10-K 1 cngt10k.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
For the fiscal year ended July 31, 2019
   
[  ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
   

For the transition period from _________ to ________

 

Commission file number: 000-55711

Cannagistics, Inc.

(Exact name of registrant as specified in its charter)

   
Nevada 90-0338080
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
 

2480 Stanfield Road, Unit B

Mississauga, Ontario L4Y 1S2

(Address of principal executive offices)
 
631-676-7230
(Registrant’s telephone number)

 

___Precious Investment, Inc.__

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of -this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] No [X]

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

Yes [ ] No [ ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X]

Emerging growth company [ ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $68,363,759

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 93,118,077 common shares as of January 15, 2020.

 

  

 

TABLE OF CONTENTS

 

 

    Page

PART I

 

Item 1. Business 3
Item 1A. Risk Factors 6
Item 2. Properties 13
Item 3. Legal Proceedings 13
Item 4.

Mine Safety Disclosures

14

 

PART II

 

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities

15 

 

Item 6. Selected Financial Data 17
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 17
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 18
Item 8. Financial Statements and Supplementary Data 19
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 20
Item 9A. Controls and Procedures 20
Item 9B. Other Information 20

 

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance 21
Item 11. Executive Compensation 22
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 23
Item 13. Certain Relationships and Related Transactions, and Director Independence 24
Item 14. Principal Accountant Fees and Services 24

 

 

PART IV

 

Item 15. Exhibits, Financial Statement Schedules 25

 

 2 

 

PART I

 

Item 1. Business

 

Company Overview

 

Until recently, we have been in the business of purchasing and selling colored diamonds and other valuables. We planned to manage a portfolio of rare colored diamonds that were selected for price potential.

Since the initiation of our plan of operations, however, we have experienced losses and have been unable to obtain significant additional finances to further our colored diamond business. In order to pursue our business plan, we would need to obtain additional funding in the form of equity financing from the sale of our common stock or loans. Unfortunately, we have not been able to identify sources of equity financing and do not have any arrangements in place for any future financing.

Because of the difficulties in raising additional funding, we have been presented with the difficult task of re-evaluating our business plan to determine whether it continues to be commercially viable. As a result of our lack of progress so far, the uncertainty regarding the source of our required additional funding and the relatively risky overall nature of our enterprise, management has been evaluating alternative business opportunities.

 

On November 16, 2017, we entered into an Agreement of Merger and Plan of Reorganization (the “Merger Agreement”) with American Freight Xchange, Inc., a privately held New York corporation (“American Freight”), and Shipzooka Acquisition Corp. (“Shipzooka Sub”), our newly formed wholly-owned Nevada subsidiary. In connection with the closing of this merger transaction, Shipzooka Sub merged with and into American Freight (the “Merger”) on November 16, 2017, with the filing of Articles of Merger with the Nevada Secretary of State and Certificate of Merger with the New York Division of Corporations.

 

In addition, pursuant to the terms and conditions of the Merger Agreement:

 

Each share of American Freight common stock issued and outstanding immediately prior to the closing of the Merger was converted into the right to receive 73,000,000 shares of our Series C Preferred Stock. As a result, the shareholders of American Freight received 1,000,000 newly issued shares of our Series C Preferred Stock.

 

The Series C preferred stock were converted into common stock on or about May 15, 2019.

 

American Freight provided customary representations and warranties and closing conditions, including approval of the Merger by a unanimous vote of its board of directors and voting stockholders.

 

Spin-Out of Assets

 

At the same time as the Merger, we entered into an Agreement of Conveyance, Transfer and Assignment of Assets (the “Conveyance Agreement”) with our prior officer and director, Kashif Khan, along with shareholders Faeghen Niakab, and Parand Bioukzadeh and joint venture partner, Eddeb Management. Pursuant to the Conveyance Agreement, we transferred all assets and business operations associated with our colored diamond business and joint venture, Flawless Fund GP Inc., to the other parties to the agreement. In exchange, Mr. Khan, Mr. Niakab and Mr. Bioukzadeh agreed to cancel 16,000,000 shares in our company and to assume up to $100,000 in liabilities relating to our former business.

 

This transaction was fully disclosed in a Current Report on Form 8-K, filed with the Securities and Exchange Commission on December 5, 2017.

 

 3 

 

We intend to carry on the business of American Freight, as our primary line of business. We have relocated our principal executive offices to 2480 Stanfield Road, Unit B, Mississauga, Ontario L4Y 1S2, and an Executive Office located at 1200 Veterans Highway, Suite 310, Hauppauge, NY 11788. Our telephone number is 631-676-7230.

 

In the near future, we intend to change our name to American Freight Xchange, Inc. or something similar, which is more in line with our new business direction.

 

American Freight Xchange, Inc. is an integrated 3PO and logistics company. We are engaged in the business of the fulfillment of e-commerce transportation and logistics for third parties.

 

American Freight Xchange, Inc. manages the entire “logistics process”. Our freight management program obtains the most effective combination of rates, carriers, tracking and service points to pick up returned products from store and distribution center levels with centralized billing, auditing and claims capabilities.

 

American Freight Xchange, Inc., through our wholly owned subsidiary KRG Logistics, Inc. has the expertise to manage all the manufacturers and retailers shipping. Due to our strategic placement in the supply chain relative to the manufacturers and retailers or distributors position, we are best suited to offer these services. American Freight Xchange, Inc. customizes freight management and fulfillment programs that provide manufacturers and retailers with the most cost-effective services from the moment the shipment authorization is issued to the time the product is shipped and received.

 

Our Business

 

We are both a less-than-truckload (“LTL”) and a Third-Party Logistics (“3PL”) carrier, providing regional, inter-regional and national LTL and or 3PL services. These include arranging for ground and air expedited transportation and consumer household pickup and delivery (“P&D”), through a single integrated organization. In addition to our core LTL services, we offer a range of value-added services which cover different areas, such as, truckload brokerage, supply chain consulting and warehousing and pick and ship services.

 

We believe the growth in demand for our services can be attributed to our ability to consistently provide a superior level of customer service at a fair price, which allows our customers to meet their supply chain needs. Our integrated structure allows us to offer our customers consistent high-quality service from origin to destination, and we believe our operating structure and proprietary information systems enable us to efficiently manage our operating costs. Our services are complemented by our technological capabilities, which we believe provide the tools to improve the efficiency of our operations while also empowering our customers to manage their individual shipping needs.

 

On September 4, 2018 we incorporated Cannagistics, Inc., in the province of Ontario, Canada. This is intended to be a new line of business for the Company but is dormant at this time.

 

On April 17, 2019, we filed Articles of Merger with the Secretary of State of Nevada in order to effectuate a merger with our wholly owned subsidiary, Cannagistics, Inc. Shareholder approval was not required under Section 92A.180 of the Nevada Revised Statutes. As part of the merger, our board of directors authorized a change in our name to “Cannagistics, Inc.” and our Articles of Incorporation have been amended to reflect this name change.

 

Subsequent Events

 

On September 26, 2019, the Board of Directors approved the registered spinout of its Global3pl, Inc., (a New York corporation) (“Global3pl”) subsidiary. Global3pl is to be a logistics technology provider, along with the American Freight Xchange and UrtbanX Platforms that have been under development by the Company.

 

The Board of Directors also declared a stock dividend for all shareholders, with a record date of October 10, 2019. For every 50 shares of common stock of the Company, all shareholders of record on the record date will receive one share of common stock in Global3pl. Global3pl will also file a registration statement as part of its raise of capital to complete the development of American Freight Xchange, a North American freight broker-driven 3pl network to handle the management of long haul LTL (less than truckload), and specialty freight (white glove) services and Urbanx, a North American network of rush-messenger local trucking services for forward and reverse last mile delivery (including white glove service).

 

 4 

 

On September 18, 2019, the Company announced, with a press release, the signing of a Letter of Intent (the “LOI”) with Unified Cannabis of Calgary, Canada (“Unified”) whereby Unified will merge qualified assets into the Company in an all-stock transaction. The Company will then raise the capital necessary to effectuate the merger of the assets and acquisition targets of Unified and for the explosive organic growth strategy of Cannagistics and Unified, combined, thus creating the first CBD/Hemp/Cannabis International Vertically Optimized Company (CIVOC).

 

Effective October 1, 2019, the Company suspended operations of its subsidiary Global3pl, Inc., (an Ontario corporation, formerly known as KRG Logistics, Inc.), suspended future operations related to the operations in Mississauga, Ontario. It is in the process of collecting accounts receivables still due and working on a plan to pay its payables. It has entered into an agreement with 10451029 Canada Inc., d/b/a Reliable Logistics, for the assignment and of the assets of Global3pl, Inc., (an Ontario Corporation). The transaction has not yet completed.

 

Our Industry

 

Trucking companies provide transportation services to virtually every industry operating in the United States and Canada, and around the world. The trucking industry is comprised principally of two types of motor carriers: LTL and truckload. LTL freight carriers typically pick up multiple shipments from multiple customers on a single truck. The LTL freight is then routed through a network of service centers where the freight may be transferred to other trucks with similar destinations. LTL motor carriers generally require a more expansive network of local P&D service centers, as well as larger breakbulk, or hub, facilities. In contrast, truckload carriers generally dedicate an entire truck to one customer from origin to destination. According to the American Trucking Associations, the trucking industry accounted for 79.8% of the $847.6 billion total U.S. transportation revenue in 2016. In 2016, the entire LTL sector had revenue of approximately $54.7 billion. This represented 6.5% of the total U.S. transportation revenue for the year.

 

3PL provides logistics and supply chain management for other companies. It is used to outsource elements of the company’s distribution and fulfillment services. The global 3PL market reached $750 billion in 2014 and grew to $157 billion in the US. Furthermore, demand growth for 3PL services in the US outpaced the growth of the US economy in 2014. As of 2014, 80 percent of all Fortune 500 companies and 96 of the Fortune 100 used some form of 3PL services.

 

Competition

 

The transportation and logistics industry overall is extremely competitive and highly fragmented. We compete with many regional, inter-regional and national LTL carriers and 3PL provider, and, to a lesser extent, with truckload carriers, small package carriers, airfreight carriers and railroads.

 

We utilize flexible scheduling and train our employees to perform multiple tasks, which we believe allows us to achieve greater productivity and higher levels of customer service than our competitors. We believe our focus on employee communication, continued education, development and motivation strengthens the relationships and trust among our employees.

 

Both the LTL and 3PL industry is highly competitive on the basis of service and price and has consolidated significantly since the industry was deregulated in 1980. Based on 2016 revenue as reported in Transport Topics, the largest 10 and 25 LTL motor carriers accounted for approximately 51% and 62%, respectively, of the total LTL market.

 

We believe we are able to gain market share by expanding our capacity and providing high-quality service at a fair price.

 

 5 

 

Government Regulations

 

We do not require any government approval in order to operate our business. In the event any of our operations or products requires government approval, we will comply with any and all local, state and federal requirements.

