RELATED PARTY TRANSACTIONS

6 Months Ended

Jun. 30, 2025

NOTE 11 - RELATED PARTY TRANSACTIONS

A related party is any individual or entity that can exercise significant influence over the Company, or over which the Company can exercise significant influence. Related parties include affiliates, principal owners, directors, executive management, their immediate family members, and entities under common control.

a) Key related party transactions

A summary of the Company’s related party transactions is as follows:

	Three months ended June 30,				Six months ended June 30,
	2025		2024		2025		2024

Revenue	$	231,608	$	-	$	231,608	$	-
Professional fees		61,643		107,867		174,007		139,828
Interest expense		611,565		14,585		1,179,757		29,170
Lease expense		270,940		-		532,225		-
Royalty expense		55,599		-		55,599		-
Other expense		-		-		1,930,000		-
Rent		2,168		1,097		3,213		2,209
Total related party transactions	$	1,233,523	$	123,549	$	4,106,409	$	171,207

Revenue

During the three and six months ended June 30, 2025, the Company recognized revenue of $231,608 and $231,608, respectively (2024 - $nil and $nil, respectively) from D.N.S. CANTEK 2019 LTD (“Cantek”), an Israeli limited corporation owned by Koze (Note 14).

Professional fees

	·	During the three and six months ended June 30, 2025, the Company incurred professional expenses of $48,456 and $126,820, respectively (2024 - $91,143 and $123,104, respectively) related to accounting fees with Invictus Accounting Group LLP (“Invictus”), a company to which Oliver Foeste is Managing Partner, which provides part-time CFO, financial reporting, and bookkeeping services to the Company.
	·	During the three and six months ended June 30, 2025, the Company incurred professional expenses of $13,187 and $47,187, respectively, with Fabian Vancott (2024 - $16,724 and $16,724, respectively) related to legal fees. Anthony Panek who is a partner at Fabian Vancott, is also a director of the Company.

Interest, lease and other expense

	·	During the three and six months ended June 30, 2025, the Company incurred interest expense on promissory notes with Mr. Tal of $14,206 and $28,630, respectively (2024 - $14,585 and $29,170, respectively).
	·	On March 11, 2025, Koze became a related party upon the appointment of its manager as a director of the Company(Note 2). During the three and six months ended June 30, 2025, the Company incurred interest expense on promissory notes with Koze of $462,319 and $861,389, respectively.
	·	The Company has a lease with Formosa, which became a related party upon the appointment of its manager as a director of the Company on March 11, 2025. During the three and six months ended June 30, 2025, the Company recognized interest expense related to rent in default of $135,040 and $289,742, respectively, associated with unpaid lease payments (Note 12).
	·	During the three and six months ended June 30, 2025, the Company incurred lease expense of $270,940 and $532,225, respectively associated with the Formosa lease.
	·	During the six months ended June 30, 2025, the Company made a one-time adjustment of $1,930,000 to lease-related rent expense due to a clarification in the interpretation of the lease terms between management and Formosa (Note 17).

Rent

Effective February 1, 2023, the Company entered into a rental agreement granting it the right to use office space located at Suite 3600, 888 5th Avenue SW, Calgary, Alberta, Canada, T2P 3R7 for a monthly rent of $500 CAD per month. This space was provided by a company affiliated with Richard Orman (“Mr. Orman”), chairman of the Company’s board of directors. During the three and six months ended June 30, 2025, the Company incurred rent expense of $2,168 and $3,213, respectively (2024 - $1,097 and $2,209, respectively).

b) Amounts due to related parties

A summary of the Company’s related party liabilities as at June 30, 2025 and December 31, 2024, is as follows:

	2025		2024

Accounts payable and accrued liabilities	$	6,030,901	$	2,174,595
Accrued interest		3,545,931		56,298
Loans payable to related parties		9,941,556		462,818
Convertible notes		281,111		212,555
Royalty payable		56,405		-
Obligation to issue shares of common shares		1,727,065		1,827,005
Total related party liabilities	$	21,582,969	$	4,733,271

Accounts payable and accrued liabilities

As at June 30, 2025, accounts payable and accrued liabilities include balances owing to related parties as follows:

	·	As at June 30, 2025, $3,753,755 was payable to Formosa for outstanding lease payments. As at June 30, 2025, accrued interest on unpaid lease payments on the Formosa lease was $930,647.
	·	As at June 30, 2025, $116,008 (December 31, 2024 - $89,392) was payable to Invictus for part-time CFO, financial reporting, and bookkeeping services to the Company.
	·	As at June 30, 2025, $319,279 (December 31, 2024 - $319,279) was payable to Mr. Orman for unpaid directors’ fees for 2021 through 2023.
	·	As at June 30, 2025, $1,690,134 (December 31, 2024 - $1,661,386) 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.
	·	As at June 30, 2025, $151,725 (December 31, 2024 - $104,538) was payable to Fabian Vancott in respect of unpaid legal fees.

