Quarterly Report for Quarter Ending June 30, 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 as at and for the three and six months ended June 30, 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 in our Annual Report on 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.

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, 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 Colorado in August 1998 as Network Acquisitions, Inc. In October 2014, we changed our legal name to CannaPharmaRx, Inc. We currently focus on producing high-quality medical cannabis and craft cannabis products. Our principal executive office is located at 4439 Township Rd 304, Mountain View County, Alberta, Canada T0M 0R0.

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 capacity at the Facility to support cannabis sales in European markets, with a focus on Germany and Israel. To support this initiative, we intend to expand operations at the Facility from six active growing rooms to all 10 growing rooms over the next one to two years, open a second drying and packing room, build and develop a sales network in Germany and Israel, and apply 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 expect to eliminate this step and ship directly to countries within the European Union ("EU"), reducing overall costs and shipping times.

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 June 30, 2026, we have an obligation to issue an additional 363,385 Class C preferred shares to LTB under the true up, valued at $1,090,155.

OUR PRODUCTS

Cannabis Products

We produce and sell dried cannabis flower, which we package for sale as dried flower, trim, and shake. We market dried flower primarily for medicinal use. Dried flower remains a core product category across global cannabis markets, and we therefore maintain a strong focus on consistent, high-quality cultivation.

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 and six months ended June 30, 2026, we reported $276,218 and $903,680, respectively (2025 - $231,608 and $566,927, respectively) in revenue. As at June 30, 2026, we had cash of $555, a working capital deficiency of $31,236,572 and an accumulated deficit of $114,606,653. Additionally, for the six months ended June 30, 2026, we used $371,025 (2025 -$1,047,844) of cash in operating activities.

These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management plans to address this uncertainty by seeking additional capital in the near term, primarily through equity issuances or other financing instruments. Given the Company's status as a penny stock issuer on the OTC Markets, its constrained liquidity and solvency position, and the limited availability of third-party financing, management expects that a significant portion of any additional funding will likely need to come from related parties. There can be no assurance that the Company will complete additional financings or collaboration transactions, or that any financing will be available on commercially reasonable terms or in amounts sufficient to meet its obligations and support its business plan. If the Company does not obtain additional financing on a timely basis, it may be required to scale back or cease operations. Any issuance of additional equity securities could materially dilute existing shareholders. In addition, pending litigation and other legal proceedings could adversely affect the Company's liquidity, results of operations, and ability to continue as a going concern if resolved unfavorably.

On March 17, 2025, the Company and its subsidiary, 2323414 Alberta Ltd. ("Alberta Ltd."), which conducts 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 limited liability company engaged in financing and investment activities. 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. Under the agreement, the Company is required to pay a royalty on cannabis product sales from the prior month, with the applicable rate increasing if royalty payments are not made on time. The agreement provides 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 at June 30, 2026, Alberta Ltd. was in default of its payment obligations, and Koze agreed to forbear from exercising its rights over that ownership interest until August 31, 2026. The Company also incurred royalty expense under the agreement and recorded a related liability in royalty payable as at June 30, 2026.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2026 AND 2025

Revenue

During the three months ended June 30, 2026 and 2025, the Company reported revenue of $276,218 and $231,608, respectively. The increase primarily reflects higher sales to Cantek in the current period, as discussed under "Related party transactions."

Cost of Goods Sold

During the three months ended June 30, 2026 and 2025, the Company reported cost of goods sold of $414,664 and $852,818, respectively. The decrease was primarily due to lower inventory impairment charges in the current period, which more than offset the effect of higher sales volumes. Included in cost of goods sold for the three months ended June 30, 2026 and 2025 are losses on the impairment of inventory of $218,752 and $566,270, respectively, primarily based on factors including expected yield of work-in-progress inventory and corresponding market prices.

Gross Loss

During the three months ended June 30, 2026 and 2025, the Company reported a gross loss of $138,446 and $621,210, respectively. The decrease in gross loss primarily reflects the increase in revenue and the decrease in cost of goods sold, including lower inventory impairment charges, in the current period.

