NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

CannaPharmaRx, Inc. was originally incorporated in the state of Colorado in August 1998 as Network Acquisitions, Inc. The Company underwent several name changes over the years and, in October 2014, changed its legal name to CannaPharmaRx, Inc. (hereinafter the “Company”). The Company focuses its business efforts on the acquisition, development and operation of cannabis cultivation facilities in Canada.

On January 6, 2022, the Company entered into a 20-year operating lease with Formosa Mountain Ltd. (“Formosa”) for the use of a facility located in Cremona, Alberta, Canada. During 2022, the Company recommissioned the 55,000 square foot facility (the “Facility”) into an indoor cannabis farm with 10 growing rooms and one drying and packing room. During 2025, the Company added one additional growing room to its operations. The Facility now has six growing rooms and one drying and packing room in operation and plans to increase capacity over the next one to two years to open a second drying and packing room and to operate all 10 growing rooms.

The Company received an operating license from Health Canada on December 9, 2022, and a cannabis license from the Canada Revenue Agency on December 22, 2022, and commenced cannabis production during the year ended December 31, 2023. Our common shares are traded on the OTC Pink Sheets under the trading symbol “CPMD.”

Potential liability exposure and insurance coverage

The Company has not paid any insurance premiums since early 2024. As a result, its current insurance coverage has lapsed. The Company may be subject to claims for damages and other expenses that are not covered by insurance. The Company’s business, profitability, and growth prospects could be adversely affected in the event it is required to pay damages and incur defense costs in connection with a liability claim. There can be no assurance that the Company will be able to reinstate or obtain insurance coverage in the future in amounts, or at a cost, that would provide adequate protection.

Basis of presentation

The accompanying unaudited condensed interim consolidated financial statements (the “financial statements”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) and applicable rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2025.

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

Foreign currency translation

As at March 31, 2026, the official exchange rate for the translation of CAD to USD was 0.7174 (December 31, 2025 - 0.7296). During the three months ended March 31, 2026, the official average exchange rate for translation of CAD to USD was 0.7290 (2025 - 0.6968).

Loss per share

Loss per share is presented in accordance with Accounting Standards Update, Earnings 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 share options, share purchase warrants, and convertible securities but does include the restricted shares of common shares issued. Basic EPS calculations are determined by dividing net income by the weighted average number of shares of common shares outstanding during the year.

Diluted EPS reflects the potential dilution that would occur if securities or other contracts to issue common shares were exercised using the treasury stock method or converted to common shares using the if-converted method. Diluted EPS calculations are determined by dividing net income by the weighted average number of shares of common shares and dilutive common shares equivalents outstanding. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive. As of March 31, 2026, convertible preferred shares outstanding totaled 629,416 shares (December 31, 2025 - 629,416 shares) and share purchase warrants outstanding totaled 39,924,940 (December 31, 2025 - 39,924,940). The Company’s convertible notes were all excluded from the calculation of diluted EPS on the basis that they were anti-dilutive.

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.

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

The Company’s financial assets and liabilities comprise of cash, accounts receivable, accounts payable and accrued liabilities, accrued interest, notes payable, convertible notes, derivative conversion feature, loans payable to related parties, royalty payable and obligation to issue shares. 

The Company measures the fair value of its convertible notes, derivative conversion feature and obligation to issue shares based on Level 3 hierarchy.

There are no other financial assets or liabilities measured at fair value on a recurring basis presented on the Company’s balance sheet. As at March 31, 2026, the carrying values of the Company’s financial instruments approximate their fair values. 

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 assets, 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 impairment of long-lived assets, the valuation of financial instruments, the valuation of inventory, 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.

In preparing these financial statements, the Company is exposed to the same sources of estimation uncertainty as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025

Reclassification of prior period amounts

Rent expense for the three months ended March 31, 2025 of $1,045 has been reclassified to general and administrative expenses, and foreign exchange gain for the three months ended March 31, 2025 of $9,885 has been reclassified from general and administrative expenses and presented within other income. These reclassifications had no impact on the Company’s loss from operations or net comprehensive loss for any period presented.

Significant Accounting Policies

There have been no material changes to our significant accounting policies from our Annual Report on Form 10-K for the year ended December 31, 2025.