Other than federal and state securities laws and common business and tax rules and regulations, we are not subject to any material government regulation. However, there is a risk that we could be adversely affected by current laws, regulations or interpretations or that more restrictive laws, regulations or interpretations will be adopted in the future that could make compliance more difficult or expensive. There is also a risk that a change in current laws could adversely affect our business.

In addition, regulatory authorities have relatively broad discretion to grant, renew and revoke licenses and approvals and to implement regulations. Accordingly, such regulatory authorities could prevent or temporarily suspend us from carrying on some or all of our activities or otherwise penalize us if our practices were found not to comply with the then current regulatory or licensing requirements or any interpretation of such requirements by the regulatory authority. Our failure to comply with any of these requirements or interpretations could have a material adverse effect on our operations.

 

Environmental Laws and Regulations

Our operations are not subject to any environmental laws or regulations.

 

Available Information

We file various reports with the SEC, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, which are available through the SEC's electronic data gathering, analysis and retrieval system (“EDGAR”) by accessing the SEC's home page (http://www.sec.gov). The documents are also available to be read or copied at the SEC’s Public Reference Room located at 100 F Street, NE, Washington, D.C., 20549. Information on the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.

Item 1A: Risk Factors

 

Our investors may lose their entire investment because our financial status creates a doubt whether we will continue as a going concern.

 

Our auditors, in their opinion dated January 15, 2020, have stated that currently we do not have sufficient cash, nor do we have a significant source of revenues to cover our operational costs and allow us to continue as a going concern.  We may seek to raise operating capital to implement our business plan in an offering of our common stock.

 

Because we are dependent on outside financing for continuation of our operations, the failure to obtain financing will adversely affect our business and its growth.

 

Because we currently operate at a significant loss, we are completely dependent on the continued availability of financing in order to continue our business. There can be no assurance that financing sufficient to enable us to continue our operations will be available to us in the future. Moreover, even if we are able to obtain financing, it could be on terms that causes our company’s stock price to suffer or further dilutes shareholder interests in our company. Most of our financing to date has been from the issuance of debt and the sale of equity in our company

 

 6 

 

Our failure to obtain future financing, financing on terms that are acceptable to us, or to produce levels of revenue to meet our financial needs could result in our inability to continue as a going concern and, as a result, investors in our company could lose their entire investment. The company currently needs additional capital for the next twelve months to allow the expansion of operations. Pursuant to the Warrants described in Item 1, above, we anticipate that a large portion of the additional capital needed may be raised from the exercise of said Warrants. There is no assurance that the Warrants will in fact be exercised. This money is needed to secure necessary human capital and to implement our marketing and distribution plans as well as potential acquisitions and expanding our on-line operations. If we are unable to raise this capital, may not be able to implement our expansion plans.

 

Our future success is dependent on our implementation of our business plan and we have many significant steps still to take.

 

Our success will depend in large part in our success in achieving several important steps in the implementation of our business plan, including the following: development of customers, implementing order processing and customer service capabilities, and management of business process. If we are not successful, we will not be able to fully implement or expand our business plan.

 

Because our future revenues are unpredictable, and we expect our operating results to fluctuate from period to period.

 

Our lack of operating history and the emerging nature of the markets in which we expect to compete make it difficult for us to accurately forecast revenues in any given period. As such, revenues could fall short of our expectations if we experience production delays or difficulties. Likewise, revenues could fall short of expectations should our product not be met with the demand we anticipate from the marketplace. We have limited experience in financial planning for our business on which to base our planned operating expenses.

 

Our operating results are likely to fluctuate substantially from period to period as a result of a number of factors, many of which are beyond our control. These factors include, but are not limited to, the following:

 

  • Outside market influences beyond our control, including extended periods of decreased demand for freight logistics services;
  • Our ability to enter into successful strategic relationships;
  • Our ability to attract purchasers and/or distributors;
  • The amount and timing of operating costs and capital expenditures relating to expansion of production operations;
  • The rate at which individuals and organizations accept our services in the marketplace;
  • An announcement or introduction of new or enhanced services by our competitors;
  • Our ability to attract and retain qualified personnel; and
  • Pricing policies instituted by our current and possible future competitors.

We have generated limited revenue to date and consequently our operations are subject to all risks inherent in the establishment of a new business enterprise. We are currently generating limited revenues and expect to continue to generate revenue in the future, but there can be no assurances that we will ever generate sufficient revenues to achieve profitability. If we do achieve profitability, there can be no assurances that we can sustain or increase profitability.

 

We may not be able to increase sales or otherwise successfully operate our business, which could have a significant negative impact on our financial condition.

 

We believe that the key to our success is to increase our revenues and available cash. We may not have the resources required to promote our business and its potential benefits. If we are unable to gain market acceptance of our business, we will not be able to generate enough revenue to achieve and maintain profitability or to continue our operations.

 

 7 

 

We may not be able to increase our sales or effectively operate our business. To the extent we are unable to achieve sales growth, we may continue to incur losses. We may not be successful or make progress in the growth and operation of our business. Our current and future expense levels are based on operating plans and estimates of future sales and revenues and are subject to increase as strategies are implemented. Even if our sales grow, we may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall.

 

Further, if we substantially increase our operating expenses to increase sales and marketing, and such expenses are not subsequently followed by increased revenues, our operating performance and results would be adversely affected and, if sustained, could have a material adverse effect on our business. To the extent we implement cost reduction efforts to align our costs with revenue, our sales could be adversely affected.

 

Because we have had significant turnover in key management personnel, we may not have the leadership and personnel with expertise to guide us to profitable operations.

 

We have had significant turnover in our executive officers. Our success depends in part upon our ability to retain the services of certain executive officers and other key employees and on the skills, experience and performance of senior management and certain other key personnel, most of whom have either never worked together or who have worked together for only a short period of time.

 

We are presently dependent to a great extent upon the experience, abilities and continued services of James Zimbler, our sole officer and director. If he should resign or die we will not have a leader to fill these important roles. If that should occur, until we find another person to serve in those capacities our operations could be suspended as we would not have access to the aforementioned relationships with suppliers. In that event it is possible you could lose most if not all of your entire investment.

 

The loss of the services of our executive officers or other key employees would have a material adverse effect on our business, operating results and financial condition. Because we are in the early stages of commercialization, we are also dependent on our ability to recruit, retain and motivate personnel with technical, sales and marketing experience. There are a limited number of personnel with these qualifications and competition for such personnel may be intense. Our inability to attract, integrate and retain additional qualified key personnel would materially adversely affect our business, operating results and financial condition.

 

Our success depends upon achieving a critical mass of customers and strategic relationships.

 

Our success is largely dependent upon achieving significant market acceptance for our services. The market for our services is at an early stage of development. Our services and brand name may never achieve broad market acceptance, or our existing and potential competitors may offer services that could negatively affect the market acceptance of our services and damage our business prospects.

 

Our success is also dependent upon attracting significant numbers of distributors and strategic relationships in order to market our services. In particular, our ability to enter into beneficial distribution partnerships will depend in large part upon our success in convincing consumers that our services is of a desired quality. Failure to achieve and maintain a critical mass of market acceptance will seriously harm our business in the markets in which we participate or intend to participate.

 

The current and future state of the global economy may curtail our operations and our anticipated revenues.

 

Our business may be adversely affected by changes in domestic and international economic conditions, including inflation, changes in consumer preferences and changes in consumer spending rates, personal bankruptcy and the ability to collect our accounts receivable. Changes in global economic conditions may adversely affect the demand for our merchandise and make it more difficult to collect accounts receivable, thereby negatively affecting our business, operating results and financial condition. The recent disruptions in credit and other financial markets and deterioration of national and global economic conditions could, among other things, impair the financial condition of some of our customers and suppliers, thereby increasing customer bad debts or non-performance by suppliers.

 

 8 

 

Natural disasters, armed hostilities, terrorism, labor strikes or public health issues could have a material adverse effect on our business.

 

Armed hostilities, terrorism, natural disasters, or public health issues, whether in the United States or abroad could cause damage and disruption to our company, our suppliers, our manufacturers, or our customers or could create political or economic instability, any of which could have a material adverse impact on our business. Although it is impossible to predict the consequences of any such events, they could result in a decrease in demand for our product or create delay or inefficiencies in our supply chain by making it difficult or impossible for us to deliver products to our customers, or for our manufacturers to deliver products to us, or suppliers to provide component parts

 

We operate in a highly competitive environment, and if we are unable to compete with our competitors, our business, financial condition, results of operations, cash flows and prospects could be materially adversely affected.

 

The industry in which we operate is highly competitive, and we compete with numerous other companies, many of which are larger and have significantly greater financial, distribution, advertising and marketing resources. Significant increases in these competitive influences could adversely affect our operations through a decrease in the number and dollar volume of sales.

 

For all of our services, we compete with a number of comparably sized and smaller firms, as well as a number of larger firms throughout the United States and Canada. Many of our competitors have the ability to attract customers as a result of their reputation and through their industry connections. Additionally, other reputable companies may decide to enter our markets to compete with us. These companies may have greater name recognition and have greater financial and marketing resources than we do. If these companies are successful in entering the markets in which we participate or if customers choose to go to our competition, we may attract fewer buyers and our revenue could decrease.

 

If we fail to adequately manage the size of our business, it could have a severe negative effect on our financial results or stock price.

 

Our management believes that in order to be successful we must appropriately manage the size of our business. This may mean reducing costs and overhead in certain economic periods, and selectively growing in periods of economic expansion. In addition, we will be required to implement operational, financial and management information procedures and controls that are efficient and appropriate for the size and scope of our operations. The management skills and systems currently in place may not be adequate and we may not be able to manage any significant cost reductions or effectively provide for our growth.

 

Insiders will continue to have substantial control over us and our policies after this offering and will be able to influence corporate matters.

 

Our officers and directors, whose interests may differ from other stockholders, have the ability to exercise significant control over us. Presently, James Zimbler beneficially owns all of our outstanding Series D Preferred Stock. Under the Certificate of Designation, holders of Series D Preferred Stock will be entitled to vote together with the holders of our common stock on all matters submitted to shareholders at a rate of seventy-two and one half (72.5) votes for each share held. The holders are further entitled to convert each share of their Series C Preferred Stock into seventy-two and one half (72.5) shares of our common stock. Mr. Zimbler is able to exercise significant influence over all matters requiring approval by our stockholders, including the election of directors, the approval of significant corporate transactions, and any change of control of our company.  He could prevent transactions, which would be in the best interests of the other shareholders. The interests of our officer and director may not necessarily be in the best interests of the shareholders in general.

 

 9 

 

Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses.

 

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and new SEC regulations, are creating uncertainty for companies such as ours. These new or changed laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We are committed to maintaining high standards of corporate governance and public disclosure. As a result, we intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, our reputation may be harmed.

  

If we fail to comply with the new rules under the Sarbanes-Oxley Act related to accounting controls and procedures, or if material weaknesses or other deficiencies are discovered in our internal accounting procedures, our stock price could decline significantly.