Operating Expenses

A summary of the Company's operating expenses is as follows:

		Three months ended June 30,
		2026				2025
General and administrative		$	82,739			$	75,952
Professional fees			93,771				88,219
Royalty expense			63,875				55,599
		$	240,385			$	219,770

During the three months ended June 30, 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 June 30, 2026 were $240,385 compared to operating expenses of $219,770 in the prior year comparable period, an increase of $20,615. The increase is primarily attributable to the following:

	·	A $8,276 increase in royalty expense, reflecting higher royalty expense in the current period than in the prior-year comparable period under the Koze agreement entered into on March 17, 2025.
	·	A $5,552 increase in professional fees, primarily reflecting higher accounting fees in the current period.

Other income (expenses)

A summary of the Company's other income and expenses is as follows:

		Three months ended June 30,
		2026				2025
Change in the fair value of derivative conversion feature		$	(1,599,738	)		$	(46,438	)
Change in the fair value of obligation to issue shares			758,999				46,033
Foreign exchange gain (loss)			(47,001	)			85,442
Interest expense			(349,008	)			(657,515	)
Imputed interest expense			(293,463	)			-
		$	(1,530,211	)		$	(572,478	)

Other expenses increased to $1,530,211 for the three months ended June 30, 2026, from $572,478 in the comparable 2025 period, primarily due to the following:

	·	Change in the fair value of derivative conversion feature arising from variably priced convertible notes was a loss of $1,599,738 compared to $46,438 in the prior year comparable period. The primary drivers of these fair value changes were fluctuations in the share price 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 $293,463 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.

The increase in other expense was partially offset by the following:

	·	Change in the fair value of obligation to issue shares was a gain of $758,999 compared to a gain of $46,033 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 $308,507 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.

Net Loss

As a result of the foregoing, during the three months ended June 30, 2026, the Company recorded a net loss of $1,909,042 or $0.00 per share compared to a net loss of $1,413,458 or $0.00 per share in the 2025 comparable quarter.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2026 AND 2025

Revenue

During the six months ended June 30, 2026 and 2025, the Company reported revenue of $903,680 and $566,927 respectively. The increase primarily reflects higher sales in the current period. As discussed under "Related party transactions," related-party revenue from Cantek was $903,680 in 2026 compared with $231,608 in the prior-year comparable period.

Cost of Goods Sold

During the six months ended June 30, 2026 and 2025, the Company reported cost of goods sold of $1,451,579 and $1,690,744 respectively. The decrease was primarily due to lower inventory impairment charges in the current period, which more than offset the effect of higher sales volumes. Included in cost of goods sold for the six months ended June 30, 2026 and 2025 are losses on the impairment of inventory of $712,474 and $1,046,203, respectively, primarily based on factors including expected yield of work-in-progress inventory and corresponding market prices.

Gross Loss

During the six months ended June 30, 2026 and 2025, the Company reported a gross loss of $547,899 and $1,123,817, respectively. The decrease in gross loss primarily reflects the increase in revenue and the decrease in cost of goods sold, including lower inventory impairment charges, in the current period.

Operating Expenses

A summary of the Company's operating expenses is as follows:

		Six months ended June 30,
		2026				2025
General and administrative		$	118,553			$	114,593
Professional fees			199,627				224,556
Royalty expense			195,095				55,599
		$	513,275			$	394,748

During the six months ended June 30, 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 six months ended June 30, 2026 were $513,275 compared to operating expenses of $394,748 in the prior year comparable period, an increase of $118,527. The increase is primarily attributable to the following:

·

A $139,496 increase in royalty expense, reflecting higher royalty expense in the current period than in the prior-year comparable period under the Koze agreement entered into on March 17, 2025.

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

·

A $24,929 decrease in professional fees, primarily reflecting lower accounting fees in the current period.

Other income (expenses)

A summary of the Company's other income and expenses is as follows:

		Six months ended June 30,
		2026				2025
Change in the fair value of derivative conversion feature		$	(798,700	)		$	595,273
Change in the fair value of obligation to issue shares			1,076,526				1,926,944
Foreign exchange gain (loss)			(78,085	)			95,327
Interest expense			(824,625	)			(1,273,031	)
Imputed interest expense			(605,005	)			-
Other expense			-				(1,930,000	)
		$	(1,229,889	)		$	(585,487	)

Other expenses totaled $1,229,889 for the six months ended June 30, 2026 compared with $585,487 in the comparable 2025 period, primarily due to the following:

	·	Change in the fair value of derivative conversion feature arising from variably priced convertible notes was a loss of $798,700 compared to a gain of $595,273 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 $605,005 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.
	·	Change in the fair value of obligation to issue shares was a gain of $1,076,526 compared to a gain of $1,926,944 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.

