| Nature of Operations and Significant Accounting Policies | NATURE OF OPERATIONS AND
SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
BUSINESS
CannaPharmaRx, Inc. (together with its consolidated subsidiaries,
the “ Company
HISTORY
The Company was originally incorporated as Golden Dragon Holding
Co. in the State of Delaware in December 2010 as a wholly-owned
subsidiary of Concord Ventures, Inc. On May 9, 2014, the
Company entered into a Share Purchase Agreement (the
“ Share Purchase Agreement Canna Colorado
On May 15, 2014, the Company entered into an Agreement and
Plan of Merger (the “ Plan of Merger Merger Agreement Acquisition
Sub Merger
On June 29, 2015, the Company closed the Merger Agreement,
with 100% of the Canna Colorado shareholders exchanging, at a 1:1
exchange ratio, a total of 9,750,000 Canna Colorado shares in
return for a total of 9,750,000 shares of the Company’s
common stock. As such, prior to the closing of the Merger, and as a
condition to the closing of the Merger, the Company issued
9,750,000 restricted shares of the Company’s common stock to
the Canna Colorado shareholders. Additionally, pursuant to the
Merger, all of the shares of the Company previously owned by Canna
Colorado were cancelled. Canna Colorado is now the wholly-owned
subsidiary of the Company.
BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiary Canna Colorado and have been prepared in accordance with
the Financial Accounting Standards Board
(“ FASB Codification GAAP
Operating results for the three and six month period ended
June 30, 2015 are not necessarily indicative of the results
that may be expected for the year ended December 31, 2015. For
more complete financial information, these unaudited consolidated
financial statements should be read in conjunction with the audited
financial statements for the year ended December 31, 2014
included in our Form 10-K filed with the SEC.
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 consolidated 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
The Company has acquired $102,800 in property and equipment, of
which $100,721 was purchased during the year ended
December 31, 2014, and another $2,078 purchased in the first
quarter of 2015. Of this amount, $50,000 represents the capitalized
cost of our proprietary RECRUIT Registry TM
In addition to the investment in our patient registry, another
$52,800 has been invested in office and computer equipment,
primarily incurred since the establishment of the Company’s
new headquarters in Carneys Point, New Jersey on November 1,
2014. Accumulated depreciation to date totaled $9,348 against these
fixed assets. Depreciation expenses totaled $3,192 and $-0- in the
quarters ended June 30, 2015 and June 30, 2014,
respectively, and were $6,327 and $-0- respectively in the six
month periods ended June 30, 2015 and 2014. 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.
DEFERRED COSTS AND OTHER OFFERING COSTS
Costs with respect to raising capital in the two private placements
of the Company’s common stock were expensed by the Company
both in 2014 and 2015. These costs were applied as internal
operational expenses. The Company had no deferred costs or other
stock offering costs as of either June 30, 2015 or
December 31, 2014.
Future costs associated with raising capital, be it debt or equity,
may more likely be incurred as a direct variable cost with third
parties. Our intent is to initially defer these costs and
ultimately offset them against the proceeds from these capital or
financial transactions if successful, or expensed if the proposed
financial transaction proves unsuccessful.
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
June 30, 2015 or December 31, 2014.
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. As of June 30, 2015 and
December 31, 2014, the Company does not have any assets or
liabilities which are considered Level 2 or 3 in the hierarchy.
The Company may also be required, from time to time, to measure
certain other financial assets at fair value on a nonrecurring
basis. These adjustments to fair value usually result from
application of lower-of-cost-or-market accounting or write-downs of
individual assets. There were no such adjustments in the periods
ended June 30, 2015, nor December 31, 2014.
FINANCIAL INSTRUMENTS
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,
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.
ADVERTISING COSTS
Advertising and promotional costs are expensed as incurred.
Advertising and promotional expenses totaled $24,440 and $25,597 in
the three month and six month periods ended June 30, 2015
respectively, compared to $11,228 for both the three and six month
periods ended June 30, 2014.
COMPREHENSIVE INCOME (LOSS)
Comprehensive income is defined as all changes in
stockholders’ equity (deficit), exclusive of transactions
with owners, such as capital investments. Comprehensive income
includes net income or loss, changes in certain assets and
liabilities that are reported directly in equity such as
translation adjustments on investments in foreign subsidiaries and
unrealized gains (losses) on available-for-sale securities. From
our inception, there have been no differences between our
comprehensive loss and net loss. Our comprehensive loss was
identical to our net loss for the three- and six-month periods
ended June 30, 2015 and 2014.
INCOME (LOSS) PER SHARE
Income (loss) per share is presented in accordance with Accounting
Standards Update (“ ASU Earning per
Share EPS
Stock options outstanding at June 30, 2015 to purchase
4,425,000 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, Accounting for
Stock-Based Compensation
On November 1, 2014, the Company granted options to purchase
shares of the Company’s common stock to each of its employees
for a total of 4,800,000 options granted. Including the
November 1, 2014 grant and all subsequent option grants, the
Company has granted a total of 5,625,000 options at exercise prices
ranging from $1.00 to $3.10. As a result of forfeitures, 4,425,000
options remain outstanding as of June 30, 2015.
During the quarter ended June 30, 2015, the Company issued
100,000 shares of the Company’s common stock to a financial
services firm as consideration for advisory and capital raising
services. These shares were valued at an aggregate of $350,000
based on the trading average of the Company’s stock over the
ten days preceding issuance of those shares and such amount was
expensed to stock-based compensation costs during the period.
Stock-based compensation expenses totaled $3,135,968 and $-0- for
the three months ended June 30, 2015 and June 30, 2014,
respectively. On a year to date basis, stock-based compensation
expenses totaled $4,075,536 and $-0- for the six months ended
June 30, 2015 and June 30, 2014, respectively.
BUSINESS SEGMENTS
Our activities during the six months ended June 30 , 2015
comprised a single segment.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
On June 10, 2014, the FASB issued update ASU 2014-10,
Development Stage Entities
The Company has reviewed all other recently issued, but not yet
effective, accounting pronouncements and do not believe the future
adoption of any such pronouncements may be expected to cause a
material impact on our financial condition or the results of our
operations. |
