Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the Company's financial condition and results of operations for the interim period as at and for the three months ended March 31, 2026 and 2025 should be read together with the Company's financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and related footnotes included on our Form 10-K for the year ended December 31, 2025.

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.

Forward-Looking Statements

This Quarterly Report on Form 10-Q includes a number of "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, including statements concerning anticipated financial results and developments of our operations in future periods that reflect management's current views with respect to future events and financial performance. Forward-looking statements are projections in respect of future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms or other comparable terminology. These statements include statements regarding the intent, belief or current expectations of us and members of our management team, as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks set forth in the section entitled "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 as filed with the U.S. Securities and Exchange Commission (the "SEC") on March 31, 2026 any of which may cause our company's or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied in our forward-looking statements. These risks and factors include, by way of example and without limitation:

	·	risks associated with the Company's history of losses and need for additional financing,
	·	risks associated with increased costs affecting its financial condition,
	·	risks associated with uninsured risks,
	·	risks associated with governmental and environmental regulations,
	·	risks associated with future legislation regarding the cannabis industry and climate change,
	·	risks associated with cybersecurity and cyber-attacks,
	·	risks associated with legal matters and claims against the Company,
	·	risks related to economic conditions,
	·	risks related to our ability to manage growth,
	·	risks related to our dependence on key personnel,
	·	risks related to our SEC filing history, and
	·	risks related to our securities.

This list is not exhaustive of the factors that may affect the Company's forward-looking statements. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those described in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, estimated or expected. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Except as required by law, the Company disclaims any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. The Company qualifies all the forward-looking statements contained in this Quarterly Report on Form 10-Q by the foregoing cautionary statements.

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Readers are urged to carefully review and consider the various disclosures made by us in this Report and in our other reports filed with the SEC. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time except as required by law. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions.

OVERVIEW AND HISTORY

As used in this Quarterly Report on Form 10-Q and unless otherwise indicated, the terms "CannaPharmaRX", the "Company", "we", "us", and "our" refer to CannaPharmaRX, Inc. and our wholly owned subsidiaries. Unless otherwise specified, all dollar amounts are expressed in United States dollars ("USD"). We specialize in the acquisition, development, and operation of cannabis cultivation facilities in Canada. We were originally incorporated in the state of Colorado in August 1998 as Network Acquisitions, Inc. In October 2014, we changed our legal name to CannaPharmaRx, Inc. We evolved to focus on producing high-quality medical cannabis and craft products. Our principal executive office is located at 302, 3204-Rideau Place SW., Calgary, Alberta, Canada T2S 1Z2.

On January 6, 2022, we entered into a 20-year operating lease for the use of a 55,000 square foot facility located in Cremona, Alberta, Canada (the "Facility"). During 2022, we recommissioned the Facility into an indoor cannabis farm with 10 growing rooms and one drying and packing room. The Facility currently operates six of these growing rooms and the drying and packing room 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.

We 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."

Growth strategy

We plan to grow by increasing our growth capacity at the Facility to support sales of cannabis to the European markets, with a focus on Germany and Israel. To support this initiative, we intend to increase the operations in the Facility from six growing rooms to 10 growing rooms over the next one to two years and to open a second drying and packing room; building and developing a sales network in Germany and Israel; and applying for European Union Good Manufacturing Practices ("EU-GMP") certification. Currently, we are required to send our cannabis to a third-party European intermediary for packaging in compliance with EU-GMP standards. Once certified, we will be able to remove this step from our delivery process and ship directly to countries within the European Union ("EU"), reducing overall costs and shipping timelines.

