NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2023

Accounting Policies [Abstract]

NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

CannaPharmaRX (“CPRX” or the “Company”) was originally incorporated in the state of Colorado in August 1998 as Network Acquisitions, Inc. The Company focuses its business efforts on evaluation, negotiation, acquisition, and development cannabis cultivation projects in Canada.

On January 6, 2022, the Company entered into a 20-year operating lease with Formosa Mountain Ltd. for the use of a leased facility located in Cremona, Alberta, Canada. The facility was built in 2015 and was previously operating as a cannabis production facility until it was decommissioned, and the license cancelled by the previous owner making the facility ready for sale in 2020.

CPRX recommissioned the 55,000 square foot facility which contains 11 growing rooms and 10 drying and packing rooms into a new indoor cannabis farm during 2022. The Company received an operating license from Health Canada on December 9, 2022, and a cannabis license from the Canada Revenue Agency (“CRA”) on December 22, 2022.

On February 21, 2023, the Company entered into a supply agreement with Y.S.A. Holdings Ltd (“Y.S.A.”), an Israeli corporation, whereby the Company will supply 450kg of cannabis biomass in the form of dried flowers and dried trim per annum to Y.S.A over a two-year period. No biomass has been delivered to Y.S.A as at the date of this Report.

Under the new license the date of the first and second harvest were August 10, 2023 and September 11, 2023 respectively. The first and second harvest yielded saleable cannabis flower product of approximately 75 kilograms (“kg”) and 120 kg respectively.

Preliminary discussions with export partners would set conditional per gram pricing at approximately $3.30 Canadian dollars (“CAD”) per gram. This price would be based on achieving satisfactory test results associated to tetrahydrocannabinol (“THC”) and cannabidiol (“CBD”) content of the dried flower.

Basis of presentation

The accompanying financial statements have been prepared in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification, the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“US GAAP”).

All figures are in United States (“US”) dollars (“USD”) unless indicated otherwise.

Use of estimates

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

Cash

The Company considers all its cash in bank accounts and its highly liquid temporary cash investments with an original maturity of three months or less to be cash and cash equivalents. On September 30, 2023, the Company had cash of $nil (December 31, 2022 - cash of $2,317).

Comprehensive income or loss

ASC 220 Comprehensive Income establishes standards for the reporting and display of comprehensive income and its components in the financial statements. As at September 30, 2023, and December 31, 2022, the Company determined that it had items that represented components of comprehensive income and therefore has included a statement of comprehensive income in the financial statements.

Reclassifications

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

Leases

The Company recognizes right-of-use assets and corresponding liabilities for leases with terms greater than 12 months or leases that contain a purchase option that is reasonably certain to be exercised as either operating or finance leases at the inception of an agreement where it is determined that a lease exists. This classification of operating or finance lease determines the presentation of corresponding expenses over the lifetime of the lease.

Finance lease assets represent the right to use an underlying asset for the lease term, and finance lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are recognized based on the present value of future payments over the lease term at commencement date. A collateralized incremental borrowing rate based on the information available at commencement date, including lease term, is used in determining the present value of future payments. This incremental borrowing rate is updated in the event of a lease modification such as a renewal or option that adds time and payments to a lease. A lease term generally does not include an option to extend or terminate the lease, unless there is a reasonable certainty that the option will be exercised. Fixed payments may contain predetermined fixed rent escalations. The Company recognizes the expense related to finance leases using the effective interest rate method from the commencement date to the end of the lease term. Certain lease contracts contain non-lease components such as maintenance, utilities, fuel and other services. The Company recognizes both the lease and non-lease component for each right-of-use asset.

Short-term leases (that have an initial term less than 12 months or that are cancellable by the lessor and lessee without significant penalties) are expensed as they are incurred.

Derivative financial instruments

Terms of convertible and other promissory notes are reviewed to determine whether they contain embedded derivative instruments that are required to be accounted for separately from the host contract and recorded on the balance sheet at fair value. The fair value of derivative instruments is required to be revalued at each reporting date, with corresponding changes in fair value recorded in the current period operating results. Derivative liabilities arose due to the issuance of variably priced convertible notes. For the period ended September 30, 2023, the Company had derivative liabilities of $906,946 (December 31, 2022 - $1,008,868).

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risk.

Foreign currency translation

The functional currency and the reporting currency of the Company’s US operations is USD. The functional currency of the Company’s Canadian operations is CAD. Management adopted ASC 830 Foreign Currency Matters for transactions that occur in foreign currencies. Monetary assets denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Average monthly rates are used to translate revenues and expenses.

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

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

Harmonized sales tax

The Harmonized Sales Tax (“HST”) is a combination of the Canadian Goods and Services Tax (“GST”) and Provincial Sales Tax (“PST”) that is applied to taxable goods and services. HST is a consumption tax paid by the consumer at the point of sale (POS). The vendor or seller collects the tax proceeds from consumers by adding the HST rate to the cost of goods and services. They then remit the total collected tax, less input tax credits for HST paid to vendors, to the government periodically.

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

Stock-based compensation

The Company has adopted ASC Topic 718 Compensation - Stock Compensation, which establishes a fair value method of accounting for stock-based compensation plans. In accordance with guidance now incorporated in ASC Topic 718, the fair value of stock options and warrants issued to employees and non-employees is measured on the grant date based on the fair value. The fair value is determined using the Black-Scholes option pricing model. The resulting amount is charged to expense on a straight-line basis over the period in which the Company expects to receive the benefit, which is generally the vesting period. The fair value of share purchase warrants was determined at the date of grant using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires management to make various estimates and assumptions, including expected term, expected volatility, risk-free rate, and dividend yield. The Company had no stock options outstanding as at September 30, 2023 or December 31, 2022.

Long-lived assets

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

Fair values of assets and liabilities

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

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

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

Financial instruments

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

Income taxes

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

Earnings (loss) per share

Earnings (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 excludes any dilutive effects of options, warrants, and convertible securities but does include the restricted shares of common stock issued. Basic EPS calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding during the year.

Diluted EPS reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted to common stock. Diluted EPS calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding.

Recently issued accounting pronouncements

In August 2020, FASB issued ASU 2020-06 Accounting for Convertible Instruments and Contracts in an Entity; Own Equity (“ASU 2020-06”), as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. Among other changes, the new guidance removes separation models for convertible debt that require the convertible debt to be separated into a debt and equity component from US GAAP, unless the conversion feature is required to be bifurcated and accounted for as a derivative or the debt is issued at a substantial premium. As a result, after adopting the guidance, entities will no longer separately present such embedded conversion features in equity and will instead account for the convertible debt wholly as debt. The new guidance also requires use of the “if-converted” method when calculating the dilutive impact of convertible debt on earnings per share, which is consistent with the Company’s current accounting treatment under the current guidance. The Company adopted this guidance on January 1, 2023.

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.