, 2018 and December 31, 2017, respectively.
COMMON STOCK
The Company is authorized to issue 100,000,000 shares of common stock, par value $0.0001 per share. As of September 30, 2018 and December 31, 2017, 17,960,741 shares of common stock were issued and outstanding.
RECENT ISSUANCES OF COMMON STOCK
No common shares have been issued subsequent to June 25, 2015.
STOCK OPTIONS
During the nine month periods ended September 30, 2018 and 2017, the Company did not record any stock-based compensation expense. |
8. Income Taxes |
9 Months Ended | ||
|---|---|---|---|
Sep. 30, 2018 | |||
| Income Tax Disclosure [Abstract] | |||
| Income Taxes |
As of September 30, 2018, the Company has approximately $6,580,000 of federal net operating loss carryforwards. 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 carry forwards could be subject to annual limitations against taxable income in future periods which could substantially limit the eventual utilization of such carry forwards. 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 carry forward 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 September 30, 2018, 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. |
10. Subsequent Events |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| Subsequent Events [Abstract] | |
| Subsequent Events |
NOTE 10. SUBSEQUENT EVENTS
Subsequent to September 30, 2018 through the date of this Report, the Company accepted aggregate subscriptions from accredited investors for $1,157,000 of one year maturity 12% convertible notes. The terms of these Notes are described in Note #5. “Convertible Notes” of the Company’s financial statements. None of the Notes have been converted. |
1. Nature of Operations and Significant Accounting Policies (Policies) |
9 Months Ended | |||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | ||||||||||||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||||||||||||
| BASIS OF PRESENTATION | 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 current presentation. |
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| USE OF ESTIMATES | USE OF ESTIMATES
The preparation of our financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates. Due to uncertainties inherent in the estimation process, it is possible that these estimates could be materially revised within the next year. |
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| CASH AND CASH EQUIVALENTS |
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly liquid debt instruments with original maturities of less than three months. |
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| PROPERTY AND EQUIPMENT | PROPERTY AND EQUIPMENT
As of September 30, 2018 and December 31, 2017, the Company had no fixed assets on hand.
Depreciation expenses have been calculated using the straight-line method over the estimated useful lives of the respective assets, ranging from three to seven years. The Company has not recorded any depreciation expense since December 31, 2015 since it has not had any fixed asserts since that time. |
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| IMPAIRMENT OF LONG-LIVED AND INTANGIBLE ASSETS |
IMPAIRMENT OF LONG-LIVED AND INTANGIBLE ASSETS
In the event that facts and circumstances indicated that the cost of long-lived and intangible assets may be impaired, an evaluation of recoverability will be performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset will be compared to the asset’s carrying amount to determine if a write-down to market value or discounted cash flow value will be required. The Company had no intangible assets at September 30, 2018 or December 31, 2017. |
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| FAIR VALUES OF ASSETS AND LIABILITIES |
FAIR VALUE MEASUREMENTS
The estimated fair value for financial instruments was determined at discrete points in time based on relevant market information. These estimates involved uncertainties and could not be determined with exact precision. The fair value of the Company’s financial instruments, which include cash, prepaid expenses, convertible notes, accounts payable and accrued expenses and the related party loans, each approximate their carrying value due either to their short length to maturity or interest rates that approximate prevailing market rates.
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.
|
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| BENEFICIAL CONVERSION FEATURES | 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. |
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| INCOME TAXES | 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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| INCOME (LOSS) PER SHARE | 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.
Stock options outstanding at September 30, 2018 to purchase 750,000 shares of common stock are excluded from the calculations of diluted net loss per share since their effect is antidilutive. |
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| STOCK-BASED COMPENSATION | 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. |
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| BUSINESS SEGMENT | BUSINESS SEGMENT
The Company’s activities during the three-month and nine month periods ended September 30, 2018, and the year ended December 31, 2017, comprised a single segment. |
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| RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS | 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. |
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4. Accounts Payable and Accrued Expenses (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Payables and Accruals [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of accounts payable and accrued liabilities |
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1. Nature of Operations and Significant Accounting Policies (Details Narrative) - USD ($) |
9 Months Ended | 12 Months Ended | |
|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Dec. 31, 2017 |
|
| Fixed assets | $ 0 | $ 0 | |
| Property and equipment useful lives | 3 to 7 years | ||
| Depreciation expense | $ 0 | $ 0 | |
| Intangible assets | 0 | 0 | |
| Asset impairment charges | $ 0 | $ 0 | $ 0 |
| Options [Member] | |||
| Antidilutive shares | 750,000 | ||
2. Going Concern and Liquidity (Details Narrative) - USD ($) |
Sep. 30, 2018 |
Dec. 31, 2017 |
Sep. 30, 2017 |
Dec. 31, 2016 |
|---|---|---|---|---|
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||
| Cash | $ 682,059 | $ 0 | $ 0 | $ 0 |
| Liabilities | 1,923,463 | 964,300 | ||
| Stockholders' Deficit | (1,164,705) | $ (964,300) | ||
| Working Capital | $ (1,164,705) |
3. Due from Related Party (Details Narrative) - USD ($) |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Related Party Transactions [Abstract] | ||
| Due from related party | $ 76,699 | $ 0 |
4. Accounts Payable and Accrued Expenses (Details) - USD ($) |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Payables and Accruals [Abstract] | ||
| Accounts payable and accrued expenses | $ 643,294 | $ 604,542 |
| Accounts payable-related party | 6,000 | 0 |
| Accrued interest | 9,411 | 0 |
| Accrued expense - related party | 150,000 | 150,000 |
| Notes payable - related party | 19,758 | 19,758 |
| Total accounts payable and accrued expenses | 828,463 | 774,300 |
| Accrued legal settlements | $ 190,000 | $ 190,000 |
5. Convertible Notes (Details Narrative) - USD ($) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
|
| Proceeds from sale of convertible notes | $ 905,000 | $ 0 |
| Convertible Notes Payable [Member] | ||
| Debt face amount | $ 2,000,000 | |
| Debt stated interest rate | 12.00% | |
| Proceeds from sale of convertible notes | $ 905,000 | |
| Beneficial conversion feature | $ 905,000 | |
8. Income Taxes (Details Narrative) |
9 Months Ended |
|---|---|
|
Sep. 30, 2018
USD ($)
| |
| Income Tax Disclosure [Abstract] | |
| Net operating loss carryforwards | $ 6,580,000 |
| Operating loss carryforward begining expiration date | Dec. 31, 2030 |
| Unrecognized tax benefits | $ 0 |
9. Stockholders' Equity (Details Narrative) - USD ($) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
|
| Stock based compensation | $ 0 | $ 0 |
| Series A Preferred Stock [Member] | ||
| Preferred stock issued, shares issued | 60,000 | |