To facilitate our growth strategy, on November 22, 2023, we entered into an agreement with LTB Management, LLC ("LTB") in support of building and developing a sales network in the EU and obtaining access to LTB's e-commerce technology related to online sales of cannabis in the EU. Under this agreement, we obtained 100 Class B units of LTB in exchange for 27,224,962 share purchase warrants, each entitling the holders to purchase one share of our common shares at $0.02 per share until November 22, 2028; $3,000,000 in promissory notes payable to the LTB; and 100,000 Class C preferred shares of our company. Contingent consideration included a quarterly true up of LTB's preferred share proportional ownership to 33% of the outstanding shares of our common shares, and an earn out whereby LTB can earn up to an additional 12% pro-rata preferred share proportional ownership (which, if earned, will result in the true up increasing by the pro-rata preferred share proportional ownership earned) based on our reaching a threshold of $2,500,000 in annual revenue at any time within 24 months of the agreement date. As at March 31, 2026, we have an obligation to issue an additional 344,029 Class C preferred shares to LTB under the true up, valued at $1,849,155.

OUR PRODUCTS

Cannabis Products

We produce and sell dried cannabis flower, which is packaged for sale as dried flower, trim and shake. We sell dried flower for medicinal purposes. Dried flower continues to be the core of all cannabis markets globally and accordingly our focus on consistent high-quality cultivation is relentless.

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Going Concern

Substantial doubt exists as to our ability to continue as a going concern based on the fact that we do not have adequate working capital to finance our day-to-day operations. For the three months ended March 31, 2026, we reported $627,462 (2025 - $335,319) in revenue. As at March 31, 2026, we had cash of $633, a working capital deficiency of $30,556,522 and an accumulated deficit of $112,697,611. Additionally, for the three months ended March 31, 2026, we used $243,656 (2025 - $601,381) of cash in operating activities.

These financial metrics and the Company's accumulated deficit of $112,697,611 as of March 31, 2026 indicate material uncertainty over the Company's ability to continue as a going concern. Management's plans to mitigate this uncertainty involve securing additional capital in the short term primarily through sales of common shares or other instruments. Given the Company's classification as a penny stock traded on the OTC Markets, its constrained liquidity and solvency position, and the limited availability of third-party financing, management expects that any significant additional funding will most likely need to be sourced from related parties. There can be no assurance that we will be successful in completing additional financing or collaboration transactions or, if financing is available, that it can be obtained on commercially reasonable terms or in amounts sufficient to meet its obligations as they become due and support execution of its business plan. If we are not able to obtain the additional financing on a timely basis, we may be required to scale down or perhaps even cease the operations of our business. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current shareholders. Obtaining commercial or related party loans, assuming those loans would be available, will increase our liabilities and future cash commitments. We are subject to pending litigation and legal proceedings, the outcomes of which are uncertain and could result in significant costs, settlements, or judgments. While management does not currently believe these matters will have a material adverse effect, unfavorable outcomes could adversely impact the Company's liquidity, results of operations, and ability to continue as a going concern. Our financial statements include certain accruals and adjustments based on management's best estimates regarding this uncertainty; however, the ultimate resolution of these matters could differ materially from these estimates and result in additional adjustments.

On March 17, 2025, the Company and its subsidiary, 2323414 Alberta Ltd. ("Alberta Ltd."), which operates the Company's principal business activities, including the cultivation, processing, and distribution of cannabis, entered into a security and royalty agreement with Koze Investments LLC ("Koze"), a California-based limited liability company engaged in providing financing and investment services. Alberta Ltd. is a subsidiary of the Company in which Koze has been considered a related party since March 11, 2025, the date on which its manager, Elliot Zemel, was appointed as a director of the Company. Pursuant to the agreement, the Company is required to pay a royalty on cannabis product sales from the prior month. If royalty payments are not made on time, the applicable rate increases. The agreement stipulates that a default occurs if Alberta Ltd. fails to make royalty or lease payments for three consecutive months, or for any four months within a rolling six-month period. As collateral, the Company granted Koze a security interest in its entire ownership interest in Alberta Ltd., which will remain in place until all obligations are fully satisfied. As of March 31, 2026, Alberta Ltd. was in default of its payment obligations, and Koze agreed to forbear from exercising his rights over the ownership interest until May 31, 2026. The Company also incurred royalty expenses under the agreement and recorded a related liability in accounts payable and accrued liabilities as of March 31, 2026.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2026 AND 2025

Revenue

During the three months ended March 31, 2026 and 2025, the Company reported revenue of $627,462 and $335,319, respectively. The increase was primarily driven by the continued expansion of the Company's medical cannabis product line, improved distribution capabilities, increased market penetration, and the onboarding of new retail partners since late 2024.