 

Section 404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent auditors addressing these assessments. We are in the process of documenting and testing our internal control procedures, and we may identify material weaknesses in our internal control over financial reporting and other deficiencies. If material weaknesses and deficiencies are detected, it could cause investors to lose confidence in our Company and result in a decline in our stock price and consequently affect our financial condition. In addition, if we fail to achieve and maintain the adequacy of our internal controls, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Moreover, effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports and are important to helping prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our Common Stock could drop significantly. In addition, we cannot be certain that additional material weaknesses or significant deficiencies in our internal controls will not be discovered in the future.

 

Because the barriers to entry into our industry are relatively low, competition is intense, which may result in lower margins or loss of market share.

 

The trucking industry is extremely competitive. Our principal competitors for LTL freight include national and international LTL companies as well as regional LTL motor carriers, truckload carriers, small package carriers, private carriage, freight forwarders, railroads and airlines. We also face many competitors for our 3PL services. There can be no assurance that we will be successful in meeting the competitive demands of the LTL and/or the 3PL industry.

 

Our business may be harmed by anti-terrorism measures.

 

In the aftermath of recent terrorist attacks on the United States, federal, state and municipal authorities have implemented and are implementing various security measures, including checkpoints and travel restrictions on large trucks. Although many companies will be adversely affected by any slowdown in the availability of freight transportation, the negative impact could affect our business disproportionately. For example, we offer specialized services that guarantee on-time delivery. If the new security measures disrupt or impede the timing of our deliveries, we may fail to meet the needs of our customers or may incur increased expenses to do so. We cannot assure you that these measures will not have a material adverse effect on our operating results, our ability to make payments on the exchange notes or the ability of our subsidiaries to make payments under the guarantees.

 

 10 

 

Because Our Business Depends on Economic Activity To Generate Freight To Haul, Economic And Market Conditions Could Affect The Results Of Our Operations.

 

Fuel shortages, interest rate fluctuations, economic recession, changes in currency exchange rates and changes in customers' business cycles and business practices are among the factors over which we have no control, but which may adversely affect our financial condition or results of operations. Our operations are primarily conducted in the United States but are also conducted in major foreign countries. As a result, we are subject to the foregoing factors both domestically and internationally.

 

We Operate in A Highly Competitive Industry, And Our Business Will Suffer If We Are Unable To Adequately Address Potential Downward Pricing Pressures And Other Factors That May Adversely Affect Our Operations And Profitability.

 

Numerous competitive factors could impair our ability to maintain our current profitability. These factors include, but are not limited to, the following items:

 

§we compete with other transportation service providers of varying sizes, some of which may have more equipment, a broader global network, a wider range of services, greater capital resources or other competitive advantages;
§some of our competitors may reduce their prices to gain business, especially during times of reduced growth rates in the economy, which may limit our ability to maintain or increase prices or maintain revenue;
§we may be unable to continue to collect fuel surcharges or our fuel surcharge program may become ineffective in mitigating the impact of the fluctuating costs of fuel and other petroleum-based products;
§many customers reduce the number of carriers they use by selecting “core carriers” as approved transportation service providers and we may not be selected;
§many customers periodically accept bids from multiple carriers for their shipping needs, and this process may depress prices or result in the loss of some business to competitors;
 §some shippers may choose to acquire their own trucking fleet or may choose to increase the volume of freight they transport if they have an existing trucking fleet;
 §some shippers may choose to acquire their own trucking fleet or may choose to increase the volume of freight they transport if they have an existing trucking fleet;

 

If we are unable to effectively compete with other LTL carriers and 3PL providers, whether on the basis of price, service or otherwise, we may be unable to retain existing customers or attract new customers, either of which could have a material adverse effect on our business, financial condition and results of operations. Furthermore, continued merger and acquisition activity in transportation and logistics could result in stronger or new competitors, which could have a material adverse effect on our business.

 

Risks Related to Our Securities

 

If a market for our common stock does not develop, shareholders may be unable to sell their shares.

 

Our common stock is quoted under the symbol “CNGT” effective May 17, 2019 on the OTCPink operated by OTC Markets Group, Inc. (OTCMarkets.com), an electronic inter-dealer quotation medium for equity securities. We do not currently have an active trading market. There can be no assurance that an active and liquid trading market will develop or, if developed, that it will be sustained.

 

Our securities are very thinly traded. Accordingly, it may be difficult to sell shares of our common stock without significantly depressing the value of the stock. Unless we are successful in developing continued investor interest in our stock, sales of our stock could continue to result in major fluctuations in the price of the stock.

 

 11 

 

Our common stock price may be volatile and could fluctuate widely in price, which could result in substantial losses for investors.

 

The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including:

 

  • technological innovations or new products and services by us or our competitors;
  • government regulation of our products and services;
  • the establishment of partnerships with other technology companies;
  • intellectual property disputes;
  • additions or departures of key personnel;
  • sales of our common stock
  • our ability to integrate operations, technology, products and services;
  • our ability to execute our business plan;
  • operating results below expectations;
  • loss of any strategic relationship;
  • industry developments;
  • economic and other external factors; and
  • period-to-period fluctuations in our financial results.

Because we are a development stage company with nominal revenues to date, you should consider any one of these factors to be material. Our stock price may fluctuate widely as a result of any of the above.

 

In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.

 

We have not paid cash dividends in the past and do not expect to pay cash dividends in the future on our common stock. Any return on investment may be limited to the value of our common stock.

 

We have never paid cash dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future. The payment of cash dividends on our common stock will depend on earnings, financial condition and other business and economic factors at such time as the board of directors may consider relevant. If we do not pay cash dividends, our common stock may be less valuable because a return on your investment will only occur if its stock price appreciates.

 

As a new investor, you will experience substantial dilution as a result of future equity issuances.

 

In the event we are required to raise additional capital it may do so by selling additional shares of common stock thereby diluting the shares and ownership interests of existing shareholders.

 

Because we are subject to the “Penny Stock” rules, the level of trading activity in our stock may be reduced.

 

The Securities and Exchange Commission has adopted regulations which generally define "penny stock" to be any listed, trading equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules generally require that prior to a transaction in a penny stock, the broker-dealer make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules which may increase the difficulty Purchasers may experience in attempting to liquidate such securities.

 

 12 

 

Provisions in the Nevada Revised Statutes and our Bylaws could make it very difficult for an investor to bring any legal actions against our directors or officers for violations of their fiduciary duties or could require us to pay any amounts incurred by our directors or officers in any such actions.

 

Members of our board of directors and our officers will have no liability for breaches of their fiduciary duty of care as a director or officer, except in limited circumstances, pursuant to provisions in the Nevada Revised Statutes and our Bylaws as authorized by the Nevada Revised Statutes. Specifically, Section 78.138 of the Nevada Revised Statutes provides that a director or officer is not individually liable to the company or its shareholders or creditors for any damages as a result of any act or failure to act in his or her capacity as a director or officer unless it is proven that (1) the director’s or officer’s act or failure to act constituted a breach of his or her fiduciary duties as a director or officer and (2) his or her breach of those duties involved intentional misconduct, fraud or a knowing violation of law. This provision is intended to afford directors and officers protection against and to limit their potential liability for monetary damages resulting from suits alleging a breach of the duty of care by a director or officer. Accordingly, you may be unable to prevail in a legal action against our directors or officers even if they have breached their fiduciary duty of care. In addition, our Bylaws allow us to indemnify our directors and officers from and against any and all costs, charges and expenses resulting from their acting in such capacities with us. This means that if you were able to enforce an action against our directors or officers, in all likelihood, we would be required to pay any expenses they incurred in defending the lawsuit and any judgment or settlement they otherwise would be required to pay. Accordingly, our indemnification obligations could divert needed financial resources and may adversely affect our business, financial condition, results of operations and cash flows, and adversely affect prevailing market prices for our common stock.

 

Item 2. Properties

 

Our principal offices, effective February 1, 2018, are located at 2480 Stanfield Rd, Mississauga, Ontario L4Y 1S2. This space is leased by the Company through December 31, 2021 and is currently sufficient for Company purposes. Due to the suspension of operations at the Mississauga facility, the lease has been cancelled (see “Subsequent Events” in Section 1).

 

In addition, we have an executive office, consisting of approximately 250 square feet located at 1200 Veterans Highway, Suite 310, Hauppauge, NY 11788 (631-676-7330). The lease is for approximately 800 square feet at a monthly payment of $1,817 and is sufficient for the needs of the Company.

 

Item 3. Legal Proceedings

 

I.

We are a party to a case titled William Prusin v. Precious Investments Inc., and Kashif Khan. The litigation was commenced in the Ontario Superior Court of Justice (Commercial List) on July 20, 2016. The litigation stems from a diamond purchase agreement entered into on April 1, 2016 between Dr. William Prusin and Precious Investments Inc. By virtue of the terms of the agreement, Precious Investments purchased Dr. Prusin’s diamond portfolio, which was valued at $3.8 million (CDN) for the purposes of the agreement. In exchange for the diamond portfolio, Dr. Prusin was provided with 1,324,413 common shares of Precious Investments.

 

In the Statement of Claim, the plaintiff is alleging a breach of the Ontario Securities Act and claims that documents provided to him contain untrue statements of material fact or omissions. The plaintiff has also alleged that Precious Investment and Mr. Khan distributed securities in Ontario without issuing a prospectus and obtaining the required prospectus exemption or a registration exemption. In the alternative, the plaintiff has alleged that Mr. Khan made fraudulent misrepresentations which induced Dr. Prusin to enter into the diamond purchase agreement. The fraudulent misrepresentation allegation involves the future value of Precious shares, the timing by which Dr. Prusin had to sign the diamond purchase agreement, the involvement of Dundee Capital Markets, Mr. Khan’s investment in Precious Investments, and the management team at Precious Investments. Given these allegations, the plaintiff claims that he is entitled to obtain an order rescinding the diamond purchase agreement.

 

 13 

 

The Company and Mr. Khan deny all of the plaintiff’s allegations. The Company and Mr. Khan deny that any documents provided to Dr. Prusin constitute an “offering memorandum”, or that any prospectus was required under the Ontario Securities Act since the transaction falls within the exemption set out in National Instrument 45-106. In addition, the defendants deny that any fraudulent misrepresentation was made to Dr. Prusin. The defendants have filed a counter-claim against Dr. Prusin, alleging a breach of the diamond purchase agreement.

 

The action is currently dormant, although the plaintiff has retained new counsel. Current local Counsel for the Company believes that it will be ultimately successful in defending the action

 

II.

KRG Logistics, Inc., now known as Global3pl, Inc., (an Ontario corporation) a subsidiary of the Company was named as the defendant in an action in the Ontario Superior Court of Justice by Ron Alvares, one of the shareholders of KRG Logistics, Inc., when it was purchased by the Company. The suite is for breach of contract for monies due as a result of the Purchase Agreement and for an amount due from a shareholder loan claimed by Mr. Alvares to KRG Logistics on September 30, 2014. The Company intends to defend against the breach of contract claim as the amount claimed to be due is incorrect, based on payments already made. It will also file counter-claims based on intentional interference of contracts by Mr. Alvaes and his son for stealing clients of the Company and industrial sabotage f the Company’s software systems. With respect to the claim of an outstanding shareholder loan it is the position of the Company that said shareholder loan was never disclosed to the Company at the time of the purchase and based on information available, any such shareholder loan was paid off with the down payment provided by the Company for the purchase of KRG Logistics.