Loans payable to related parties

As at June 30, 2025, the loans payable to related parties consists of the following:

	·	A $13,502 interest-free loan from PLC International Investments Inc., a company owned by Dominic Colvin, who currently serves as a director of the Company;
	·	Promissory notes totaling $7,559,758 were issued to Koze, a related party of the Company. Of this amount, $2,550,000 was issued on November 22, 2023, as part of the LTB transaction (Note 5), 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. For the three and six months ended June 30, 2025, interest expense of $82,648 and $164,388, respectively (2024 - $82,648 and $165,296, respectively) was recorded on this note. As at June 30, 2025, the accrued interest on the promissory note was $527,251 (December 31, 2024 - $362,864). The remaining promissory notes issued to Koze relate to advances provided to the Company for documented expenses. These notes bear interest at 24% per annum. For the three and six months ended June 30, 2025, total interest expense of $354,609 and $648,340, respectively (2024 - $350,757 and $383,366, respectively) was recorded on all promissory notes (Note 8). As at June 30, 2025, the accrued interest on these promissory notes was $1,761,594 (December 31, 2024 - $1,058,617).
	·	A promissory note of $1,930,000 entered into with Formosa on January 1, 2025, a related party of the Company. During the three and six months ended June 30, 2025, the Company recorded interest expense of $25,062 and $48,661, respectively (2024 - $nil and $nil, respectively) on these promissory notes (Note 8). As at June 30, 2025, the accrued interest on the promissory note was $50,292 (December 31, 2024 - $nil).
	·	A $450,000 promissory note entered into on November 22, 2023 with Mr. Tal, “control person” of the Company as defined by the US Securities and Exchange Commission, as part of the LTB transaction (Note 5). The promissory note bears interest at 13% per annum. The original maturity date of the promissory notes was November 22, 2024. On November 22, 2024, the Company and Mr. Tal agreed to extend the maturity date of the promissory notes to December 31, 2025. During the three months ended June 30, 2025, the Company made payments of two invoices on behalf of Mr. Tal for a total amount of $11,704 and he agreed to reduce the amount payable on the promissory note by this amount. As a result, as at June 30, 2025, the principal amount outstanding on the promissory note was $438,296 (December 31, 2024 - $450,000). During the three and six months ended June 30, 2025, the Company recorded interest expense of $14,206 and $28,630, respectively (2024 - $14,585 and $29,170, respectively) on the promissory note. As at June 30, 2025, the accrued interest on the promissory note was $84,298 (December 31, 2024 - $56,298).

Convertible notes

As at June 30, 2025, $212,555 (December 31, 2024 - $212,555) of the Company’s convertible notes balance was attributable to amounts owed to Mr. Tal. During the six months ended June 30, 2025, Mr. Tal did not convert any of the convertible notes into shares of common shares of the Company. During the year ended December 31, 2024, Mr. Tal converted $18,695 of the convertible notes into 23,368,212 shares of common shares of the Company.

As at June 30, 2025, $68,556 (December 31, 2024 - $68,556) of the Company’s convertible notes balance was attributable to amounts owed to Koze.

Obligation to issue shares

As at June 30, 2025, the Company has an obligation to issue an additional 154,643 Class C preferred shares to each of Mr. Tal and Koze (December 31, 2024 - 150,799 each) as part of the LTB transaction, valued at $863,533 for each party (December 31, 2024 - $1,827,005 each).

Security and royalty agreement

On March 17, 2025, the Company and its subsidiary, 2323414 Alberta Ltd.(the “subsidiary”), entered into a security and royalty agreement with Koze, pursuant to which the Company is required to pay a royalty of CAD $0.20 per gram on cannabis product sales from the previous month, with payment due at the beginning of the following month. If the royalty is not paid on time, the rate increases to CAD $0.40 per gram sold for the applicable month. During the three months ended June 30, 2025, the Company sold 192,384 grams of cannabis products and for the three and six months ended June 30, 2025, the Company incurred a royalty expense of $55,599 and $55,599, respectively (2024 - $nil and $nil, respectively). As of June 30, 2025, the royalty amount payable to Koze was $56,405 (CAD $76,954) (2024 - $nil).

Under the terms of the agreement, a default occurs if the subsidiary 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 the subsidiary. The security interest will remain in place until all obligations are fully satisfied. As of June 30, 2025, the subsidiary has failed to make the payments under the agreement and Koze agreed to forbear from exercising his right of ownership interest in the subsidiary until December 31, 2025.

- Definition

The entire disclosure for related party transactions. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Topic 850
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Reference 2: http://www.xbrl.org/2003/role/disclosureRef
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-URI https://asc.fasb.org/1943274/2147480990/946-20-50-2

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
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Reference 4: http://www.xbrl.org/2003/role/disclosureRef
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Reference 6: http://www.xbrl.org/2003/role/disclosureRef
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Reference 7: http://www.xbrl.org/2003/role/disclosureRef
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Reference 8: http://www.xbrl.org/2003/role/disclosureRef
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Reference 9: http://www.xbrl.org/2003/role/disclosureRef
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Reference 10: http://www.xbrl.org/2003/role/disclosureRef
-Topic 850
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Reference 11: http://www.xbrl.org/2003/role/disclosureRef
-Topic 850
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Reference 12: http://www.xbrl.org/2003/role/disclosureRef
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Reference 13: http://www.xbrl.org/2003/role/disclosureRef
-Topic 850
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 1
-Subparagraph (b)
-Publisher FASB
-URI https://asc.fasb.org/1943274/2147483326/850-10-50-1

+ Details

CANNAPHARMARX, INC. 10-Q