Cost of Goods Sold

During the three months ended March 31, 2026 and 2025, the Company reported cost of goods sold of $1,036,915 and $837,926, respectively. The increase was primarily driven by higher sales volumes in 2026, which necessitated increased production activity and resulted in elevated costs related to direct materials, labor, and manufacturing overhead. Included in cost of goods sold for the three months ended March 31, 2026 and 2025 are losses on the impairment of inventory of $493,721 and $479,933, respectively, primarily based on factors including expected yield of work-in-progress inventory and corresponding market prices.

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Gross Loss

During the three months ended March 31, 2026 and 2025, the Company reported a gross loss of $409,453 and $502,607, respectively. The decrease in gross loss was primarily due to higher sales volumes, which drove stronger revenue growth that outpaced the rise in cost of goods sold.

Operating Expenses

A summary of the Company's operating expenses for the three months ended March 31, 2026 and 2025 is as follows:

		2026				2025
General and administrative		$	35,814			$	38,641
Professional fees			105,856				136,337
Royalty expense			131,220				-
		$	272,890			$	174,978

During the three months ended March 31, 2026 and 2025, the Company's operating expenses consisted primarily of general and administrative expenses, professional fees associated with the costs for services or employees in finance, accounting, sales, administrative activities and the compliance of a public company, and royalty expense. Overall operating expenses for the three months ended March 31, 2026 were $272,890 compared to operating expenses of $174,978 in the prior year comparable period, an increase of $97,912. The increase is primarily attributable to the following:

·

A $131,220 increase in royalty expense due to an agreement entered into by the Company with Koze on March 17, 2025, which did not incur royalty expenses during the prior year comparable period.

The increase was partially offset by the following decrease in operating expenses:

·

A $30,481 decrease in professional fees primarily due to lower accounting fees in the current period related to enhanced processes and cost efficiencies.

Other income (expenses)

A summary of the Company's other income and expenses for the three months ended March 31, 2026 and 2025 is as follows:

		2026				2025
Change in the fair value of derivative conversion feature		$	801,038			$	641,711
Change in the fair value of obligation to issue shares			317,527				1,880,911
Foreign exchange gain (loss)			(31,084	)			9,885
Interest expense			(475,617	)			(615,516	)
Imputed interest expense			(311,542	)			-
Other expense			-				(1,930,000	)
		$	300,322			$	(13,009	)

Other income totaled $300,322 for the three months ended March 31, 2026 compared to other expenses of $13,009 in the 2025 period, primarily due to the following:

	·	Change in the fair value of derivative conversion feature arising from variably priced convertible notes was a gain of $801,038 compared to $641,711 in the prior year comparable period. The primary drivers of these fair value changes were fluctuations in the common shares of the Company's peers as the Company's common shares trade infrequently on the OTC Markets, the remaining term to expiration of the convertible notes and the conversion feature's exercise price.
	·	A $139,899 decrease in interest expense is primarily attributable to a reduction in the interest rate for certain loans to related parties, pursuant to a debt modification agreement entered into by the Company with those related parties.
	·	A non-cash one-time adjustment of $1,930,000 in the prior year comparable period was made to lease-related rent expense due to a clarification in the interpretation of the lease terms between management and Formosa.