 

Procedurally the plaintiff has named the wrong parties and Counsel in Ontario is waiting for an amended complaint to file an answer and counterclaims.

 

III.

KRG Logistics, Inc., now known as Global3pl, Inc., (an Ontario corporation) a subsidiary of the Company has been notified of an action by Michael Horgan, a former employee of KRG Logistics of a claim under the Ontario Employment Standards Act, based on his employment being terminated. His employment ended prior to the acquisition of KRG Logistics by the Company

 

Simply summarized, the Company’s position is that KRG Logistics, Inc. is not liable or responsible for any severance pay to Mr. Horgan, as his position was eliminated while he was on medical leave. The position was eliminated by KRGL Logistics due to a loss of a contract for which the position was utilized, and that furthermore KRG Logistics, Inc., does not meet the threshold to fall under the Ontario Employment Standards Act.

 

The Company is in the process of retaining Counsel in Ontario to handle this matter.

 

Item 4. Mine Safety Disclosures

 

Not Applicable

 

 14 

 

PART II

 

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Market Information

 

Our common stock is quoted under the symbol “CNGT” on the OTCPink operated by OTC Markets Group, Inc. Currently, there is no trading market for our securities. There is no assurance that a regular trading market will develop, or if developed, that it will be sustained. Therefore, a shareholder may be unable to resell his securities in our company.

 

The following table sets forth the range of high and low bid quotations for our common stock for each of the periods indicated as reported by the OTCPink. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

 

Fiscal Year Ending July 31, 2018
Quarter Ended   High $   Low $
  July 31, 2018       0.60       0.262  
  April 30, 2018       0.3009       0.262  
  January 31, 2018       1.55       0.12  
  October 31, 2017       1.10       0.12  

 

Fiscal Year Ending July 31, 2019
Quarter Ended   High $   Low $
  July 31, 2019       0.35       0.036  
  April 30, 2019       0.32       0.13  
  January 31, 2019       0.261       0.05  
  October 31, 2018       0.33       0.261  

                         

On December 18, 2019, the last sales price per share of our common stock on the OTCPink was $0.115.

 

Penny Stock

 

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.

 

 15 

 

The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer’s account.

 

In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.

 

These disclosure requirements may have the effect of reducing the trading activity for our common stock. Therefore, stockholders may have difficulty selling our securities.

 

Holders of Our Common Stock

 

As of January 2020, we had 93,118,077 shares of our common stock issued and outstanding, held by approximately 182 shareholders of record, other than those held in street name.

 

Dividends

 

There are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where after giving effect to the distribution of the dividend:

 

1.       we would not be able to pay our debts as they become due in the usual course of business, or;

2.       our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution.

 

We have not declared any dividends and we do not plan to declare any dividends in the foreseeable future.

 

Recent Sales of Unregistered Securities

 

The information set forth below relates to our issuances of securities without registration under the Securities Act of 1933 during the reporting period which were not previously included in a Quarterly Report on Form 10-Q or Current Report on Form 8-K.

 

On March 23, 2018 a total of 1,200,000 shares of Common Stock were issued to Union Square Energy Advisors, pursuant to a Notice of Conversion of Debt.

 

On July 5, 2018, a total of 340,000 shares of Common Stock were issued to Realty Capital, Inc. pursuant to the exercise of a Warrant held by Realty Capital Inc.

 

These securities were issued pursuant to Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder. The holders represented their intention to acquire the securities for investment only and not with a view towards distribution. The investors were given adequate information about us to make an informed investment decision. We did not engage in any general solicitation or advertising. We directed our transfer agent to issue the stock certificates with the appropriate restrictive legend affixed to the restricted stock.

 

 16 

 

Securities Authorized for Issuance under Equity Compensation Plans

We have no equity compensation programs to date. We plan to adopt an incentive plan in the foreseeable future.

 

Item 6. Selected Financial Data

 

A smaller reporting company is not required to provide the information required by this Item.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Statements

 

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements.” These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

 

Results of Operations for the Years Ended July 31, 2019 and 2018

 

Revenues

 

We generated revenue of $2,329,899 for the year ended July 31, 2019, as compared with $2,220,755 for the year ended July 31, 2018. All of our revenues were generated from the operations of our operating subsidiary, KRG Logistics, Inc., a third-party freight logistics provider.

 

Our cost of revenues was $2,150,398 for the fiscal year ended July 31, 2019 as compared with $2,040,280 for the fiscal year ended July 31, 2018.

 

Operating Expenses

 

Operating expenses increased to $2,293,899 for the fiscal year ended July 31, 2019, as compared with $866,475 for the year ended July 31, 2018. Our operating expenses for the year ended July 31, 2019, consisted mainly of Consulting fees of $77,920 and professional fees of $344,267 and general and administrative expenses of $285,185. Wages and Benefits of $493,045 and bad debt allowance of $1,055,783 due from a related party. Our operating expenses for the year ended July 31, 2018, consisted mainly of Consulting fees of $26,535 and professional fees of $369,551 and general and administrative expenses of $255,187 and Wages and Benefits of $196,776.

 

Other Expenses

 

We had other expenses of $(1,561,459) for the fiscal year ended July 31, 2019 as compared with $(1,125,501) for the year ended July 31, 2018.

 

Net Loss

 

Net loss for the year ended July 31, 2019 was ($3,675,857) as compared with $(1,811,501) for the year ended July 31, 2018.

 

 17 

 

Liquidity and Capital Resources

 

As of July 31, 2019, we had total current assets of $517,811 and total assets in the amount of $727,922, after the allowance for Bad Debt. Our total current liabilities as of July 31, 2019 were $(3,828,651). We had total working capital of $(3,310,840) as of July 31, 2019 and $(779,700) as of July 31, 2018.

 

Operating activities used $(2,293,899) in cash for the year ended July 31, 2019, as compared with $(866,475) in cash for the year ended July 31, 2018. Our net loss of $(3,675,857) with Loss on Interest Expense of $(253,206), Loss on Conversion of Preferred Stock of $(99,000) and Loss on conversion of debt of $(1,289,724).

 

Pursuant to the Warrants described in Item 1, above, we anticipate that a portion of the additional capital needed may be raised from the exercise of said Warrants. However, there is no assurance that the Warrants will in fact be exercised.

 

We also intend to fund operations through increased sales and debt and/or equity financing arrangements, which may be insufficient to fund expenditures or other cash requirements. We plan to seek additional financing in a private equity offering to secure funding for operations. There can be no assurance that we will be successful in raising additional funding. If we are not able to secure additional funding, the implementation of our business plan will be impaired. There can be no assurance that such additional financing will be available to us on acceptable terms or at all.

 

Off Balance Sheet Arrangements

 

As of July 31, 2019, there were no off-balance sheet arrangements.

 

Going Concern

 

Our financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. As of July 31, 2019, we have an accumulated deficit of $(5,770,449). Our ability to continue as a going concern is contingent upon the successful completion of additional financing arrangements and our ability to achieve and maintain profitable operations. While we are expanding our best efforts to achieve the above plans, there is no assurance that any such activity will generate funds that will be available for operations. These conditions raise substantial doubt about our ability to continue as a going concern. These financial statements do not include any adjustments that might arise from this uncertainty.

 

Critical Accounting Policies

 

In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

 

Our accounting policies are discussed in detail in the footnotes to our financial statements included in this Annual Report on Form 10-K for the year ended July 31, 2019, however we consider our critical accounting policies to be those related to inventory, fair value of financial instruments, derivative financial instruments and long-lived assets. 

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

 

A smaller reporting company is not required to provide the information required by this Item.

 

 18 

 

Item 8. Financial Statements and Supplementary Data

 

Index to Financial Statements Required by Article 8 of Regulation S-X:

 

Audited Consolidated Financial Statements:

 

F-1 Reports of Independent Registered Public Accounting Firms 
F-3 Balance Sheets as of July 31, 2019 and 2018
F-4 Statements of Operations for the years ended July 31, 2019 and 2018
F-5 Statement of Stockholders’ Deficit for the years ended July 31, 2019 and 2018
F-6 Statements of Cash Flows for the years ended July 31, 2019 and 2018
F-7 Notes to Statements

    

 19 

 

BMKR, LLP

Certified Public Accountants

 

 

1200 Veterans Memorial Highway, Suite 350,

Hauppage, New York 11788

T 631 293-5000

F 631 234-4272

www.bmkr.com

https:||www.sec.gov|Archives|edgar|data|1375685|000121390017005508|image_003.jpg
 
Thomas G. Kober, CPA Charles W. Blanchfield, CPA (Retired)
Alfred M. Rizzo, CPA Bruce A. Meyer, CPA (Retired)
Joseph Mortimer, CPA  

  

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FIRM

 

To the Board of Directors and

Stockholders of Cannagistics, Inc. and Subsidiaries

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of Cannagistic, Inc. and Subsidiaries (the Company) as of July 31, 2019 and 2018, and the related statements of income, comprehensive income, stockholders' equity, and cash flows for each of the years in the two- year period ended July 31, 2019, and the related notes ( collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of July 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the two- year period ended July 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

Substantial Doubt About the Company's Ability to Continue as a Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the financial statements, the Company incurred a net loss of $3,675,857 during the year ended July 31, 2019, and, as of that date, had a working capital deficiency of $3,310,840 and net deficit of $3,100,729. The Company needs additional financing to maintain its operations and any future financing is not assured. As a result, has stated that substantial doubt exists about the Company's ability to continue as a going concern. Management's evaluation of the events and conditions and management's plans regarding those matters are described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to the going concern.