The increase in other expenses was partially offset by the following:

	·	A $448,406 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.

Net Loss

As a result of the foregoing, during the six months ended June 30, 2026, the Company recorded a net loss of $2,291,063 or $0.00 per share compared to a net loss of $2,104,052 or $0.00 per share in the 2025 comparable period.

LIQUIDITY AND CAPITAL RESOURCES

As at June 30, 2026, the Company had $555 in cash, compared with $1,804 as at December 31, 2025, and a working capital deficiency of $31,236,572 compared with $30,278,570 as at December 31, 2025. During the six months ended June 30, 2026, the Company's funding was primarily attributable to advances made by Koze, a related party, directly to the Company's suppliers. During the three and six months ended June 30, 2026, Koze made payments of $438,906 and $958,437, respectively, directly to the Company's suppliers. In addition, Koze received $269,084 and $785,105 respectively directly from customers. These advances and customer collections relate to an ongoing funding arrangement under which Koze funds additional amounts from time to time based on the Company's operational needs.

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 and receivables. In the event of default, lenders may have the right to seize collateralized assets.

The summary of the Company's cash flows is as follows:

		Six months ended June 30,
		2026				2025
Cash used in operating activities		$	(371,025	)		$	(1,047,844	)
Cash used in investing activities			(55,118	)			-
Cash provided by financing activities			424,894				1,062,663
		$	(1,249	)		$	14,819

Cash flows from operating activities

Cash used in operating activities for the six months ended June 30, 2026 decreased by $676,819 compared to the prior year comparable period, primarily due to higher cash paid by related parties directly to suppliers in the current period.

Cash flows from investing activities

Cash used in investing activities for the six months ended June 30, 2026 was $55,118 compared to $nil in the prior year comparable period, due to purchase of equipment.

Cash flows from financing activities

Cash provided by financing activities for the six months ended June 30, 2026 was $424,894 compared to $1,062,663 in the prior year comparable period, due to proceeds from related party loans.

Related party transactions

Revenue

During the three and six months ended June 30, 2026, the Company recognized revenue of $276,218 and $903,680, respectively (2025 - $231,608 and $231,608, respectively) 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.

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				1.60
Israel			2.00				1.60-1.80
Canada			2.00				1.10-1.50
Portugal			1.80-2.00				0.80-1.50

^* 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.

		Three months ended June 30,								Six months ended June 30,
		2026				2025				2026				2025
Lease expense (1)		$	270,896			$	270,940			$	544,270			$	532,225
Interest expense related to rent in default, associated with unpaid lease payments			169,646				135,040				330,969				289,742
Total		$	440,542			$	405,980			$	875,239			$	821,967

(1)

Lease expense is included in cost of goods sold.

Professional fees

		Three months ended June 30,								Six months ended June 30,
		2026				2025				2026				2025
Invictus Accounting Group LLP ("Invictus") (1)		$	27,255			$	48,456			$	69,988			$	126,820
Fabian Vancott (2)			900				13,187				11,925				47,187
Total		$	28,155			$	61,643			$	81,913			$	174,007

	(1)	Invictus provides part-time CFO, financial reporting, and bookkeeping services to the Company. Mr. Oliver Foeste is the Managing Partner of Invictus.
	(2)	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 at June 30, 2026, Alberta Ltd. was in default of its payment obligations, and Koze agreed to forbear from exercising its rights over the ownership interest until August 31, 2026.

During the three and six months ended June 30, 2026, the Company sold 221,055 and 671,055 grams of cannabis products, respectively, (2025 - 192,384 and 192,384 grams respectively) and for the three and six months ended June 30, 2026, the Company incurred a royalty expense of $63,875 and $195,095, respectively (2025 - $55,599 and $55,599, respectively) which is calculated using royalty rate of CAD $0.40 per gram sold since no royalty payments have been made by the Company

Interest expense

		Three months ended June 30,								Six months ended June 30,
		2026				2025				2026				2025
Promissory and convertible notes with Mr. Tal		$	9,515			$	26,959			$	20,668			$	54,137
Promissory and convertible notes with Koze			146,952				441,370				307,060				820,955
Promissory note with Formosa			28,595				25,062				56,199				48,661
Rent in default with Formosa			169,646				135,040				330,969				289,742
Total		$	354,708			$	628,431			$	714,896			$	1,213,495

Imputed interest expense

		Three months ended June 30,								Six months ended June 30,
		2026				2025				2026				2025
Promissory and convertible notes with Mr. Tal		$	15,263			$	-			$	32,362			$	-
Promissory and convertible notes with Koze			231,492				-				479,600				-
Promissory note with Formosa			46,708				-				93,043				-
Total		$	293,463			$	-			$	605,005			$	-

Other expense

During the three and six months ended June 30, 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.