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The increase in other income was partially offset by the following decreases:

	·	Change in the fair value of obligation to issue shares was a gain of $317,527 compared to a gain of $1,880,911 in the 2025 comparable period resulting from remeasurement of the obligation to issue shares. Key factors influencing the measurement of the obligation to issue shares include fluctuations in the Company's common shares price and the number of common shares outstanding.
	·	A $40,969 increase in the foreign exchange loss primarily due to currency fluctuations between the USD and CAD.
	·	A $311,542 increase in imputed interest expense due to debt modification of certain loans to related parties, which resulted in a remeasurement of the liabilities and recognition of additional imputed interest expense.

Net Loss

As a result of the foregoing, during the three months ended March 31, 2026, the Company recorded a net loss of $382,021 or $0.00 per share compared to a net loss of $690,594 or $0.00 per share in the 2025 comparable quarter.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2026, the Company had $633 in cash as compared to $1,804, and working capital deficiency of $30,556,522 compared to $30,278,570 as of December 31, 2025. During the three months ended March 31, 2026, the Company's funding was primarily attributable to advances from Koze, a related party, directly to the suppliers of the Company. During the three months ended March 31, 2026, Koze made payments of $519,531 directly to the Company's suppliers. In addition, $516,021 was received directly by Koze, as collections from customers. This promissory note represents an ongoing funding arrangement under which additional amounts are funded by Koze based on the Company's operational needs from time to time.

Based on current financial projections, the Company does not have sufficient existing cash resources to fund its current operations. Accordingly, there is substantial doubt about the Company's ability to continue as a going concern. Management intends to address these liquidity challenges through debt financings and/or raise additional funding through equity financing to support ongoing operating expenses and working capital needs. There is no assurance that these events will be satisfactorily completed or at terms acceptable to the Company and therefore, the Company is heavily reliant on funding from related parties. If the Company is unable to secure adequate financing or otherwise successfully implement its plans, it may be required to significantly reduce or curtail its operations, or cease operations entirely. Any issuance of equity securities to raise capital could result in substantial dilution to existing shareholders. Certain borrowings are secured by the Company's assets, including equipment, investments and receivables. In the event of default, lenders may have the right to seize collateralized assets.

The summary of the Company's cash flows for the three months ended March 31, 2026 and 2025 is as follows:

		2026				2025
Cash used in operating activities		$	(243,656	)		$	(601,381	)
Cash provided by financing activities			242,485				600,433
		$	(1,171	)		$	(948	)

Cash flows from operating activities

Cash used in operating activities for the three months ended March 31, 2026 decreased by $357,725 compared to the prior year comparable period, primarily due to higher sales during the current period, more efficient working capital management and stronger management of accounts payable and accrued liabilities.

Cash flows from investing activities

For the three months ended March 31, 2026 and 2025, there were no cash flows related to investing activities.

Cash flows from financing activities

Cash provided by financing activities for the three months ended March 31, 2026 was $242,485 compared to $600,433 in the prior year comparable period, due to proceeds from related party loans.

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Related party transactions

Revenue

During the three months ended March 31, 2026, the Company recognized all of its revenue of $627,462 (2025 - $nil) from related parties being D.N.S. CANTEK 2019 LTD ("Cantek"), an Israeli limited corporation owned 100% by Koze, and for which Mr. Tal serves as a financial advisor.

These related party relationships did not influence our business decisions or pricing, as sales are determined primarily based on market demand and the ability to achieve the highest possible selling price.

A summary of the Company's average selling prices by market is as follows:

		Average Price per Gram (CAD)*
Market		Premium Batches				Medium Batches
Germany			2.05				1.6
Israel			2.0			1.6-1.8
Canada			2.0			1.1-1.5
Portugal		1.8-2.0				0.8-1.5

^* Batches with THC concentrations below 20% are generally sold at lower average prices compared to higher-THC batches.