Basis for Opinion 

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

BMKR, LLP

 

We have served as the Company’s auditor since 2017 

 

Hauppauge, NY 11788

 

January 15, 2020

Member American Institute of Certified Public Accounts

Member Public Company Accounting Oversight Board

 

 F-1 

 

CANNAGISTICS, Inc., also known as PRECIOUS INVESTMENTS INC.,

GLOBAL3PL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(AUDITED)

 

   July 31, 2019  July 31, 2018
ASSETS     
CURRENT ASSETS:         
Cash and cash equivalents  $630   $14,238
Accounts  and other receivables   498,766    561,546
Prepaid expenses   16,515    11,154
Related party receivables, less allowance for doubtful accounts of $1,055,783   1,900    1,209,000
          
          
TOTAL CURRENT ASSETS   517,811    1,795,938
          
EQUIPMENT AND IMPROVEMENTS   54,296    45,130
          
OTHER ASSETS:         
Restricted cash   152,181    0
Security deposits   3,634    36,711
          
TOTAL OTHER ASSETS   155,815    36,711
          
TOTAL ASSETS  $727,922   $1,877,779
          
LIABILITIES AND STOCKHOLDERS' (DEFICIT)  EQUITY        
          
CURRENT LIABILITIES:         
Accounts payable and accrued liabilities  $893,957   $830,079
Note payable - line of credit   258,708    264,935
Promissory notes   165,000    40,350
Convertible notes payable   2,145,041    1,034,000
Related party payables   365,945    406,274
TOTAL CURRENT LIABILITIES   3,828,651    2,575,638
          
LONG-TERM LIABILITIES         
Promissory notes   0    175,000
TOTAL LONG-TERM LIABILITIES   0    175,000
          
TOTAL LIABILITIES   3,828,651    2,750,638
          
          
STOCKHOLDERS' (DEFICIT) EQUITY:         
Preferred Stock; $0.001 par value; 20,000,000 shares authorized, 8,000,000 and 1,000,000 shares issued and outstanding as of July 31, 2019 and 2018   8,000    1,000
Common stock; $0.001 par value; 250,000,000 shares authorized; 93,118,077 and 14,355,645 outstanding as of July 31, 2019 and 2018, respectively   93,029    14,267
Additional paid-in capital   2,613,690    1,270,568
 Treasury stock   (45,000)   (45,000)
Accumulated deficit   (5,770,449)   (2,113,694)
TOTAL STOCKHOLDERS' (DEFICIT) EQUITY   (3,100,729)   (872,859)
          
TOTAL LIABILITIES & STOCKHOLDERS' (DEFICIT)  EQUITY  $727,922   $1,877,779

 

See accompanying notes to the consolidated financial statements

 F-2 

 

CANNAGISTICS, Inc., also known as PRECIOUS INVESTMENTS INC.,

GLOBAL3PL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(AUDITED)

 

   July 31, 2019  July 31, 2018
       
Revenues  $2,329,899   $2,220,755
          
Cost of revenue   2,150,398    2,040,280
          
Gross profit   179,501    180,475
          
Operating expenses         
 General and administrative expenses   285,185    255,187
 Bad debt   1,055,783    —  
 Wages and benefits   493,045    196,776
 Rent   37,699    18,426
 Consulting   77,920    26,535
 Professional fees   344,267    369,551
Total operating expenses   2,293,899    866,475
          
Loss from operations   (2,114,398)   (686,000)
          
Other income (expense)         
 Interest Income   88,471    45,893
 Interest expense   (253,206)   (74,667)
 Gain on sale of assets   —      4,588
 Loss on conversion of debt   (1,289,724)   (862,499)
 Loss on conversion of stock   (99,000)   —  
 Loss on issuance of stock   (8,000)   (238,816)
 Total other expense   (1,561,459)   (1,125,501)
          
Net loss   (3,675,857)   (1,811,501)
          
Net loss Attributable to Company   3,675,857    1,811,501
          
          
Net loss per common share: basic and diluted  $(0.14)  $(0.13)
         
Basic and diluted weighted average common shares outstanding   26,008,484    14,355,645

 

 

 See accompanying notes to the consolidated financial statements

 F-3 

 

CANNAGISTICS, Inc., also known as PRECIOUS INVESTMENTS INC.,

GLOBAL3PL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(AUDITED)

 

    Common Stock    Preferred Stock C    Preferred Stock D                         
    Shares    Amount    Shares    Amount    Shares    Amount    Additional Paid-in Capital    Treasury Stock     Noncontrolling Interest    Accumulated Deficit    Total Stockholders' Deficit
Balance, July 31, 2017   12,565,645   $12,566    —     $—      —     $—     $78,391,183   $(45,000)  $(20,932)  $(79,507,419)  $(1,169,602)
                                                       
Acquisition adjustment to equity                                 (78,316,705)        20,932    79,507,419    1,211,646
Stock issued to settle convertible debt   1,540,000    1,540                        946,340                   947,880
Shares issued for cash   250,000    250    1,000,000    1,000              249,750                   251,000
Merger adjustments        (89)                                      (329,918)   (330,007)
Foreign Currency Adjustment                                                27,725    27,725
Net loss                                                (1,811,501)   (1,811,501)
Balance, July 31, 2018   14,355,645   $14,267    1,000,000   $1,000    —     $—     $1,270,568   $(45,000)  $—     $(2,113,694)  $(872,859)
                                                       
Stock issued to convert preferred to common stock   72,500,000    72,500    (1,000,000)   (1,000)             27,500                   99,000
Stock issued to settle convertible debt   6,261,778    6,262                        25,898                   32,160
Shares issued for cash                       8,000,000    8,000                        8,000
Conversion of debt                                 1,289,724                   1,289,724
Adjustment to equity   654    1                                            1
Foreign Currency Adjustment                                                19,102    19,102
Net loss                                                (3,675,857)   (3,675,857
Balance, July 31, 2019   93,118,077   $93,029    —     $—      8,000,000   $8,000   $2,613,690   $(45,000)  $—     $(5,770,449)  $(3,100,729

 

 See accompanying notes to the consolidated financial statements

 F-4 

 

CANNAGISTICS, Inc., also known as PRECIOUS INVESTMENTS INC.,

GLOBAL3PL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(AUDITED)

 

   For The Year Ended
   July 31, 2019  July 31, 2018
Cash Flows from Operating Activities         
Net loss   (3,675,857)   (1,811,501)
          
Adjustments to reconcile net loss to net cash provided by operating activities:         
Gain on sale of assets   —      (4,588)
Gain/(loss) on conversion of debt   1,299,594    862,499
Loss on conversion of stock   99,000    —  
Loss on issuance of stock   8,000    238,816
Foreign currency adjustment   19,102    (27,725)
Depreciation expense   8,806    15,802
Bad debt   1,055,783     
Asset merger adjustment   —      330,007
          
Changes in assets and liabilities         
Accounts receivable   62,780    (537,139)
Inventory   —      203,000
Prepaid expense   (5,361)   (11,154)
Accounts payable and accrued expenses   63,878    581,671
Net cash used in operating activities   (1,064,274)   (160,312)
          
          
Cash Flows from Investing Activities         
Proceeds from sale of assets   —      8,462
Purchase of equipment   (17,972)   (20,492)
Increase in restricted cash   (152,181)   —  
(Increase) decrease in security deposits   33,077    (36,711)
Net cash used in investing activities   (137,076)   (48,741)
          
Cash Flows from Financing Activities         
Proceeds from the sale of common stock   —      1,701
Proceeds from the sale of preferred stock   —      1,000
Proceeds from the line of credit   —      264,935
Proceeds from promissory notes   6,100    198,900
Proceeds from convertible notes   1,116,881    1,024,552
Proceeds from additional paid in capital   —      249,750
Payments on line of credit   (6,227)   —  
Payments on promissory notes   (40,000)   —  
Payments on notes payable related party   151,317    (319,544)
Advances to/from  related parties   (40,329)   (1,209,000)
Net cash provided by (used in) financing activities   1,187,742    212,294
          
Net increase in cash   (13,608)   3,241
          
Cash, beginning of period   14,238    10,997
          
Cash, end of period   630    14,238
          
Supplemental disclosure of cash flow information         
Cash paid for interest   52,322    74,667
Cash paid for tax   —      —  
          
Non-cash investing and financing transactions         
Acquisition adjustment to equity   —      1,211,646
Shares issued to settle convertible debt   —      947,880

 

 See accompanying notes to the consolidated financial statements

 F-5 

  

Cannagistics, Inc., also known as Precious Investments Inc.,

GLOBASL3PL INC and Subsidiaries

Notes to Condensed Financial Statements (Audited)

July 31, 2019

  

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Organization and Description of Business

 

Cannagistics, Inc. (Formerly FIGO Ventures, Inc.) (‘The Company’) was incorporated under the laws of the State of Nevada on May 26, 2004. The Company was an Exploration Stage Company with the principle business being the acquisition and exploration of resource properties.

 

The Company had allowed its charter with the state of Nevada to be revoked by the Secretary of State for failure to file the required annual lists and pay the required annual fees. Its last known officers and directors reflected in the records of the Secretary of State were unresponsive or stated they were no longer involved with the Company. The purported replacement officers and directors were unresponsive.

 

On September 14, 2012, NPNC Management, LLC filed a petition in the Eighth Judicial District Court in Clark County, Nevada and was appointed custodian of the Company on October 15, 2012.

 

In order to obtain basic operating capital to pay for the reinstatement of the Company’s good standing with the Nevada Secretary of State, to bring the Company’s account current with creditors essential for the reorganization of the Company, such as the transfer agent, and for basic general corporate purposes, on October 24, 2012, the interim board authorized the sale of 55,000,000 (2,200,000 split adjusted) shares of common stock for $6,000 to NPNC Management, LLC, in a private placement transaction exempt from the Securities Act of 1933, as amended, pursuant to section 4(2) thereof and the rules and regulations promulgated there under.

 

On October 24, 2012, NPNC Management, LLC appointed Bryan Clark as director of the Company, to hold office until such time as the shareholders elected a board. The interim board, consisting of Mr. Clark, further acted to appoint Mr. Clark as president, treasurer, and secretary of the Company, to act on behalf of the Company, and to hold such offices until removed by any subsequent board elected by the shareholders.

 

On November 13, 2013, Bryan Clark tendered his resignation from all positions as an Officer and Director of the Company and the Board appointed Anna Wlodarkiewicz as a Director, President, Secretary and Treasurer of the Company.

 

On October 9, 2014, Ania Wlodarkiewicz tendered her resignation from all positions as an Officer and Director of the Company and the Board appointed Nataliya Hearn as a Director, President, Secretary and Treasurer of the Company.

 

On March 28, 2016, Nataliya Hearn resigned as the Company’s Chief Executive Officer and Director. Mr. Kashif Khan is the Company’s sole officer and director.

 

The Company then completed an asset purchase agreement dated August 10, 2015 where the Company acquired from Kashif Khan, its sole officer and director, colored diamonds with a wholesale value of US$4 Million, which he was in control of, in exchange for issuing three secured demand convertible promissory notes totaling US$4 Million.

 

On March 1, 2017, the Company then entered into a joint venture agreement with Eddeb Management (“Eddeb”). The purpose of the joint venture is to build a fund for the purpose of trading in precious gems, notably, colored diamonds.

 

 F-6 

 

Cannagistics, Inc., also known as Precious Investments Inc.,

GLOBASL3PL INC and Subsidiaries

Notes to Condensed Financial Statements (Audited)

July 31, 2019

 

On November 16, 2017, the Company entered into an Agreement of Merger and Plan of Reorganization (the “Merger Agreement”) with American Freight Xchange, Inc., a privately held New York corporation (“American Freight”), and Shipzooka Acquisition Corp. (“Shipzooka Sub”), a newly formed wholly-owned Nevada subsidiary of Precious Investments, Inc. In connection with the closing of this merger transaction, Shipzooka Sub merged with and into American Freight (the “Merger”) on December 5, 2017, with the filing of Articles of Merger with the Nevada Secretary of State and Certificate of Merger with the New York Division of Corporations.

 

The transaction resulted in the Company acquiring Subsidiary by the exchange of all of the outstanding shares of Subsidiary for 1,000,000 newly issued Series C Preferred shares of stock, $0.001 par value (the “Preferred Stock”) of Parent which have conversion and voting rights of 72.5 votes for each share, representing approximately 90.2% of the voting rights

 

For accounting purposes, the transaction was treated as a reverse merger since the acquired entity now forms the basis for operations and the transaction resulted in a change in control, with the acquired company electing to become the successor issuer for reporting purposes. The accompanying financial statements have been prepared to reflect the assets, liabilities and operations of American Freight Xchange, Inc. exclusive of Precious Investments, Inc since all predecessor operations were discontinued.

 

As part of the transaction, amounts due to former officers were forgiven, with the balances recorded as Contributed Capital. For equity purposes, accumulated deficit shown are those American Freight Xchange, Inc. Shipzooka Acquisition Corp. is a dormant corporation.

 

The Company is both a less-than-truckload (“LTL”) and a Third-Party Logistics (“3PL”) carrier, providing regional, inter-regional and national LTL and or 3PL services. These include arranging for ground and air expedited transportation and consumer household pickup and delivery (“P&D”), through a single integrated organization. In addition to our core LTL services, we offer a range of value-added services which cover different areas, such as, truckload brokerage, supply chain consulting and warehousing and pick and ship services.

 

On July 23, 2018 the Company amended the name of its subsidiary, KRG Logistics, Inc., to Global3pl, Inc. (an Ontario corporation).

 

On September 4, 2018 the Company incorporated Cannagistics, Inc., in the province of Ontario, Canada. This is intended to be a new line of business for the Company but is dormant at this time.

 

On April 17, 2019, we filed Articles of Merger with the Secretary of State of Nevada in order to effectuate a merger with our wholly owned subsidiary, Cannagistics, Inc. Shareholder approval was not required under Section 92A.180 of the Nevada Revised Statutes. As part of the merger, our board of directors authorized a change in our name to “Cannagistics, Inc.” and our Articles of Incorporation have been amended to reflect this name change.

 

On September 26, 2019, the Board of Directors approved the registered spinout of its Global3pl, Inc., (a New York corporation) (“Global3pl”) subsidiary. Global3pl is to be a logistics technology provider, along with the American Freight Xchange and UrtbanX Platforms that have been under development by the Company.

 

The Board of Directors also declared a stock dividend for all shareholders, with a record date of October 10, 2019. For every 50 shares of common stock of the Company, all shareholders of record on the record date will receive one share of common stock in Global3pl. Global3pl will also file a registration statement as part of its raise of capital to complete the development of American Freight Xchange, a North American freight broker-driven 3pl network to handle the management of long haul LTL (less than truckload), and specialty freight (white glove) services and Urbanx, a North American network of rush-messenger local trucking services for forward and reverse last mile delivery (including white glove service).

 

 F-7 

 

Cannagistics, Inc., also known as Precious Investments Inc.,

GLOBASL3PL INC and Subsidiaries

Notes to Condensed Financial Statements (Audited)

July 31, 2019

 

On September 18, 2019, the Company announced, with a press release, the signing of a Letter of Intent (the “LOI”) with Unified Cannabis of Calgary, Canada (“Unified”) whereby Unified will merge qualified assets into the Company in an all-stock transaction. The Company will then raise the capital necessary to effectuate the merger of the assets and acquisition targets of Unified and for the explosive organic growth strategy of Cannagistics and Unified, combined, thus creating the first CBD/Hemp/Cannabis International Vertically Optimized Company (CIVOC).

 

Effective October 1, 2019, the Company suspended operations of its subsidiary Global3pl, Inc., (an Ontario corporation, formerly known as KRG Logistics, Inc.), suspended future operations related to the operations in Mississauga, Ontario. It is in the process of collecting accounts receivables still due and working on a plan to pay its payables. It has entered into an agreement with 10451029 Canada Inc., d/b/a Reliable Logistics, for the assignment and of the assets of Global3pl, Inc., (an Ontario Corporation). The transaction has not yet completed.

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of consolidation

The consolidated financial statements include the accounts of Cannagistics, Inc. and its wholly owned subsidiaries American Freight Xchange, Inc and Global3pl, Inc. (Ontario), formerly known as KRG Logistics, Inc. All significant inter-company transactions and balances have been eliminated.

 

Basis of Presentation

 

We have summarized our most significant accounting policies for the fiscal period ended July 31, 2019.

 

Accounts receivable and allowance for doubtful accounts

 

Accounts receivable are stated at the amount management expects to collect. The Company generally does not require collateral to support customer receivables. The Company provides an allowance for doubtful accounts based upon a review of the outstanding accounts receivable, historical collection information and existing economic conditions. As of July 31, 2019, and 2018 the allowance for doubtful accounts was $0 and $0, respectively.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the financial statements and the reported amount of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

 

Income Taxes 

 

The Company accounts for income taxes under ASC 740 "Income Taxes," which codified SFAS 109, "Accounting for Income Taxes" and FIN 48 “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109.” Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.

 

 F-8 

 

Cannagistics, Inc., also known as Precious Investments Inc.,

GLOBASL3PL INC and Subsidiaries

Notes to Condensed Financial Statements (Audited)

July 31, 2019

 

Derivative Financial Instruments

 

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.

 

The Company reviews the terms of convertible loans, equity instruments and other financing arrangements to determine whether there are embedded derivative instruments, including embedded conversion options that are required to be bifurcated and accounted for separately as a derivative financial instrument. Also, in connection with the issuance of financing instruments, the Company may issue freestanding options or warrants to employees and non-employees in connection with consulting or other services. These options or warrants may, depending on their terms, be accounted for as derivative instrument liabilities, rather than as equity.

 

Derivative financial instruments are initially measured at their fair value. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at fair value and then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. To the extent that the initial fair values of the freestanding and/or bifurcated derivative instrument liabilities exceed the total proceeds received an immediate charge to income is recognized in order to initially record the derivative instrument liabilities at their fair value.

 

The discount from the face value of the convertible debt instruments resulting from allocating some or all of the proceeds to the derivative instruments, together with the stated rate of interest on the instrument, is amortized over the life of the instrument through periodic charges to income, using the effective interest method.

 

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. If reclassification is required, the fair value of the derivative instrument, as of the determination date, is reclassified. Any previous charges or credits to income for changes in the fair value of the derivative instrument are not reversed. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within twelve months of the balance sheet date.

 

Fair value of financial instruments 

 

The Company’s financial instruments consist of its liabilities. The carrying amount of payables and the loan payable – related party approximate fair value because of the short-term nature of these items. The promissory notes, and convertible notes payables are measured at amortized cost using the effective interest method, which approximates fair value due to the relationship between the interest rate on long-term debt and the Company’s incremental risk adjusted borrowing rate.

 

Inventories

The Company does not hold any inventory as assets. All inventory in operations is owned by the shipper.

 

Revenue Recognition

The Company recognizes revenue related to transaction from its third-party logistics sales when (i) the seller’s price is substantially fixed, (ii) shipment has occurred causing the buyer to be obligated to pay for product, (iii) the buyer has economic substance apart from the seller, and (iv) there is no significant obligation for future performance to directly bring about the resale of the product by the buyer as required by ASC 605 – Revenue Recognition. Cost of sales, rebates

 

In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers” (Topic 606) which establishes revenue recognition standards. ASU 2014-09 was effective for annual reporting periods beginning after December 15,2017. We adopted ASU 2014-09 effective August 1, 2018. ASU 2014-09 has not had a significant effect on the Company’s financial position and results of operations.

 

FASB ASC Topic 830, Foreign Currency Matters (formerly FASB Statement No. 52, Foreign Currency Translation) provides accounting guidance for transactions denominated in a foreign currency, and for operations undertaken in a foreign currency environment. To prepare consolidated financial statements, an entity translates all functional currency financial statements into a single reporting currency. The same applies if an entity uses different currencies for reporting purposes and for its functional currency. The company reports its currency in US dollars.

 

 F-9 

 

Cannagistics, Inc., also known as Precious Investments Inc.,

GLOBASL3PL INC and Subsidiaries

Notes to Condensed Financial Statements (Audited)

July 31, 2019

 

NOTE 3 – GOING CONCERN 

 

Management does not expect existing cash as of July 31, 2019 to be sufficient to fund the Company’s operations for at least twelve months from the issuance date of these December 31, 2019 financial statements. These financial statements have been prepared on a going concern basis which assumes the Company will continue to realize its assets and discharge its liabilities in the normal course of business. As of December 31, 2019, the Company has incurred losses totaling $4,714,166 since inception, has not yet generated material revenue from operations, and will require additional funds to maintain its operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern within one year after the consolidated financial statements are issued. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become due. The Company intends to finance operating costs over the next twelve months through its existing financial resources and we may also raise additional capital through equity offerings, debt financings, collaborations and/or licensing arrangements. If adequate funds are not available on acceptable terms, we may be required to delay, reduce the scope of, or curtail, our operations. The accompanying consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. 

 

NOTE 4 – EQUIPMENT AND IMPROVEMENTS

Equipment and improvements are summarized as follows:

 

   July 31, 2019  July 31, 2019
Furniture and fixtures  $76,930   $71,513
Machinery and equipment   205,900    195,813
Transportation equipment   11,185    11,293
Building improvements   4,413    4,456
    298,428    283,075
         
 Less accumulated depreciation and amortization   244,132    237,945
   $54,296   $45,130
Depreciation and amortization expense:         
    8,806   $15,802

  

NOTE 5 – PROMISSORY NOTES

 

Promissory notes payable as of July 31, 2019 and July 31, 2018 consisted of the following:   July 31, 2019    

July 31, 2018

Note payable dated January 15, 2014, matured January 15, 2015 bearing interest at 12% per annum.   $ 0     $ 3,000
Note payable dated February 14, 2014 matured February 14, 2015, bearing interest at 12% per annum.     0       3,750
Note payable dated April 1, 2014 matured April 1, 2015, bearing interest at 12% per annum.     0       4,700
Note payable dated January 30, 2014, matured January 30, 2015, bearing interest at 12% per annum.     0       5,000
Note payable dated March 8, 2018, matures March 8, 2019, currently in default, bearing interest at 10% per annum.   $ 30,000     $ 23,900
Note payable dated July 20, 2018 matures October 1, 2019, bearing interest at 0% per annum.     135,000       175,000
             
Total   $ 165,000     $ 215,350
Less current portion of long-term debt     165,000       40,350
Total long-term debt   $ 0     $ 175,000

 

Some notes have matured as of July 31, 2017 and have not been paid. They are due on demand and recorded as current liabilities. Interest expense for the year ended July 31, 2019 and 2018 was $18,644 and $4,285 respectively.

 

 F-10 

 

Cannagistics, Inc., also known as Precious Investments Inc.,

GLOBASL3PL INC and Subsidiaries

Notes to Condensed Financial Statements (Audited)

July 31, 2019

 

NOTE 6 - CONVERTIBLE DEBT

Convertible debt as of July 31, 2019 and July 31, 2018 consisted of the following:

 

Description  July 31, 2019  July 31, 2018
       
Convertible note agreement dated November 1, 2013 in the amount of $30,000 payable and due on demand bearing interest at 12% per annum. Principal and accrued interest is convertible at $.002250 per share.  $11,0411   $0
Convertible note agreement dated February 20, 2018 in the amount of $1,034,000 payable and due on demand bearing interest at 10% per annum. Principal and accrued interest is convertible at $.028712 per share.  $1,034,0000   $1,034,000
Convertible note agreement dated March 13, 2019 in the amount of $800,000 payable and due on March 20, 2020 bearing interest at 24% per annum.  $800,0000   $0
C Convertible note agreement dated June 28, 2019 in the amount of $300,000 payable and due on June 28, 2020 bearing interest at 20% per annum.  $300,0000   $0
Convertible notes, net of discount  $2,145,041   $1,034,000

 

The Company recognized $0 of debt discount accretion expense on the above notes. Interest expense related to these notes for the year ended July 31, 2019 and 2018 was $163,668 and $19,547, respectively.

 

NOTE 7 - LINE OF CREDIT

 

The Company has a line of credit with a maximum borrowing limit of $400,000, bearing an interest rate of prime plus 3.25% per annum and secured by a General Security Agreement. As of July 31, 2019, and July 31, 2018, $258,708 and $264,935 were drawn on the line of credit, respectively. Interest expense for the years ended July 31, 2019 and 2018 were $18,567 and $12,058 respectively. Beginning February 1, 2019, the Company is required to maintain a cash collateral account in the amount of $200,000 in Canadian dollars. The Company has invested in a Guaranteed Investment Certificate for a one-year term at an interest rate of .25%.

 

NOTE 8 – RELATED PARTY TRANSACTIONS 

A shareholder of the Company has paid certain expenses of the Company. These amounts are reflected as a loan payable to related party. The shareholder advanced 35,777.24 and $16,978 during the year ended July 31, 2019 and 2018. As of the July 31, 2019 and July 31, 2018, there were $365,945 and $406,274 due to related parties, a shareholder, respectively.

 

The Company has consulting agreements with two of its shareholders to provide management and financial services that commenced on December 1, 2017. For the year ended July 31, 2019 and 2018 consulting fees paid were $169,719 and $178,860 respectively. The consulting fees are included as part of professional fees on the Company’s consolidated statements of operations.

 

The Company on February 20, 2018 entered into a related party (that being Recommerce Group, Inc. and our President is a principal in Recommerce Group, Inc.) note receivable in the amount of $1,034,000. The Company made an additional advance in the amount of $175,000 that is non-interest bearing. The note is payable and due on demand and bears interest at the rate of 10%. A total of $153,217 has been applied as payments against this Note. Interest income in the amount of $64,695 for the year ended July 31, 2019 has been recorded in the financial statements. An allowance for Bad Debt, related to the Related Party Note with Recommerce Group, Inc. has been added to the Balance Sheet.

 

 F-11 

 

Cannagistics, Inc., also known as Precious Investments Inc.,

GLOBASL3PL INC and Subsidiaries

Notes to Condensed Financial Statements (Audited)

July 31, 2019

 

NOTE 9 – TRANSFER AND ASSIGNMENT OF ASSETS

 

On November 16, 2017, the Company entered into an agreement of conveyance, transfer and assignment of assets (the “Agreement”) with its former officer Kashif Khan and the non-controlling owners of the Company subsidiary Flawless Funds GP (assignees), in which the Company was returned 16,000,000 shares of its common stock in consideration of all assets related to its previous colored diamond business which had a book value related to accounts receivable of $20,000. Additionally, the assignees agreed to pay up to $100,000 in liabilities on the behalf of the Company. As of July 31, 2018, the 16,000,000 shares have been returned and the Company has recorded the net consideration received of $80,000 as an increase to additional paid in capital.

 

NOTE 10 – STOCKHOLDERS’ EQUITY

 

The Company is authorized to issue 250,000,000 shares of its $0.001 par value common stock and 10,000,000 shares of Preferred stock. As of July 31, 2019, and 2018 there were 93,118,077 and 14,355,645 shares, respectively, of common stock outstanding. There were, also, 8,000,000 shares of Series D Preferred stock outstanding as of July 31, 2019 and 1,000,000 shares of Series C Preferred stock outstanding as of July 31, 2018.

 

On November 1, 2017, we effected a one-for-four reverse stock split. All share and per share information has been retroactively adjusted to reflect the stock split.  

 

On November 7, 2017, the Company designated 1,000,000 shares of Preferred Stock as Series C Preferred stock, par value $0.001 per share (the “Series C Preferred Stock”). Each share of Series C Preferred Stock is convertible into 72.5 common shares and has voting rights based on this ratio. As of July 31, 2018, there were 1,000,000 shares of Preferred C shares issued and outstanding. On May 15, 2019, the 1,000,000 shares were converted to 72,500,000 shares of common stock.

 

On April 29, 2019, the Company designated 10,000,000 shares of Preferred Stock as Series D Preferred stock, par value $0.001 per share (the “Series C Preferred Stock”). Each share of Series D Preferred Stock is convertible into 72.5 common shares and has voting rights based on this ratio. As of July 31, 2019, there were 8,000,000 shares of Preferred D shares issued and outstanding.

 

NOTE 11 – INCOME TAXES

 

The Company is subject to United States federal and state income taxes at an approximate rate of 20%. The reconciliation of the provision for income taxes at the United States federal statutory rate compared to the Company’s income tax expense as reported is as follows:

 

  

July 31,

2019

 

July 31,

2018

       
Expected income tax at statutory rate  $(735,171)  $(362,300)
Permanent differences   —      —  
Change in valuation allowance   735,171    362,300
Provision for income taxes  $—     $—  

 

The significant components of deferred income tax assets and liabilities at July 31, 2019 and 2018 are as follows:

 

  

July 31,

2019

 

July 31,

2018

       
Net operating loss carry-forward  $2,443,167   $1,707,996
Valuation allowance   (735,171)   (341,599)
Net deferred income tax asset  $   $—  

 

 F-12 

 

Cannagistics, Inc., also known as Precious Investments Inc.,

GLOBASL3PL INC and Subsidiaries

Notes to Condensed Financial Statements (Audited)

July 31, 2019

 

The Company has net operating losses carried forward of approximately $4 million and $2 million as of July 31, 2019 and 2018, respectively, available to offset taxable income in future years which expire beginning in fiscal 2039.

 

As of and for the years ended July 31, 2019 and 2018, management does not believe the Company has any uncertain tax positions. Accordingly, there are no recognized tax benefits at July 31, 2019 and 2018.

 

NOTE 12 – COMMITMENTS AND CONTINGENCIES

 

Litigations, Claims and Assessments

 

The Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise that may harm its business. The Company is currently not aware of any such legal proceedings or claims that they believe will have, individually or in the aggregate, a material adverse effect on its business, financial condition or operating results.

 

Operating Leases 

 

The Company in February 2019 assumed a lease agreement for a facility site and entered into a lease agreement for office space. The facility site lease has a term of twenty-three months expiring on December 31, 2020 and the office space lease has a five-year term and begins April 1, 2019 and ends March 31, 2024.

 

Effective October 1, 2019, the Company suspended operations of its subsidiary Global3pl, Inc., (an Ontario corporation, formerly known as KRG Logistics, Inc.), suspended future operations related to the operations in Mississauga, Ontario. It is in the process of collecting accounts receivables still due and working on a plan to pay its payables. It has entered into an agreement with 10451029 Canada Inc., d/b/a Reliable Logistics, for the assignment and of the assets of Global3pl, Inc., (an Ontario Corporation). The transaction has not yet been completed.

 

The Company on July 31, 2019 entered into a lease agreement for additional office space. The lease has a commencement date of June 1, 2019 and has a lease term of five years expiring on May 31, 2024.

 

Future minimum lease payments, as set forth in the lease, are below:

 

Year  Amount
 2019-2020   $21,912 
 2020-2021   $22,569 
 2021-2022   $23,246 
 2022-2023   $23,943 
 2023-2024   $20,449 

 

NOTE 13 - SUBSEQUENT EVENTS

 

Sanguine Group, LLC, has loaned the Company additional funds not already included in the established promissory note. These funds are not yet reduced to a written agreement.

 

Garden State Holdings loaned the Company $55,000 on December 4, 2019. There is no written note at this time, but Garden State Holdings has committed to loan the Company up to $175,000.

 

Sanguine Group, LLC and Garden State Holdings are entities controlled by the same person, who is an investor in the Company.

 

Emerging Growth Advisors, Inc., controlled by James W. Zimbler, our President/Director has loaned the company a total of $35,777.24. There is no terms or written note.

 

 F-13 

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

None

 

Item 9A. Controls and Procedures

 

As required by Rule 13a-15 under the Securities Exchange Act of 1934, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this annual report, being July 31, 2019. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer/Chief Financial Officer.

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our Chief Executive Officer/Chief Financial Officer, to allow timely decisions regarding required disclosure.

 

Based upon that evaluation, including our Chief Executive Officer/Chief Financial Officer, we have concluded that our disclosure controls and procedures were ineffective as of the end of the period covered by this annual report.

 

Management’s Annual Report on Internal Control over Financing Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934). Management has assessed the effectiveness of our internal control over financial reporting as of July 31, 2019 based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As a result of this assessment, management concluded that, as of July 31, 2019, our internal control over financial reporting was not effective. Our management identified the following material weaknesses in our internal control over financial reporting, which are indicative of many small companies with small staff: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines.

 

We plan to take steps to enhance and improve the design of our internal control over financial reporting. During the period covered by this annual report on Form 10-K, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we hope to implement the following changes during our fiscal year ending July 31, 2019: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out in (i) and (ii) are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.

 

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to an exemption for non-accelerated filers set forth in Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

 

Item 9B. Other Information

 

None

 

 20 

 

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance

 

The following information sets forth the name, age, and position of our current director and executive officer as of the date of this Annual Report.

 

Name Age Position(s) and Office(s) Held
James W. Zimbler 54 Chairman of the Board, Chief Executive Officer and Director

 

Set forth below is a brief description of the background and business experience of our current executive officer and director.

 

James W. Zimbler, CEO and Director

James W. Zimbler is a management consultant, through his company Emerging Growth Advisors, Inc., specializing in roll ups and turn-around work. Currently he is President of Precious Investments, Inc., a public company that recently acquired KRG Logistics, Inc. Mr. Zimbler has over fifteen years’ experience in the trucking and logistics filed, with numerous companies. Mr. Zimbler, is a founder of Eco Petroleum Solutions, Inc. He was worked with many public and private companies and has involved in consulting for capital raising, recapitalization and mergers and acquisitions for various clients since 2000.  He has served on the Board of Directors and/or as officer of several companies since 2000, including Accountabilities, Inc., Triton Petroleum Group, Inc., Universal Media, Inc., and Genio Holdings, Inc.

 

Directors

 

Our bylaws authorize no less than one (1) and more than thirteen (13) directors. We currently have one (1) director.

 

Term of Office

 

Our Directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board.

 

Family Relationships

 

There are no family relationships between or among the directors, executive officers or persons nominated or chosen by us to become directors or executive officers.

 

Involvement in Certain Legal Proceedings

 

To the best of our knowledge, during the past five years, none of the following occurred with respect to a present or former director, executive officer, or employee: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.

 

 21 

 

Audit Committee

 

We do not have a separately designated standing audit committee. The entire board of directors performs the functions of an audit committee, but no written charter governs the actions of the board of directors when performing the functions of that would generally be performed by an audit committee. The board of directors approves the selection of our independent accountants and meets and interacts with the independent accountants to discuss issues related to financial reporting. In addition, the board of directors reviews the scope and results of the audit with the independent accountants, reviews with management and the independent accountants our annual operating results, considers the adequacy of our internal accounting procedures and considers other auditing and accounting matters including fees to be paid to the independent auditor and the performance of the independent auditor.

 

We do not have an audit committee financial expert because of the size of our company and our board of directors at this time. We believe that we do not require an audit committee financial expert at this time because we retain outside consultants who possess these attributes as needed.

 

For the fiscal year ending July 31, 2019, the board of directors:

 

  1. Reviewed and discussed the audited financial statements with management, and
  2. Reviewed and discussed the written disclosures and the letter from our independent auditors on the matters relating to the auditor’s independence.

Based upon the board of directors’ review and discussion of the matters above, the board of directors authorized inclusion of the audited financial statements for the year ended July 31, 2018, to be included in this Annual Report on Form 10-K and filed with the Securities and Exchange Commission.

 

Code of Ethics

 

The Company has not yet adopted a Code of Ethics as defined by applicable rules of the SEC. The Company anticipates that it will adopt a Code of Ethics when appropriate as it hires additional employees and obtains additional officers and directors. 

 

Item 11. Executive Compensation

 

Summary Compensation Table

 

The table below summarizes all compensation awarded to, earned by, or paid to our former or current executive officers for the fiscal years ended July 31, 2019 and 2018.

 

The table below summarizes all compensation awarded to, earned by, or paid to each named executive officer for our last two completed fiscal years for all services rendered to us.

 

SUMMARY COMPENSATION TABLE
Name and principal position   Year     Salary
($)
    Bonus
($)
    Stock
Awards
($)
    Option
Awards
($)
    Non-Equity
Incentive Plan Compensation ($)
    Nonqualified
Deferred
Compensation
Earnings ($)
  All Other
Compensation ($)
    Total
($)

James W. Zimbler,

CEO and Director

   

2019

2018

2017

     

151,133

95,000

0

     

00

0

     

1,000,000*

0

0

     

 

0

0

     

 

0

0

   

0

0

 

 

 

 

0

0

   

__  

__  

 

 

*  Stock Award was 1,000,000 Series D Preferred Shares 

 

 22 

 

Narrative to Summery Compensation Table

 

On October 1, 2018, we entered into an employment agreement with James W. Zimbler (“Zimbler”) to be our Chief Executive Officer (the “Zimbler Agreement”). The description of the Zimbler Agreement provided below is qualified in its entirety by reference to the complete terms of the Zimbler Agreement, a copy of which is attached hereto as Exhibit 10.1 and incorporated by reference herein.

 

The following is a summary of the material terms of the Zimbler Agreement.

 

§The term commences on October 1, 2018 and is for a period of five (5) years, unless terminated earlier as provided therein.
§Zimbler’s initial annual Base Salary is $195,000, with an increase of 3% each year for the term of the Agreement.
§Zimbler is entitled to participate in any Bonus or Executive Compensation Plan established by the Company Zimbler is also entitled to car allowance of up to $1,000 per month for the term of the Zimbler Agreement.
§Zimbler will be entitled to participate in our health and welfare benefit programs and vacation and other benefit programs for which other employees of our company are generally eligible, subject to any eligibility requirements of such plans and programs.
§Upon termination of Zimbler’s employment, he may be entitled to receive certain post-termination severance benefits depending upon whether such termination is by the Company without Cause, in relation to a Change of Control, a resignation by Zimbler for Good Reason, or by reason of Zimbler’s death or disability (as such terms are defined in the Zimbler Agreement).

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

The following table sets forth, as of January 15, 2020, certain information as to shares of our common stock owned by (i) each person known by us to beneficially own more than 5% of our outstanding common stock, (ii) each of our directors, and (iii) all of our executive officers and directors as a group. Unless otherwise stated, the address for each beneficial owner is at 2480 Stanfield Road, Unit B, Mississauga, Ontario L4Y 1S2.

 

    Common Stock     Series D
Preferred Stock
Name and Address of Beneficial Owner   Number of Shares
Owned (1)
    Percent of Class (2)     Number of Shares Owned (1)     Percent of Class (2)
James Zimbler (3)    72,500,000         %     1,000,000       100%
All Directors and Executive Officers as a Group (1 person)             %     1,000.000       100%
5% Holders                              

Realty Capital Management (4)

Blienham Trust

PO Box 3483

Road Town, Tortola,

British Virgin Islands

   681,675         4.75%     0       0%

John Figliolini (5)

12862 Riverside Drive East

Windsor, ON N8N1A8

Canada

   *         *%     0       0%
Torey Jean Gault
12862 riverside Dr. East
Windsoe, ON N8N1A8 (6)
  517,361          3.6%

 

 

  0       0%

Parand Bioukzadeh

313-25 Avondale Ave

North York, ON Canada M2N7C1

  2,000,000         13.9%     0       0%

Faegheh Mobarhan Niakan

313-25 Avondale Ave.

North York, ON Canada M2M7C1

  2,000,000         13.9%     0       0%

 

 * less than one percent

 

(1) Unless otherwise indicated, each person or entity named in the table has sole voting power and investment power (or shares that power with that person’s spouse) with respect to all shares of voting stock listed as owned by that person or entity.

 

(2) Pursuant to Rules 13d-3 and 13d-5 of the Exchange Act, beneficial ownership includes any shares as to which a shareholder has sole or shared voting power or investment power, and also any shares which the shareholder has the right to acquire within 60 days, including upon exercise of common shares purchase options or warrants. The percent of class of common stock is based on 51,262,577 shares of common stock as of August 22, 2017. The percent of class of Series A Preferred Stock is based on 0 shares of common stock as of August 22, 2017.

 

(3) Mr Zimbler, though Emerging Growth Advisors, Inc., is the holder of 1,000,000 shares of Series Dpreferred stock, with voting rights of 72.5 shares of common stock per one share of Series D Preferred Stock

 

(4) Julius Csurgo is the beneficial owner of the shares held by Realty Capital Management. Represents 1,367,500 shares of common stock and principal and accrued interest of $16,474 under a convertible note that is convertible into 7,321,778 shares of our common stock.

 

(5)

John Figliolini is the beneficial owner of the shares held by Helena Growth Capital Ltd. and Saint James Capital Management. Represents 1,014,343 shares of common stock in Helena Growth Capital Ltd., 410,812 shares of common stock held in Saint James Capital Management accrued interest of $2,751 under a convertible note that is convertible into 1,222,667 shares of our common stock.

 

(6) Represents 2,069,444 shares of common stock in her name and principal and accrued interest of $2,338 under a convertible note that is convertible into 1,039,111 shares of our common stock.

 

 23 

 

Item 13. Certain Relationships and Related Transactions, and Director Independence

 

Aside from that which follows and in “Executive Compensation,” none of our directors or executive officers, nor any proposed nominee for election as a director, nor any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to all of our outstanding shares, nor any members of the immediate family (including spouse, parents, children, siblings, and in-laws) of any of the foregoing persons has any material interest, direct or indirect, in any transaction for the last two fiscal years or in any presently proposed transaction which, in either case, has or will materially affect us.

 

We entered into three convertible note agreements dated November 1, 2013, totaling $45,000. These notes matured on November 30, 2015 and bear interest at 12% per annum. Principal and accrued interest is convertible at $.00225 per share. The principal and accrued interest under the notes belong to the following:

 

Holder Remaining Principal and Accrued Interest
Realty Capital Management (Julius Csurgo) $16,607
Helena Growth Capital Ltd. (John Figliolini) $2,751
Torey Jean Gault $2,338

 

Karrah, Inc. has paid certain of our expenses. The sole owner of Karrah, Inc. is the wife of Kashif Khan, our officer and director.  Karrah advanced $442,497 and $0 during the years ended July 31, 2017 and 2016. As of the July 31, 2017 and 2016, there were $691,202 and $133,554 due, respectively.

 

On March 28, 2016, we signed a letter of intent with Karrah. Pursuant to the letter of intent, the parties set forth their understandings in contemplation of an acquisition of all of the issued and outstanding shares of stock in Karrah, resulting in a parent subsidiary relationship.

 

On October 26, 2016, we learned that it was not possible to obtain an audit of Karrah that we were required to file with the SEC in connection with the acquisition as a result of the nature of the company’s jewelry inventory. Because we were unable to obtain an audit of Karrah, on October 28, 2016, we have restructured the entire transaction by entering into a Termination and Restructure Agreement. First, we and Karrah have mutually agreed to cancel the Agreement to acquire the issue and outstanding shares of stock in Karrah. Second, we agreed to purchase from Karrah its customer list in exchange for a revised promissory note (the “New Note”). The New Note will be in favor of Karrah valued at $1,500,000 with interest at 6% per annum and will not be secured by the assets of Karrah. The customer list has been invaluable in establishing our current colored diamond inventory. Third, we have acquired some of the inventory from Karrah, and the value of the New Note reflects that consideration as well.

 

On August 10, 2015, we entered into a Diamond Purchase Agreement (the “Agreement”) with Kashif Khan (“Khan”). Pursuant to the Agreement, we acquired from Khan colored diamonds with a wholesale value of $4,000,000 (the “Assets”). We did not assume any of Khan’s liabilities in the transaction. Pursuant to the Agreement, we acquired from Khan the Assets for three demand secured convertible promissory notes (the “Notes”) in the aggregate principal amount of $4,000,000.

 

On July 15, 2016, Khan demanded payment on the Notes. We have not raised $5 million in debt or equity financing and no portion of the Notes have been converted. As such, on July 25, 2016, we elected to return the Assets to Khan in lieu of payment.

 

Item 14. Principal Accounting Fees and Services

 

Below is the table of Audit Fees (amounts in US$) billed by our auditor in connection with the audit of the Company’s annual financial statements for the years ended:

 

Financial Statements for the
Year Ended December 31
  Audit Services  Audit Related Fees  Tax Fees  Other Fees
2017   $25,000  $25,000  $0  $0
2018   $50,000  $  $0  $0
2019   $72,500   $   $0  $0

 

 24 

 

PART IV

 

Item 15. Exhibits, Financial Statements Schedules

 

(a)  Financial Statements and Schedules

  

The following financial statements and schedules listed below are included in this Form 10-K.

 

Financial Statements (See Item 8)

 

(b)  Exhibits

 

Exhibit Number Description

31.1       Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2       Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1       Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 25 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

  Precious Investments, Inc.
   
By: James W. Zimbler
 

James W. Zimbler

President, Chief Executive Officer, Principal Executive Officer,

Chief Financial Officer, Principal Financial Officer, Principal Accounting Officer and Director

  January 16, 2020

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

 

By: /s/ James W. Zimbler
  James W. Zimbler
 

President, Chief Executive Officer, Principal Executive Officer,

Chief Financial Officer, Principal Financial Officer, Principal Accounting Officer and Director

  January 16, 2020

 

 26