Amounts due to related parties

		June 30, 2026				December 31, 2025
Accounts payable and accrued liabilities		$	5,752,511			$	5,416,889
Accrued interest			1,743,532				1,352,899
Loans payable to related parties			13,410,379				13,116,485
Royalty payable			483,554				305,492
Liability for right-of-use building			5,782,769				6,034,080
Obligation to issue shares			1,090,155				2,166,681
Total		$	28,262,900			$	28,392,526

Accounts payable and accrued liabilities

A summary of accounts payable and accrued liabilities include balances owing to related parties is as follows:

		June 30, 2026				December 31, 2025
Outstanding lease payments to Formosa		$	4,659,570			$	4,283,706
Part-time CFO, financial reporting, and bookkeeping services outstanding to Invictus			115,425				146,306
Unpaid directors' fees for 2021 through 2023 to Mr. Orman			319,279				319,279
Unpaid salary and expense reimbursement amounts to Dominic Colvin, a director of the Company (1)			532,377				551,953
Unpaid legal fees to Fabian Vancott			125,860				115,645
Total		$	5,752,511			$	5,416,889

(1)

For amounts related to 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 at June 30, 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.

Loans payable to related parties

On August 7, 2025, the Company entered into an agreement (the "Debt Modification") with Mr. Tal, Koze and Formosa 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.

Mr. Tal and Koze are related parties of the Company by virtue of their equity rights. During 2026 the maturity date of all outstanding promissory and convertible notes held by them was extended to December 31, 2026 (the "2026 Debt Amendment"). The stated annual interest rate of 6% and the 15% market rate used to impute interest were unchanged by the 2026 Debt Amendment. Because the notes bear interest below the market rate and are held by shareholders of the Company, the discount arising on initial imputation was recognized as a capital contribution to additional paid-in capital, rather than in the condensed interim consolidated statements of operations and comprehensive loss.

A summary of the outstanding principal on the loans payable to related parties is as follows:

		June 30, 2026				December 31, 2025
PLC International Investments Inc. ("PLC") (a)		$	12,975			$	13,430
Koze Lucky Tackle Box Management, LLC ("LTB") (b)			3,063,682				3,093,478
Koze A (c)			1,639,002				1,400,243
Koze B (d)			5,577,005				5,529,686
Koze C (e)			336,807				343,701
Koze convertible note ("Koze CN") (f)			128,664				131,298
Mr. Tal LTB (g)			410,626				447,647
Mr. Tal convertible note ("Mr. Tal CN") (h)			298,144				306,571
Formosa (i)			1,943,474				1,850,431
Total		$	13,410,379			$	13,116,485

a)

PLC

Interest-free loan from PLC, a company owned by Dominic Colvin, a director of the Company.

b)

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.

As a result of the Debt Modification, principal and accrued interest outstanding related to the note as at 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.

As a result of the 2026 Debt Amendment, a discounting effect of $244,792 was recognized as a capital contribution to additional paid-in capital.

c)

Koze A

On May 25, 2023, the Company entered into a promissory note with Koze, bearing annual interest at 24% compounded monthly, to fund certain documented expenses.

As a result of the 2025 Debt Modification, principal and accrued interest outstanding related to the note as at 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.

As a result of the 2026 Debt Amendment, a discounting effect of $124,239 was recognized as a capital contribution to additional paid-in capital.

During the three and six months ended June 30, 2026, the Company had $102,168 and $263,981 in net additions to the promissory note.

d)

Koze B

On May 25, 2023, the Company entered into another promissory note with Koze, bearing annual 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 at 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.

As a result of the 2026 Debt Amendment, a discounting effect of $473,849 was recognized as a capital contribution to additional paid-in capital.

During the three and six months ended June 30, 2026, the Company had $611,266 and $1,130,797 in additions on the promissory note. During the three and six months ended June 30, 2026, the Company had $269,084 and $785,105 in repayments on the promissory note.

e)

Koze C

On February 8, 2024, the Company entered into another promissory note with Koze, bearing annual interest at 24% compounded monthly.

As a result of the Debt Modification, principal and accrued interest outstanding related to the note as at 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.

As a result of the 2026 Debt Amendment, a discounting effect of $30,562 was recognized as a capital contribution to additional paid-in capital.

f)

Koze CN

The Company has a convertible note with Koze, bearing annual interest at 24%. As a result of the Debt Modification, principal and accrued interest outstanding related to the note as at 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.

As a result of the 2026 Debt Amendment, a discounting effect of $11,675 was recognized as a capital contribution to additional paid-in capital.

g)

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 at 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.

As a result of the 2026 Debt Amendment, a discounting effect of $39,888 was recognized as a capital contribution to additional paid-in capital.

During the three and six months ended June 30, 2026, the Company made repayments of $nil and $30,000 on the promissory note and accrued interest.

h)

Mr. Tal CN

The Company had a convertible note with Mr. Tal, bearing annual interest at 24%.

As a result of the Debt Modification, principal and accrued interest outstanding related to the note as at 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.

As a result of the 2026 Debt Amendment, a discounting effect of $29,435 was recognized as a capital contribution to additional paid-in capital.

i)

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 at 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.

A summary of the accrued interest of the Company's loans payable to related parties is as follows:

		June 30, 2026				December 31, 2025
Koze LTB		$	88,728			$	76,062
Koze A			43,394				31,070
Koze B			156,538				132,215
Koze C			9,754				8,394
Koze CN			3,726				3,207
Mr. Tal LTB			9,895				11,887
Mr. Tal CN			8,640				7,488
Promissory note with Formosa			101,607				45,396
		$	422,282			$	315,719

A summary of the interest expense related to the Company's loans payable to related parties is as follows:

		Three months ended June 30,								Six months ended June 30,
		2026				2025				2026				2025
Koze LTB		$	42,621			$	82,648			$	88,728			$	164,388
Koze A			21,368				50,040				43,394				91,155
Koze B			76,664				288,066				161,458				524,408
Koze C			4,558				16,503				9,754				32,777
Koze CN			1,741				4,113				3,726				8,227
Mr. Tal LTB			5,515				14,206				12,033				28,630
Mr. Tal CN			4,000				12,753				8,635				25,507
Formosa			28,595				25,062				56,199				48,661
Total		$	185,062			$	493,391			$	383,927			$	923,753

A summary of the imputed interest expense related to the Company's loans payable to related parties is as follows:

		Three months ended June 30,								Six months ended June 30,
		2026				2025				2026				2025
Koze LTB		$	69,332			$	-			$	138,933			$	-
Koze A			33,459				-				67,948				-
Koze B			118,841				-				251,610				-
Koze C			7,134				-				15,274				-
Koze CN			2,726				-				5,835				-
Mr. Tal LTB			8,998				-				18,842				-
Mr. Tal CN			6,265				-				13,520				-
Formosa			46,708				-				93,043				-
Total		$	293,463			$	-			$	605,005			$	-

Royalty payable

Pursuant to the Royalty Agreement, as at June 30, 2026, the royalty amount payable to Koze was $483,554 (CAD $687,130) (December 31, 2025 - $305,492 (CAD $418,707)).

Obligation to issue shares

As at June 30, 2026, the Company has an obligation to issue an additional 181,692 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 $545,078 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 June 30, 2026, the liability for right-of-use building was $5,782,769 (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 at June 30, 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 August 31, 2026 (Note 2). During the three and six months ended June 30, 2026, the Company recognized interest expense related to rent in default of $169,646 and $330,969, respectively, associated with unpaid lease payments (2025 - $135,040 and $289,742, respectively). As at June 30, 2026, accrued interest related to rent in default was $1,321,250 (December 31, 2025 - $1,037,180).

Deferred revenue

As at June 30, 2026, the Company had deferred revenue of $36,242 (December 31, 2025 - $260,561) related to transactions with related parties. The deferred revenue balance represents consideration received in advance for products to be delivered.

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.

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.