Lease expense

The Company has a lease with Formosa, which became a related party upon the appointment of its manager, Elliot Zemel, as a director of the Company on March 11, 2025. During the three months ended March 31, 2026, the Company recognized interest expense related to rent in default of $161,323 (2025 - $154,702), associated with unpaid lease payments.

During the three months ended March 31, 2026, the Company incurred lease expense of $273,374 (2025 - $261,285) associated with the Formosa lease, which is included in cost of goods sold.

Professional fees

	·	During the three months ended March 31, 2026, the Company incurred professional expenses of $42,733 (2025 - $78,363) related to accounting fees payable to Invictus Accounting Group LLP ("Invictus"), a company which provides part-time CFO, financial reporting, and bookkeeping services to the Company. Mr. Oliver Foeste is the Managing Partner of Invictus.
	·	During the three months ended March 31, 2026, the Company incurred professional expenses of $11,025 payable to Fabian Vancott (2025 - $34,000) related to legal fees. Anthony Panek who is a partner in Fabian Vancott, is also a director of the Company.

Royalty expense

On March 17, 2025, the Company and Alberta Ltd., entered into the Royalty Agreement, pursuant to which the Company is required to pay a royalty of CAD $0.20 per gram on cannabis product sales, payable at the beginning of the month for the previous month, as additional consideration related to the lease with Formosa. Immediately upon failure to pay the royalty when due, the royalty rate increases to CAD $0.40 per gram sold for the applicable month. As of March 31, 2026, Alberta Ltd. was in default of its payment obligations, and Koze agreed to forbear from exercising its rights over the ownership interest until May 31, 2026.

During the three months ended March 31, 2026, the Company sold 450,000 grams of cannabis products, and for the three months ended March 31, 2026, the Company incurred a royalty expense of $131,220 (2025 - $nil).

Interest expense

	·	During the three months ended March 31, 2026, the Company incurred interest expense on promissory and convertible notes with Mr. Tal of $11,153 (2025 - $14,425).
	·	During the three months ended March 31, 2026, the Company incurred interest expense on promissory and convertible notes with Koze of $160,108 (2025 - $415,936).
	·	During the three months ended March 31, 2026, the Company incurred interest expense on promissory note with Formosa of $27,604 (2025 - $nil).
	·	During the three months ended 31, 2026, the Company incurred interest expense on rent in default with Formosa of $161,323 (2025 - $154,702).

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Imputed interest expense

	·	During the three months ended March 31, 2026, the Company incurred imputed interest expense on promissory and convertible notes with Mr. Tal of $17,099 (2025 - $nil).
	·	During the three months ended March 31, 2026, the Company incurred imputed interest expense on promissory and convertible notes with Koze of $248,108 (2025 - $nil)
	·	During the three months ended March 31, 2026, the Company incurred imputed interest expense on promissory and convertible notes with Formosa of $46,335 (2025- $nil).

Other expense

During the three months ended March 31, 2025, the Company made a non-cash one-time adjustment of $1,930,000 to lease-related rent expense due to a clarification in the interpretation of the lease terms for the Facility, which is recorded as other expense.

Accounts payable and accrued liabilities

As at March 31, 2026, accounts payable and accrued liabilities include balances owing to related parties as follows:

	·	As at March 31, 2026, $4,481,131 (December 31, 2025 - $4,283,706) was payable to Formosa for outstanding lease payments. As at March 31, 2026, accrued interest on unpaid lease payments on the Formosa lease was $1,178,602 (December 31, 2025 - $1,037,180).
	·	As at March 31, 2026, $141,896 (December 31, 2025 - $146,306) was payable to Invictus for part-time CFO, financial reporting, and bookkeeping services provided to the Company.
	·	As at March 31, 2026, $319,279 (December 31, 2025 - $319,279) was payable to Mr. Orman for unpaid directors' fees for 2021 through 2023.
	·	As at March 31, 2026, $542,727 (December 31, 2025 - $551,953) was payable to Dominic Colvin, a director of the Company, for unpaid salary and expense reimbursement amounts during Mr. Colvin's employment with the Company as its CEO during the years 2019 through 2022. Mr. Colvin has disputed this amount and is asserting a claim for $1,679,060. As of March 31, 2026, the Company is in the process of reviewing the claim and remains in ongoing discussions with Mr. Colvin. No resolution has been reached with respect to this matter.
	·	As at March 31, 2026, $124,960 (December 31, 2025 - $115,645) was payable to Fabian Vancott in respect of unpaid legal fees.

Loans payable to related parties

On August 7, 2025, the Company entered into an agreement (the "Debt Modification") with Mr. Tal and Koze to amend the annual interest rates on all outstanding promissory and convertible notes held by them to 6%, compounding annually. This was deemed to be a substantial modification of the terms of the agreements and was accounted for as an extinguishment of the promissory and convertible notes and recognition of new notes at the new 6% rate. The term to maturity was unchanged. In connection with the issuance of the new notes resulting from the Debt Modification, the Company determined that the market interest rate for similar instruments was 15%. Accordingly, the debt was recorded at a discount to reflect this effective interest rate, with the discount amortized to imputed interest expense over the term of the debt using the effective interest method.

As at March 31, 2026, the loans payable to related parties consists of the following:

PLC International Investments Inc. ("PLC")

·

A $13,223 interest-free loan from PLC, a company owned by Dominic Colvin, a director of the Company.

Loans payable to Koze

	·	Koze LTB:
		On November 22, 2023, the Company entered into promissory notes of $2,550,000 with Koze, as part of the LTB transaction, bearing interest at 13% per annum. Originally due on November 22, 2024, the maturity date for this note was extended to December 31, 2025, by agreement with Koze. On March 18, 2026, Mr. Tal and Koze agreed to extend the maturity date of the promissory notes to December 31, 2026.

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		As a result of the Debt Modification, principal and accrued interest outstanding related to the note as of August 7, 2025 of $2,550,000 and $555,406, respectively, were extinguished. A new note ("Koze LTB") of $2,978,661 bearing 6% interest, compounding annually, was recognized resulting in a gain of $126,745 from extinguishment, recorded directly to additional paid-in capital.
		During the three months ended March 31, 2026, the Company recognized interest expense of $46,107 and imputed interest expense of $69,601 related to the note. As at March 31, 2026, the outstanding principal balance on the note was $3,163,079 (December 31, 2025 - $3,093,478) and accrued interest payable on the note was $122,169 (December 31, 2025 - $76,062).
	·	Koze A:
		On May 25, 2023, the Company entered into a promissory note with Koze, bearing interest at 24% compounded monthly, to fund for certain documented expenses.
		As a result of the Debt Modification, principal and accrued interest outstanding related to the note as of August 7, 2025 of $849,278 and $443,339, respectively, were extinguished. A new note ("Koze A") of $1,134,669 bearing 6% interest, compounding annually, was recognized resulting in a gain of $157,949 from extinguishment, recorded directly to additional paid-in capital.
		During the three months ended March 31, 2026, the Company recognized interest expense of $22,026 and imputed interest expense of $34,489 related to the note. During the three months ended March 31, 2026, the Company had $161,813 in net additions to the promissory note. As at March 31, 2026, the outstanding principal balance on the note was $1,596,545 (December 31, 2025 - $1,400,243) and accrued interest payable on the note was $53,096 (December 31, 2025 - $31,070).
	·	Koze B:
		On May 25, 2023, the Company entered into another promissory note with Koze, bearing interest at 24% compounded monthly, to fund the Company for certain documented expenses.
		As a result of the Debt Modification, principal and accrued interest outstanding related to the note as of August 7, 2025 of $4,040,474 and $1,366,780, respectively, were extinguished. A new note ("Koze B") of $4,767,106 bearing 6% interest, compounding annually, was recognized resulting in a gain of $640,148 from extinguishment, recorded directly to additional paid-in capital.
		During the three months ended March 31, 2026, the Company recognized interest expense of $84,794 and imputed interest expense of $132,769 related to the note. During the three months ended March 31, 2026, the Company had $84,182 in net additions on the promissory note. As at March 31, 2026, the outstanding principal balance on the note was $5,652,377 (December 31, 2025 - $5,529,686) and accrued interest payable on the note was $213,594 (December 31, 2025 - $132,215).
	·	Koze C:
		On February 8, 2024, the Company entered into another promissory note with Koze, bearing interest at 24% compounded monthly.
		As a result of the Debt Modification, principal and accrued interest outstanding related to the note as of August 7, 2025 of $275,000 and $97,403, respectively, were extinguished. A new note ("Koze C") of $330,551 bearing 6% interest, compounding annually, was recognized resulting in a gain of $41,852 from extinguishment, recorded directly to additional paid-in capital.
		During the three months ended March 31, 2026, the Company recognized interest expense of $5,196 and imputed interest expense of $8,140 related to the note. As at March 31, 2026, the outstanding principal balance on the note was $351,841 (December 31, 2025 - $343,701) and accrued interest payable on the note was $13,590 (December 31, 2025 - $8,394).
	·	Koze convertible note ("Koze CN"):
		The Company has a convertible note with Koze, bearing annual interest at 24%.

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		As a result of the Debt Modification, principal and accrued interest outstanding related to the note as of August 7, 2025 of $68,555 and $75,714, respectively, were extinguished. A new note, Koze CN, of $126,275 bearing 6% interest, compounding annually, was recognized resulting in a gain of $17,995 from extinguishment, recorded directly to additional paid-in capital.
		During the three months ended March 31, 2026, the Company recognized interest expense of $1,985 and imputed interest expense of $3,109 related to the note. As at March 31, 2026, the outstanding principal balance on the note was $134,407 (December 31, 2025 - $131,298) and accrued interest payable on the note was $5,192 (December 31, 2025 - $3,207).

Loans payable to Mr. Tal

	·	Mr. Tal LTB:
		On November 22, 2023, the Company entered into a promissory note of $450,000 with Mr. Tal as part of the LTB transaction, bearing interest at 13% per annum. Originally due on November 22, 2024, the maturity date for this note was extended to December 31, 2025, by agreement with Mr. Tal. On March 18, 2026, Mr. Tal and Koze agreed to extend the maturity date of the promissory notes to December 31, 2026.
		As a result of the Debt Modification, principal and accrued interest outstanding related to the note as of August 7, 2025 of $438,296 and $89,768, respectively, were extinguished. A new note ("Mr. Tal LTB") of $507,422 bearing 6% interest, compounding annually, was recognized resulting in a gain of $20,641 from extinguishment, recorded directly to additional paid-in capital.
		During the three months ended March 31, 2026, the Company recognized interest expense of $6,518 and imputed interest expense of $9,844 related to the note. During the three months ended March 31, 2026, the Company made net repayments of $30,000 on the promissory note and accrued interest. As at March 31, 2026, the outstanding principal balance on the note was $441,659 (December 31, 2025 - $447,647) and accrued interest payable on the note was $4,237 (December 31, 2025 - $11,887).
	·	Mr. Tal convertible note ("Mr. Tal CN"):
		The Company had a convertible note with Mr. Tal, bearing interest at 24%.
		As a result of the Debt Modification, principal and accrued interest outstanding related to the note as of August 7, 2025 of $212,555 and $121,427, respectively, were extinguished. A new note, Mr. Tal CN, of $294,850 bearing 6% interest, compounding annually, was recognized resulting in a gain of $39,132 from extinguishment, recorded directly to additional paid-in capital.
		During the three months ended March 31, 2026, the Company recognized interest expense of $4,635 and imputed interest expense of $7,255 related to the note. As at March 31, 2026, the outstanding principal balance on the note was $313,826 (December 31, 2025 - $306,571) and accrued interest payable on the note was $12,128 (December 31, 2025 - $7,488).

Promissory note with Formosa

On January 1, 2025, the Company entered into a promissory note with Formosa in the amount of $1,930,000, bearing interest at 5% per annum, with respect to a one-time adjustment made to lease-related rent expense due to a clarification in the interpretation of the lease terms for the Facility.

As a result of the Debt Modification, principal and accrued interest outstanding related to the note as of August 7, 2025 of $1,930,000 and $58,098, respectively, were extinguished. A new note of $1,775,707 bearing 6% interest, compounding annually, was recognized resulting in a gain of $212,391 from extinguishment, recorded directly to additional paid-in capital.

During the three months ended March 31, 2026, the Company recognized interest expense of $27,604 and imputed interest expense of $46,335 related to the note. As at March 31, 2026, the outstanding balance on the note was $1,896,766 (December 31, 2025 - $1,850,431) and accrued interest payable on the note was $73,012 (December 31, 2025 - $45,396).

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A summary of the accrued interest of the Company's loans payable to related parties as at March 31, 2026 and December 31, 2025 is as follows:

		2026				2025
Koze LTB		$	122,169			$	76,062
Koze A			53,096				31,070
Koze B			213,594				132,215
Koze C			13,590				8,394
Koze CN			5,192				3,207
Mr. Tal LTB			4,237				11,887
Mr. Tal CN			12,128				7,488
Promissory note with Formosa			73,012				45,396
		$	497,018			$	315,719

Royalty payable

Pursuant to the Royalty Agreement, as of March 31, 2026, the royalty amount payable to Koze was $429,520 (CAD $598,708) (2025 - $nil).

Obligation to issue shares

As at March 31, 2026, the Company has an obligation to issue an additional 172,015 Class C preferred shares to each of Mr. Tal and Koze (December 31, 2025 - 166,668 each) as part of the LTB transaction, valued at $924,578 for each party (December 31, 2025 - $1,083,341 each).

Liability for right-of-use building

On March 11, 2025, Formosa became a related party upon the appointment of its manager as a director of the Company.

As at March 31, 2026, the liability for right-of-use building was $5,914,605 (December 31, 2025 - $6,034,080)

Under the terms of the agreement, a default occurs if Alberta Ltd. fails to make such payments or lease payments for three consecutive months or for any four months within any rolling six-month period. As collateral for the obligations under the agreement, the Company granted Koze a security interest in all of its ownership interest in Alberta Ltd. the security interest will remain in place until all obligations are fully satisfied. As of March 31, 2026, Alberta Ltd. has failed to make the payments under the agreement and Koze agreed to forbear from exercising his right of ownership interest in Alberta Ltd. until May 31, 2026.

Critical accounting estimates

The Company's financial statements and accompanying notes have been prepared in accordance with US GAAP. The preparation of these financial statements requires management to make estimates, judgments, and assumptions that affect reported amounts of assets, liabilities, revenues and expenses. We continually evaluate the accounting policies and estimates used to prepare the financial statements. The estimates are based on historical experience and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management.

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.

Recently issued accounting pronouncements

New accounting standards not yet adopted

In November 2024, the FASB issued ASU No. 2024-03, Income Statement Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This ASU requires an entity to disclose the amounts of purchases of inventory, employee compensation, depreciation, and intangible asset amortization included in each relevant expense caption. It also requires an entity to include certain amounts that are already required to be disclosed under current GAAP in the same disclosure. Additionally, it requires an entity to disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively, and to disclose the total amount of selling expenses and, in annual reporting periods, an entity's definition of selling expenses. The amendments in the ASU are effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027, with early adoption permitted. Management is currently evaluating the potential effect that the updated standard will have on our financial statement disclosures.

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Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors.