UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: October 31, 2020
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________to _____________
Commission File Number: 000-55880
BLGI, INC.
(Exact name of registrant as specified in its charter)
|
Florida |
46-2500923 |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
207 W. Division Street, Suite 137
Chicago, Illinois 60622
(Address of principal executive offices, Zip Code)
(773) 683-1671
(Registrant’s telephone number, including area code)
N/A
(Former Name, Former Address and Former Fiscal Year if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” or “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]
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: We had a total of 22,067,686 shares of common stock issued and outstanding at December 18, 2020.
TABLE OF CONTENTS
FORM 10-Q
PART I – FINANCIAL INFORMATION
|
Item 1. |
Financial Statements |
4 |
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|
Balance Sheets as of October 31, 2020 and April 30, 2020 |
4 |
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Statements of Operations and Comprehensive Loss for the Three and Six Months Ended October 31, 2020 and 2019 |
5 |
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Statements of Stockholders’ Deficit for the Six Months Ended October 31, 2020 and 2019 |
6 |
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Statements of Cash Flows for the Six Months Ended October 31, 2020 and 2019 |
7 |
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Notes to Financial Statements |
8 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
18 |
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Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
22 |
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Item 4. |
Controls and Procedures |
22 |
PART II – OTHER INFORMATION
|
Item 1. |
Legal Proceedings |
23 |
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Item 1A. |
Risk Factors |
23 |
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Item 2. |
Unregistered Sales of Equity Securities |
23 |
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Item 3. |
Defaults Upon Senior Securities |
23 |
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Item 4. |
Mine Safety Disclosures |
24 |
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Item 5. |
Other Information |
24 |
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Item 6. |
Exhibits |
24 |
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SIGNATURES |
25 |
|
- 2 -
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, and Section 27A of the Securities Act of 1933, as amended. Any statements contained in this report that are not statements of historical fact may be forward-looking statements. When we use the words “intends,” “estimates,” “predicts,” “potential,” “continues,” “anticipates,” “plans,” “expects,” “believes,” “should,” “could,” “may,” “will” or the negative of these terms or other comparable terminology, we are identifying forward-looking statements. Forward-looking statements involve risks and uncertainties, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by forward-looking statements. These factors include our; research and development activities, distributor channel; compliance with regulatory impositions; and our capital needs. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.
Except as may be required by applicable law, we do not undertake or intend to update or revise our forward-looking statements, and we assume no obligation to update any forward-looking statements contained in this report as a result of new information or future events or developments. Thus, you should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements. You should carefully review and consider the various disclosures we make in this report and our other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks, uncertainties and other factors that may affect our business.
All statements other than statements of historical fact are statements that could be deemed forward-looking statements. The Company assumes no obligation and does not intend to update these forward-looking statements, except as required by law. When used in this quarterly report on Form 10-Q, the terms “BLGI”, “Company”, “we”, “our”, and “us” refer to BLGI, Inc.
- 3 -
PART I. FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS
BLGI, INC.
BALANCE SHEETS
(Expressed in U.S. Dollars)
Going concern (Note 2)
Commitments (Note 11)
Subsequent events (Note 14)
The accompanying notes are an integral part of these unaudited financial statements.
- 4 -
BLGI, INC.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Expressed in U.S. Dollars)
(Unaudited)
|
|
|
For the Three Months Ended
|
|
For the Six Months Ended
|
|
||||||||
|
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
||||
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|
|
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|
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
$ |
3,840 |
|
$ |
1,505 |
|
$ |
11,167 |
|
$ |
2,253 |
|
|
Foreign exchange loss |
|
|
283 |
|
|
— |
|
|
1,288 |
|
|
— |
|
|
Investor relations |
|
|
35,000 |
|
|
— |
|
|
35,000 |
|
|
— |
|
|
License fee (Note 11(d)) |
|
|
— |
|
|
— |
|
|
1,245,550 |
|
|
— |
|
|
Professional fees |
|
|
96,835 |
|
|
— |
|
|
251,248 |
|
|
2,400 |
|
|
Research and development |
|
|
25,000 |
|
|
— |
|
|
25,000 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL OPERATING EXPENSES |
|
$ |
(160,958 |
) |
$ |
(1,505 |
) |
$ |
(1,569,253 |
) |
$ |
(4,653 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of discounts on convertible debentures (Note 9) |
|
|
(21,945 |
) |
|
— |
|
|
(28,310 |
) |
|
— |
|
|
Interest expense |
|
|
(118,656 |
) |
|
(121,164 |
) |
|
(255,102 |
) |
|
(237,681 |
) |
|
Loss on conversion of convertible debentures (Note 12) |
|
|
(744,931 |
) |
|
— |
|
|
(744,931 |
) |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS AND COMPREHENSIVE LOSS |
|
$ |
(1,046,490 |
) |
$ |
(122,669 |
) |
$ |
(2,597,596 |
) |
$ |
(242,334 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS PER COMMON SHARE, BASIC AND DILUTED |
|
$ |
(0.12 |
) |
$ |
(0.01 |
) |
$ |
(0.17 |
) |
$ |
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC AND DILUTED |
|
|
8,696,110 |
|
|
8,303,665 |
|
|
14,992,857 |
|
|
8,303,665 |
|
The accompanying notes are an integral part of these unaudited financial statements.
- 5 -
BLGI, INC.
STATEMENTS OF STOCKHOLDERS’ DEFICIT
(Expressed in U.S. Dollars)
(Unaudited)
|
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Additional |
|
|
|
Total |
|
||||||||||
|
|
|
Preferred Stock |
|
Common Stock |
|
Shares |
|
Paid-in |
|
Accumulated |
|
Stockholders’ |
|
||||||||||
|
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Issuable |
|
Capital |
|
Deficit |
|
Deficit |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – April 30, 2019 |
|
— |
|
$ |
— |
|
8,303,665 |
|
$ |
830 |
|
$ |
420,000 |
|
$ |
7,712,014 |
|
$ |
(10,485,728 |
) |
$ |
(2,352,884 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(119,665 |
) |
|
(119,665 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – July 31, 2019 |
|
— |
|
$ |
— |
|
8,303,665 |
|
$ |
830 |
|
$ |
420,000 |
|
$ |
7,712,014 |
|
$ |
(10,605,393 |
) |
$ |
(2,472,549 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(122,669 |
) |
|
(122,669 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – October 31, 2019 |
|
— |
|
$ |
— |
|
8,303,665 |
|
$ |
830 |
|
$ |
420,000 |
|
$ |
7,712,014 |
|
$ |
(10,728,062 |
) |
$ |
(2,595,218 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – April 30, 2020 |
|
— |
|
$ |
— |
|
8,303,665 |
|
$ |
830 |
|
$ |
420,000 |
|
$ |
7,756,351 |
|
$ |
(11,082,293 |
) |
$ |
(2,905,112 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares for license agreement |
|
— |
|
|
— |
|
11,710,522 |
|
|
1,172 |
|
|
74,498 |
|
|
1,169,880 |
|
|
— |
|
|
1,245,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,551,106 |
) |
|
(1,551,106 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – July 31, 2020 |
|
— |
|
$ |
— |
|
20,014,187 |
|
$ |
2,002 |
|
$ |
494,498 |
|
$ |
8,926,231 |
|
$ |
(12,633,399 |
) |
$ |
(3,210,668 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial conversion features associated with convertible debentures |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
76,000 |
|
|
— |
|
|
76,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares pursuant to conversion of convertible debentures |
|
— |
|
|
— |
|
2,052,498 |
|
|
205 |
|
|
— |
|
|
895,630 |
|
|
— |
|
|
895,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,046,490 |
) |
|
(1,046,490 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – October 31, 2020 |
|
— |
|
$ |
— |
|
22,066,685 |
|
|
2,207 |
|
$ |
494,498 |
|
$ |
9,897,861 |
|
$ |
(13,679,889 |
) |
$ |
(3,285,323 |
) |
The accompanying notes are an integral part of these unaudited financial statements.
- 6 -
BLGI, INC.
STATEMENTS OF CASH FLOWS
(Expressed in U.S. Dollars)
(Unaudited)
|
|
|
For the Six Months Ended
|
|
||||
|
|
|
2020 |
|
2019 |
|
||
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(2,597,596 |
) |
$ |
(242,334 |
) |
|
Adjustments for non-cash amounts expensed: |
|
|
|
|
|
|
|
|
Accretion of convertible debt discount |
|
|
28,310 |
|
|
— |
|
|
Accrued interest on debentures |
|
|
253,842 |
|
|
236,421 |
|
|
Issuance of common shares for license agreement |
|
|
1,245,550 |
|
|
— |
|
|
Loss on conversion of convertible debentures |
|
|
744,931 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Prepaid expenses |
|
|
406 |
|
|
— |
|
|
Accounts payable and accrued liabilities |
|
|
195,788 |
|
|
(18,061 |
) |
|
|
|
|
|
|
|
|
|
|
Net Cash Used in Operating Activities |
|
|
(128,769 |
) |
|
(23,974 |
) |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Proceeds from loans payable |
|
|
133,827 |
|
|
23,974 |
|
|
Proceeds from convertible debentures |
|
|
76,000 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Financing Activities |
|
|
133,827 |
|
|
23,974 |
|
|
|
|
|
|
|
|
|
|
|
Change in Cash and Cash Equivalents |
|
|
5,058 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, Beginning of Period |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, End of Period |
|
$ |
5,058 |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
— |
|
$ |
— |
|
|
Income taxes paid |
|
$ |
— |
|
$ |
— |
|
The accompanying notes are an integral part of these unaudited financial statements.
- 7 -
1. NATURE OF BUSINESS
BLGI, Inc. was incorporated in the State of Florida on April 8, 2013. The address of the head office is Suite 200, 8275 South Eastern Avenue, Las Vegas, Nevada 89123. The Company’s plan is to develop a blockchain technology business. On December 4, 2017, the Company changed its name from Envoy Group Corp. to Black Cactus Global, Inc. On October 15, 2020, the Company changed its name from Black Cactus Global, Inc. to BLGI, Inc.
2. GOING CONCERN
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has not generated revenue or cash flow from operations since inception. As at October 31, 2020, the Company has a working capital deficiency of $3,285,323 and an accumulated deficit of $13,679,889. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon the Company’s ability to raise sufficient financing to acquire or develop a profitable business. The Company intends to finance its future development activities and its working capital needs largely from the sale of public equity securities with some additional funding from other traditional financing sources, including related party advances and term notes until such time that funds provided by operations are sufficient to fund working capital requirements. The financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
In March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or ability to raise funds. Management continues to monitor the situation.
3. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
These unaudited financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), and are expressed in United States dollars. The Company’s fiscal year-end is April 30.
These interim unaudited financial statements have been prepared in accordance with US GAAP for interim financial information and with the instructions to Securities and Exchange Commission (“SEC”) Form 10-Q. They do not include all of the information and footnotes required by US GAAP to complete financial statements. Therefore, these interim financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended April 30, 2020, included in the Company’s Annual Report on Form 10-K filed with the SEC.
The financial statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly the Company’s financial position at October 31, 2020, and the results of its operations for the three and six months ended October 31, 2020 and cash flows for the six months ended October 31, 2020. The results of operations for the period ended October 31, 2020 are not necessarily indicative of the results to be expected for future quarters or the full year.
The significant accounting policies followed are:
USE OF ESTIMATES
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates related to fair value measurements, stock-based compensation and deferred income tax asset valuation allowance. Actual results could differ from those estimates.
- 8 -
FOREIGN CURRENCY TRANSLATION
The Company’s functional and reporting currency is the United States dollar. Occasional transactions may occur in Canadian dollars. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Non-monetary assets and liabilities denominated in foreign currencies are translated at rates of exchange in effect at the date of the transaction. Average monthly rates are used to translate revenues and expenses. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income. The Company has not, to the date of these financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.
FINANCIAL INSTRUMENTS
ASC 825, “Financial Instruments”, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 825 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The financial instruments consist principally of cash and cash equivalents, accounts payable, amount payable, loans payable and convertible debentures. The fair value of cash and cash equivalents when applicable is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. Derivative liabilities are determined based on “Level 2” inputs, which are significant and observable. The Company believes that the recorded values of all other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.
Assets and liabilities measured at fair value on a recurring basis were presented on the Company’s balance sheet as of October 31, 2020 and April 30, 2020:
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Fair Value Measurements Using |
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Quoted Prices in |
Significant |
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Active Markets |
Other |
Significant |
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For Identical |
Observable |
Unobservable |
Balance as of |
Balance as of |
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Instruments |
Inputs |
Inputs |
October 31, |
April 30, |
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(Level 1) |
(Level 2) |
(Level 3) |
2020 |
2020 |
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Assets: |
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Cash and cash equivalents |
$ 5,058 |
$ — |
$ — |
$ 5,058 |
$ — |
Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash and cash equivalents. The Company limits its exposure to credit loss by placing its cash and cash equivalents with high credit quality financial institutions.
CASH AND CASH EQUIVALENTS
All cash investments with an original maturity of three months or less are considered to be cash equivalents.
- 9 -
INCOME TAXES
The Company accounts for income taxes under ASC 740 “Income Taxes.” 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.
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per share is calculated in accordance with ASC 260, “Earnings Per Share.” The weighted-average number of common shares outstanding during each period is used to compute basic earning or loss per share. Diluted earnings or loss per share is computed using the weighted average number of shares and diluted potential common shares outstanding. Dilutive potential common shares are additional common shares assumed to be exercised.
Basic net income (loss) per common share is based on the weighted average number of shares of common stock outstanding. As of October 31, 2020, the Company had 28,855,291 (April 30, 2020 – 44,993,227) potentially dilutive common shares.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company has implemented all new mandatory accounting pronouncements that are in effect and there has been no significant impact on its financial statements. The Company does not believe that there are any new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
4. FINANCIAL RISK FACTORS
LIQUIDITY RISK
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. As at October 31, 2020, the Company has a working capital deficiency of $3,285,323 and requires additional funding to meet its current obligations. The Company’s current obligations include accounts payable and accrued liabilities which have contractual maturities of less than 60 days and are subject to normal trade terms, loans payable which are due on demand, and convertible debentures which have defaulted and are due on demand. The Company requires additional financing to meet its current obligations. The ability of the Company to continue to identify and evaluate feasible business opportunities, develop products and generate working capital is dependent on its ability to secure additional equity or debt financing.
FOREIGN EXCHANGE RISK
Foreign exchange risk is the risk that the Company will be subject to foreign currency fluctuations in satisfying obligations related to foreign activities. Loans payable to unrelated third parties may be denominated in Canadian dollars. Foreign exchange risk arises from purchase transactions as well as financial assets and liabilities denominated in these foreign currencies. The Company does not use derivative instruments to hedge exposure to foreign exchange rate risk. However, management of the Company believes there is no significant exposure to foreign currency fluctuations.
5. PREPAID EXPENSES AND OTHER ASSETS
The Company’s prepaid expenses and other assets consists of deposits, retainers and advance payments for various services including investor relations, legal, marketing and other costs.
6. RELATED PARTY TRANSACTIONS AND BALANCES
The Company has entered into agreements to borrow funds from Bellridge Capital L.P. (“Bellridge”), a shareholder of the Company. The arrangements, balances and transactions are described in Notes 8(d), 9, 11(b), 11(c) and 11(d).
- 10 -
7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
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October 31,
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April 30,
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Accounts payable |
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$ |
569,145 |
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$ |
295,273 |
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Accrued liabilities |
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6,793 |
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84,877 |
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$ |
575,938 |
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$ |
380,150 |
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8. LOANS PAYABLE
The balance presented for loans payable consist of the following amounts:
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(a) |
On July 15, 2016, the Company entered into a loan agreement for a principal balance of up to $50,000 at any given time. The amount is unsecured, non-interest bearing and was due on July 15, 2018. As at October 31, 2020, the Company has received gross loan proceeds of $54,176. Upon receipt of the funds, the Company recorded fair value discounts of $6,836. During the year ended April 30, 2017, the Company repaid $10,600 of principal and recognized accretion of the discount of $2,067. During the year ended April 30, 2018, the Company repaid $5,000 of principal and recognized accretion of the discount of $3,918. During the year ended April 30, 2019, the Company repaid $nil of principal and recognized accretion of the discount of $851. At October 31, 2020, the net carrying value of the loan was $38,576 (April 30, 2020 - $38,576) which is due on demand. |
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(b) |
As at October 31, 2020, the Company was indebted for loans amounting to $500 (April 30, 2020 - $500). The amounts are unsecured, non-interest bearing and due on demand. |
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(c) |
On February 14, 2018, the Company entered into a loan agreement for a principal balance of $25,000. The loan bears interest at 10% per annum and was due on February 13, 2019. The loan remains unpaid at October 31, 2020. |
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(d) |
As at October 31, 2020, the Company was indebted for loans amounting to $82,567 (April 30, 2020 - $24,740) owing to Bellridge Capital L.P. (“Bellridge”). The amounts are unsecured, non-interest bearing and due on demand. |
9. CONVERTIBLE DEBENTURES
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(a) |
On November 27, 2017, the Company entered into and closed on a Securities Purchase Agreement (“SPA”) with Bellridge Capital L.P. (“Bellridge”), pursuant to which the Company issued a senior secured convertible promissory note in the aggregate principal amount of $526,316 (“Note”) for an aggregate purchase price of $500,000, net of a $26,316 original issue discount (“OID”) and $10,000 of legal fees. The Company also incurred additional debt issuance costs of $50,000. The total debt issue costs of $86,316 have been netted against the principal and will be amortized over the term of the loan using the effective interest method. In addition, the Company issued 394,737 warrants to Bellridge exercisable after a period of six months at an exercise price equal to the lesser of (i) $2.00 per share and (ii) 70% of the lowest traded price of the Company’s common stock during the prior twenty consecutive trading days. The Company also agreed to issue 139,665 shares to Bellridge in connection with the loan. The interest on the outstanding principal due under the Note accrued at a rate of 5% per annum. All principal and accrued interest under the Note was due on November 27, 2018 and is convertible into shares of the Company’s common stock at a conversion price equal to the lesser of (i) $2.00 and (ii) 70% of the lowest traded market price in the 20 consecutive trading days prior to the conversion date. In the event of a default, the Note is convertible into shares of the Company’s common stock at a conversion price equal to 60% of the lowest traded market price in the 20 consecutive trading days prior to the conversion date. |
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The Company has evaluated whether separate financial instruments with the same terms as the conversion features above would meet the characteristics of a derivative instrument as described in paragraphs ASC 815-15-25. The terms of the contracts did not permit net settlement, as the shares delivered upon conversion are not readily convertible to cash. The Company’s trading history indicated that the shares are thinly traded and the market would not absorb the sale of the shares issued upon conversion without significantly affecting the price. As the conversion features would not meet the characteristics of a derivative instrument as described in paragraphs ASC 815-15-25, the conversion features were not required to be separated from the host instrument and accounted for separately. As a result, at October 31, 2020, the conversion features and non-standard anti-dilutions provisions would not meet derivative classification. |
- 11 -
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The relative fair values of the convertible note, the warrants and the shares were $140,733, $284,751 and $100,832, respectively. The effective conversion price was then determined to be $1.26. As the stock price at the issuance date was greater than the effective conversion price, it was determined that there was a beneficial conversion feature. The Company recognized the relative fair value of the shares issuable of $100,832 and an equivalent discount that reduced the carrying value of the convertible debt to $425,484. The Company then recognized the relative fair value of the warrants of $284,751 as additional-paid-in capital and an equivalent discount that further reduced the carrying value of the convertible debt to $140,733. The beneficial conversion feature of $54,417, the OID of $26,316 and debt financing costs of $60,000 discounted the convertible debenture such that the carrying value of the convertible debt on the date of issue was $0. The discount was being expensed over the term of the loan to increase the carrying value to the face value of the loan. The Company determined that there was no derivative liability associated with the debenture under ASC 815-15 Derivatives and Hedging. |
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On November 27, 2018, the Company defaulted on the convertible note, resulting in the note becoming immediately due and payable. Upon default, the interest rate increased to 29% per annum and the Company incurs a late fee at an interest rate equal to 18% per annum on any overdue and unpaid interest under the convertible note. Additionally, the total amount owed on the convertible note upon default is equal to 130% of the outstanding principal and accrued and unpaid interest. During the year ended April 30, 2019, the Company recorded a 30% principal increase of $157,895 as a result of default, increasing the carrying value of the loan to $684,211. During the six months ended October 31, 2020, the Company recorded accretion of discount of $Nil (2019 - $Nil). During the six months ended October 31, 2020, the Company issued 2,052,498 shares of common stock upon the conversion of $150,904 of the Note, comprising of $107,769 principal amount and $43,135 interest, and recognized a loss on conversion of $744,931, which reflected the difference between the fair value of the shares of common stock and the carrying value of the amounts converted. As at October 31, 2020, the carrying value of the principal amount was $576,441 (April 30, 2020 - $684,211), and the Company has recorded accrued interest of $443,499 (April 30, 2020 - $372,243). |
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(b) |
On April 2, 2018, April 5, 2018 and April 13, 2018, the Company amended (the “Amendments”) the November 27, 2017 Securities Purchase Agreement. Pursuant to the Amendments the Company issued Bellridge warrants to purchase 4,250,000 shares of the Company’s common stock at an exercise price of $2.00 per share. The Company also issued a senior secured convertible promissory note in the aggregate principal amount of $315,790 (“Note”) for an aggregate purchase price of $295,000, net of a $15,790 OID and $5,000 of legal fees. The Company also incurred additional debt issuance costs of $30,000 and issued a warrant to purchase 28,036 shares of the Company’s common stock at an exercise price of $2.00 per share. The total debt issue costs of $50,672 have been netted against the principal and will be amortized over the term of the loan using the effective interest method. The interest on the outstanding principal due under the Note accrued at a rate of 5% per annum. All principal and accrued interest under the Note was due on December 20, 2018 and was convertible into shares of the Company’s Common Stock at a conversion price equal to the lesser of (i) $2.00 and (ii) 70% of the lowest traded market price in the 20 consecutive trading days prior to the conversion date. In the event of a default, the Note is convertible into shares of the Company’s common stock at a conversion price equal to 60% of the lowest traded market price in the 20 consecutive trading days prior to the conversion date. |
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The relative fair values of the convertible note, the warrants and the shares were $6,208, $118 and $258,674, respectively. The effective conversion price was then determined to be $0.02. As the stock price at the issuance date was greater than the effective conversion price, it was determined that there was a beneficial conversion feature. The Company recognized the relative fair value of the warrants of $258,792, as additional-paid-in capital and an equivalent discount that reduced the carrying value of the convertible debt to $56,998. The beneficial conversion feature of $6,208, the OID of $15,790 and debt financing costs of $35,000 discounted the convertible debenture such that the carrying value of the convertible debt on the date of issue was $0. The discount is being expensed over the term of the loan to increase the carrying value to the face value of the loan. The Company determined that there was no derivative liability associated with the debenture under ASC 815-15 Derivatives and Hedging. |
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On December 20, 2018, the Company defaulted on the convertible note, resulting in the note becoming immediately due and payable. Upon default, the interest rate increased to 29% per annum and the Company incurs a late fee at an interest rate equal to 18% per annum on any overdue and unpaid interest under the convertible note. Additionally, the total amount owed on the convertible note upon default is equal to 130% of the outstanding principal and accrued and unpaid interest. During the year ended April 30, 2019, the Company recorded a 30% principal increase of $94,737 as a result of default, increasing the carrying value of the loan to $410,527. During the six months ended October 31, 2020, the Company recorded accretion of discount of $Nil (2019 - $Nil). As at October 31, 2020, the carrying value of the principal amount was $410,527 (April 30, 2020 - $410,527), and the Company has recorded accrued interest of $288,098 (April 30, 2020 - $206,584). |
- 12 -
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(c) |
On June 1, 2018, the Company issued a senior secured convertible promissory note in the aggregate principal amount of $210,527 (“Note”) for an aggregate purchase price of $200,000, net of a $10,527 OID. The Company also incurred additional debt issuance costs of $20,000. The total debt issue costs of $30,527 have been netted against the principal and will be amortized over the term of the loan using the effective interest method. The interest on the outstanding principal due under the Note accrues at a rate of 5% per annum. All principal and accrued interest under the Note is due on June 1, 2019 and is convertible into shares of the Company’s Common Stock at a conversion price equal to the lesser of (i) $2.00 and (ii) 70% of the lowest traded market price in the 20 consecutive trading days prior to the conversion date. In the event of a default, the Note is convertible into shares of the Company’s common stock at a conversion price equal to 60% of the lowest traded market price in the 20 consecutive trading days prior to the conversion date. |
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As the stock price at the issuance date was greater than the effective conversion price, it was determined that there was a beneficial conversion feature. The Company then recognized the beneficial conversion feature of $144,908 as additional-paid-in capital and an equivalent discount that further reduced the carrying value of the convertible debt to $65,619. The OID of $10,570 and debt financing costs of $20,000 discounted the convertible debenture such that the carrying value of the convertible debt on the date of issue was $35,092. The discount is being expensed over the term of the loan to increase the carrying value to the face value of the loan. The Company determined that there was no derivative liability associated with the debenture under ASC 815-15 Derivatives and Hedging. |
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On December 20, 2018, the Company defaulted on the convertible note, resulting in the note becoming immediately due and payable. Upon default, the interest rate increased to 29% per annum and the Company incurs a late fee at an interest rate equal to 18% per annum on any overdue and unpaid interest under the convertible note. Additionally, the total amount owed on the convertible note upon default is equal to 130% of the outstanding principal and accrued and unpaid interest. During the year ended April 30, 2019, the Company recorded a 30% principal increase of $63,158 as a result of default, increasing the carrying value of the loan to $273,685. During the six months ended October 31, 2020, the Company recorded accretion of discount of $Nil (2019 – $Nil). As at October 31, 2020, the carrying value of the principal amount was $273,685 (April 30, 2020 - $273,685), and the Company has recorded accrued interest of $189,303 (April 30, 2020 - $135,152). |
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As part of the SPA, Bellridge is loaning the Company a minimum of $500,000 to a maximum of $1,500,000 (“Loan”). The first three tranches were the $1,000,000 in the form of the Notes above. The next and final tranche of $500,000 will be funded upon the effectiveness of the registration statement that the Company is required to file covering the shares of common stock issuable upon conversion of the Notes. |
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As part of the Bellridge Agreements, the Company also executed Registration Rights Agreement, Intellectual Property Security Interest Agreement, Subsidiary Guaranty and a Security Interest Agreement in all the Company’s assets to Bellridge. |
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(d) |
On February 20, 2020, the Company entered into an additional securities purchase agreement with Bellridge, pursuant to which the Company issued a convertible promissory note in the aggregate principal amount of $54,271 (“Note”) for an aggregate purchase price of $44,337, net of a $4,934 OID and $5,000 of legal fees. The total debt issue costs of $9,934 have been netted against the principal and will be amortized over the term of the loan using the effective interest rate method. The interest on the outstanding principal due under the Note accrues at a rate of 10% per annum. All principal and accrued interest under the Note is due on February 20, 2021. At any time after 180 days from the issuance date, the Note is convertible into shares of the Company’s Common Stock at a conversion price equal to the lesser of (i) $0.094 and (ii) 70% of the lowest traded market price in the 20 consecutive trading days prior to the conversion date. In the event of a default, the Note is convertible into shares of the Company’s common stock at a conversion price equal to the lesser of (i) $0.08 and (ii) 60% of the lowest traded market price in the 20 consecutive trading days prior to the conversion date. |
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As the stock price at the issuance date was greater than the effective conversion price, it was determined that there was a beneficial conversion feature. The Company then recognized the beneficial conversion feature of $44,337 as additional-paid-in capital and an equivalent discount that further reduced the carrying value of the convertible debt to $9,934. The OID of $4,934 and debt financing costs of $5,000 discounted the convertible debenture such that the carrying value of the convertible debt on the date of issue was $0. The discount is being expensed over the term of the loan to increase the carrying value to the face value of the loan. The Company determined that there was no derivative liability associated with the debenture under ASC 815-15 Derivatives and Hedging. During the six months ended October 31, 2020, the Company recorded accretion of discount of $17,783 increasing the carrying value of the loan to $25,803. As at October 31, 2020, the Company has recorded accrued interest of $3,829 (April 30, 2020 - $1,055). |
- 13 -
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(e) |
On September 9, 2020, the Company entered into a convertible secured promissory note for loans provided in tranches, up to an aggregate principal amount of $1,000,000 (“September 2020 Note”). Each tranche provided under the terms of the Note is to be provided at an original issue discount (“OID”) of 10%. |
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On September 17, 2020, the first tranche of the September 2020 Note was funded in the aggregate principal amount of $50,600 for an aggregate purchase price of $46,000, net of a $4,600 OID. The total debt issue costs of $4,600 have been netted against the principal and will be amortized over the term of the loan using the effective interest rate method. The interest on the outstanding principal due under the September 2020 Note accrues at a rate of 10% per annum. All principal and accrued interest under the September 2020 Note is due on September 9, 2021 and is convertible into shares of the Company’s Common Stock at a conversion price equal to the lesser of (i) $0.14 and (ii) 70% of the lowest traded market price in the 20 consecutive trading days prior to the conversion date. In the event of a default, the Note is convertible into shares of the Company’s common stock at a conversion price equal to 60% of the lowest traded market price in the 20 consecutive trading days prior to the conversion date. |
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As the stock price at the issuance date was greater than the effective conversion price, it was determined that there was a beneficial conversion feature. The Company then recognized the beneficial conversion feature of $46,000 as additional-paid-in capital and an equivalent discount that further reduced the carrying value of the convertible debt to $4,600. The OID of $4,600 discounted the convertible debenture such that the carrying value of the convertible debt on the date of issue was $0. The discount is being expensed over the term of the loan to increase the carrying value to the face value of the loan. The Company determined that there was no derivative liability associated with the debenture under ASC 815-15 Derivatives and Hedging. During the six months ended October 31, 2020, the Company recorded accretion of discount of $6,385 increasing the carrying value of the loan to $6,385. As at October 31, 2020, the Company has recorded accrued interest of $618 (April 30, 2020 - $Nil). |
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On September 18, 2020, the second tranche of the September 2020 Note was funded in the aggregate principal amount of $33,000 for an aggregate purchase price of $30,000, net of a $3,000 OID. The total debt issue costs of $3,000 have been netted against the principal and will be amortized over the term of the loan using the effective interest rate method. |
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As the stock price at the issuance date was greater than the effective conversion price, it was determined that there was a beneficial conversion feature. The Company then recognized the beneficial conversion feature of $30,000 as additional-paid-in capital and an equivalent discount that further reduced the carrying value of the convertible debt to $3,000. The OID of $3,000 discounted the convertible debenture such that the carrying value of the convertible debt on the date of issue was $0. The discount is being expensed over the term of the loan to increase the carrying value to the face value of the loan. The Company determined that there was no derivative liability associated with the debenture under ASC 815-15 Derivatives and Hedging. During the six months ended October 31, 2020, the Company recorded accretion of discount of $4,142 increasing the carrying value of the loan to $4,142. As at October 31, 2020, the Company has recorded accrued interest of $394 (April 30, 2020 - $Nil). |
10. PRODUCT DEVELOPMENT AND WEBSITE COSTS
On June 18, 2017, the Company entered into a Definitive Acquisition Agreement involving the internet domain and brand BitReturn. The Agreement represented the Company’s development of a plan to create a technology business in mining digital currency with an operating name of BitReturn. The Company issued 500,000 shares of restricted common stock with a fair value of $1,900,000 as payment under the terms of the Agreement, which was recognized as and included in product development and website costs. The Company is also to make cash payments totaling $350,000 under the terms of the Agreement, and as at October 31, 2020, $350,000 (April 30, 2020 - $350,000) is recorded as an amount payable for BitReturn. Product development and website expenses represent costs of acquiring the brand BitReturn, development of the crypto currency mining product, and creation of the website. These costs did not meet the criteria for capitalization, and therefore were treated as an operating expense in fiscal 2018. During the year ended April 30, 2019, the Company determined it would not proceed with its plan to create a technology business in mining digital currency.
11. COMMITMENTS
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(a) |
On February 14, 2018, the Company entered into an Employment Agreement with a term of three years. Pursuant to the Employment Agreement, the Company agreed to issue 400,000 shares and pay the employee GBP250,000 in exchange for services. On July 9, 2018, the Company and the employee entered into a Settlement and General Release Agreement pursuant to which, the Company agreed to issue the employee 300,000 shares of common stock in exchange for release from the Employment Agreement and the fair value of $420,000 of the shares issuable (refer to Note 12) was expensed in July 2018. |
- 14 -
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(b) |
On August 24, 2019, the Company entered into a Software License Agreement (“License Agreement”) with Charteris, Mackie, Baillie & Cummins Limited (“CMBC Limited”) to acquire a non-exclusive license for Black Cactus blockchain development software platform and related intellectual property (“Software”) which are licensed to CMBC Limited from Black Cactus LLC. As consideration, the Company shall pay CMBC Limited a royalty in the amount of five percent (5%) of the gross revenue received from the sublicense of the Software (“royalty”), due on a quarterly basis, and issue or assign an equivalent number of common shares to CMBC Limited that will represent 60% of the then issued shares of the Company. In addition, the Company will issue an option for CMBC Limited to acquire additional shares at par value $(0.002) per share up to 60% of any shares issued under the existing Securities Purchase Agreements with Bellridge (Note 9). The closing of the License Agreement is conditional on the Company obtaining a written agreement with Bellridge to increase its line of credit from $1,500,000 to $5,000,000 (Note 9), and the assignment of a separate Software License Agreement between CMBC Limited and Benchmark Advisors Limited (“Benchmark”) originally granted to Benchmark on February 20, 2019. The closing of the License Agreement was completed on July 21, 2020 (refer to Note 11(d)). |
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(c) |
On November 15, 2019, the Company entered into an Assignment Agreement with CMBC Limited to acquire the assignment of a non-exclusive software license (“License”) for Software from Benchmark. As consideration for the assignment of the License, CMBC will be paid $250,000 directly from Bellridge on behalf of the Company as part of the increased line of credit of $5,000,000. The closing of the Assignment Agreement was completed on July 21, 2020 (refer to Note 11(d)). |
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(d) |
On June 29, 2020, the Company and CMBC Limited entered into a waiver and agreement (the “Waiver Agreement”), pursuant to which the Company and CMBC Limited agreed to close the License Agreement dated August 24, 2019 (Note 11(b)) and the Assignment Agreement dated November 15, 2019 (Note 11(c)). Pursuant to the Waiver Agreement, CMBC Limited, among other things, waived all of the conditions that had not been satisfied in order to consummate the closings of the license and assignment pursuant to the License Agreement and the Assignment Agreement. |
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In consideration, the Company authorized the issuance of 12,455,497 restricted shares of the Company’s common stock, to Black Cactus Holdings LLC, the designee of CMBC Limited, to be issued in two certificates each in the name of “Black Cactus Holdings LLC”, as follows: (i) one certificate representing 8,705,497 shares of common stock, which was issued and delivered to Black Cactus Holdings LLC, and (ii) one certificate representing 3,750,000 shares of common stock, which was supposed to be issued to Black Cactus Holdings LLC, but was reduced to 3,005,025 shares of common stock because the Company does not currently have enough authorized and unissued shares of common stock to issue all of such shares. The Company is in the process of issuing the certificate for the additional 744,975 shares of common stock. The certificate for 3,005,025 shares is being held in escrow by the Company, and the certificate for the additional 744,975 shares of common stock will also be held in escrow by the Company, until such time as certain shares of common stock have been cancelled on the certified shareholder records of the Company or as otherwise provided in the Waiver Agreement. |
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On July 21, 2020, the Company issued two certificates representing 8,705,497 shares of common stock and 3,005,025 shares of common stock (refer to Note 12) with an aggregate fair value of $1,171,052 and recognized the remaining unissued 744,975 shares of common stock as shares issuable with a fair value of $74,498. Management determined that the future economic benefits of the license acquired are not probable upon acquisition and the Company expensed the acquisition fee of $1,245,550 as incurred. |
12. STOCK
On November 13, 2017, the Company amended its Articles of Incorporation, increasing the number of common stock authorized from 240,000,000 to 490,000,000, par value of $0.0001, leaving the number of preferred stock authorized at 10,000,000, par value of $0.0001, and designated 10,000 shares of its authorized but unissued shares of preferred stock as Series A Preferred Stock.
On October 15, 2020, the Company amended its Articles of Incorporation, reducing the number of common stock authorized from 490,000,000 to 200,000,000, par value of $0.0001, terminating the designation of 10,000 shares of its authorized but unissued shares of preferred stock as Series A Preferred Stock, and amended the authorization to issue 10,000,000 shares of Preferred Stock, par value of $0.0001, to provide for 10,000,000 share of “blank check” preferred stock, par value of $0.0001.
The terms of the “blank check” preferred stock to be authorized, including, but not limited to, dividend or interest rates, conversion prices, voting rights, redemption prices, maturity dates, and similar matters will be determined by the Board of Directors. Subject to the limitations set forth in the Amended and Restated Articles, and any limitations prescribed by Florida law, the Board of Directors is expressly authorized, without shareholder approval, prior to the issuance of any series of Preferred Stock, to fix by resolution or resolutions providing for the issue of any series the number of shares included in such series and, including but not limited to, the designation, relative powers, preferences and rights, and the qualification, limitations or restrictions of such series.
- 15 -
COMMON STOCK
On July 9, 2018, the Company entered into a Settlement and General Release Agreement pursuant to which the Company would issue an employee 300,000 shares of common stock in exchange for release from the Employment Agreement (refer to Note 11(a)). The fair value of the shares on the date of settlement of $420,000 is presented as of October 31, 2020 as shares issuable because the shares have not been issued to date.
On July 21, 2020, in connection with the Waiver Agreement dated June 29, 2020 (Note 11(d)), the Company issued an aggregate of 11,710,522 shares on common stock with a fair value of $1,171,052 based on the quoted market price and recognized shares issuable of $74,498 relating to the future issuance of 744,975 shares pursuant to the Waiver Agreement.
On August 4, 2020, the Company issued 407,634 shares of common stock with a fair value of $70,113 pursuant to the conversion of $10,762 of a convertible note, consisting of $7,769 principal amount and $2,992 interest (Note 9(a)). Upon conversion, the Company recognized a loss on conversion of convertible debentures of $59,351.
On August 24, 2020, the Company issued 1,644,865 shares of common stock with a fair value of $825,722 pursuant to the conversion of $140,142 of a convertible note, consisting of $100,000 principal amount and $40,142 interest (Note 9(a)). Upon conversion, the Company recognized a loss on conversion of convertible debentures of $685,580.
On August 14, 2020, the Company’s board of directors approved an amendment to the Articles of Incorporation to effectuate a reverse stock split of all of the Company’s outstanding shares of common stock, by a ratio of one for twenty (1:20). On October 15, 2020, the reverse stock split was approved by the Florida Department of State, Division of Corporations and the Securities and Exchange Commission, and the record date of the reverse stock split was October 16, 2020. All common stock and per share data in these financial statements and footnotes have been retrospectively adjusted to account for this reverse stock split.
As at October 31, 2020, there are 22,066,685 (April 30, 2020 – 8,303,665) shares of common stock issued and outstanding.
PREFERRED STOCK
As at October 31, 2020, there are no issued and outstanding Preferred Stock.
13. SHARE PURCHASE WARRANTS
The following table summarizes the continuity of share purchase warrants:
|
|
|
Number of
|
|
Weighted average
|
|
|
|
|
|
|
|
|
|
|
|
Balance, April 30, 2020 |
|
4,672,773 |
|
|
2.00 |
|
|
Issued |
|
— |
|
|
— |
|
|
Balance, October 31, 2020 |
|
4,672,773 |
|
|
2.00 |
|
As at October 31, 2020, the following share purchase warrants were outstanding:
|
Number of
|
|
Exercise price
|
|
Expiry date |
|
|
|
|
|
|
|
|
|
394,737 |
|
0.056* |
|
May 27, 2022 |
|
|
28,036 |
|
2.00 |
|
March 29, 2023 |
|
|
4,250,000 |
|
2.00 |
|
April 5, 2023 |
|
|
4,672,773 |
|
|
|
|
|
__________
*The lower of $2.00 and 70% of the lowest traded price of the Company’s common stock during the prior twenty consecutive trading days.
The weighted average remaining life of the warrants outstanding as at October 31, 2020 is 2.35 years.
- 16 -
14. SUBSEQUENT EVENTS
Management has evaluated subsequent events through the date that these financial statements were issued.
|
(a) |
On November 12, 2020, the third tranche of the September 2020 Note described in Note 9(e) was funded in the aggregate principal amount of $55,000 for an aggregate purchase price of $50,000, net of a $5,000 OID. On November 25, 2020, the fourth tranche of the September 2020 Note described in Note 9(e) was funded in the aggregate principal amount of $65,262 for an aggregate purchase price of $59,329, net of a $5,933 OID. |
|
|
|
|
|
The interest on the outstanding principal due under the September 2020 Note accrues at a rate of 10% per annum. All principal and accrued interest under the September 2020 Note is due on September 9, 2021 and is convertible into shares of the Company’s Common Stock at a conversion price equal to the lesser of (i) $0.14 and (ii) 70% of the lowest traded market price in the 20 consecutive trading days prior to the conversion date. In the event of a default, the Note is convertible into shares of the Company’s common stock at a conversion price equal to 60% of the lowest traded market price in the 20 consecutive trading days prior to the conversion date. |
|
|
|
|
(b) |
On November 25, 2020, the Company entered into a subscription agreement for a private placement of its common stock. The Company agreed to issue and sell 1,000,000 restricted shares of Common Stock at a price of $0.10 per share for total gross proceeds of $100,000. |
- 17 -
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations for the three and six months ended October 31, 2020 should be read together with our unaudited financial statements and related notes included elsewhere in this quarterly report. This discussion contains forward-looking statements and information relating to our business that reflect our current views and assumptions with respect to future events and are subject to risks and uncertainties that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These forward-looking statements speak only as of the date of this report. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, or achievements. Except as required by applicable law, including the securities laws of the United States, we expressly disclaim any obligation or undertaking to disseminate any update or revisions of any of the forward-looking statements to reflect any change in our expectations with regard thereto or to conform these statements to actual results.
Recent Amendments to the Articles of Incorporation
On October 8, 2020, pursuant to the authorization of a majority holder of the Company’s common stock, par value $0.0001 per share (the “Common Stock”), by written consent, the Company filed an Amended and Restated Articles of Incorporation (the “Amended and Restated Articles”) upon which the Company (i) effected a reverse split of all its outstanding shares of Common Stock, by a ratio of 1-for-20 (the “Reverse Stock Split”); (ii) reduced the number of authorized shares of Common Stock from 490,000,000 shares to 200,000,000 shares, (iii) changed the name of the Company from Black Cactus Global, Inc. to BLGI, Inc.; and (iv) terminated the designation of 10,000 shares of Series A Preferred Stock, none of which were issued and outstanding, and amended the authorization to issue 10,000,000 shares of Preferred Stock, par value $0.0001 per share, to provide for 10,000,000 shares of “blank check” preferred stock, par value $0.0001 per share.
The Common Stock began trading on a split-adjusted basis on the Pink Open Market on October 16, 2020 under the new CUSIP number 091844209. All Common Stock share numbers, warrants to purchase Common Stock, prices and exercise prices have been retroactively adjusted to reflect the Reverse Stock Split. The par value of the Common Stock outstanding was not adjusted for the Reverse Stock Split.
Company Overview
The Company was incorporated in the State of Florida on April 8, 2013, with a fiscal year end of April 30. Until June 2017, we had not established any business operations and had not achieved any revenues. Until then, we were in the process of identifying and evaluating feasible business opportunities in the consumer products and technology industries.
The address of the head office is 207 W. Division Street, Suite 137 Chicago, Illinois 60622. On November 13, 2017, the Company changed its name to “Black Cactus Global, Inc.” with a plan to engage in the development of commercial Blockchain technology and Smart Contract software applications for healthcare, Fintech, logistics and energy solutions worldwide. Effective October 8, 2020, the Company changed its name to “BLGI, Inc.” pursuant to the Amended and Restated Articles, as mentioned above. Our website address is www.blgi.net. The information contained in or accessible through our website is not part of this report and is intended for informational purposes only.
We are currently focused on developing blockchain software platforms. Our plan is to develop or license intellectual property to build blockchain platforms for a variety of uses. Our initial efforts will focus on utilizing the intellectual property in two ways: to develop secure blockchain based supply chain and inventory control systems, and to develop a blockchain based trading platform in order to facilitate securities trading using either a fiat currency or cryptocurrency.
On August 24, 2019, the Company entered into a Software License Agreement (“License Agreement”) with Charteris, Mackie, Baillie & Cummins Limited (“CMBC”) to acquire a non-exclusive license for Black Cactus blockchain development software platform and related intellectual property (“Software”) which are licensed to CMBC from Black Cactus LLC. As consideration, the License Agreement provides for the payment of a royalty to CMBC in the amount of five percent (5%) of the gross revenue received from the sublicense of the Software, due on a quarterly basis, and issue or assign an equivalent number of common shares to CMBC that will represent 60% of the then issued shares of the Company. In addition, the License Agreement provides for the issuance of an option for CMBC to acquire additional shares at par value ($0.0001) per share up to 60% of any shares issued under the existing Securities Purchase Agreements with Bellridge Capital LP (“Bellridge”). The closing of the License Agreement was subject to, among certain
- 18 -
other conditions: (1) the Company obtaining a written agreement with Bellridge to increase its line of credit from $1,500,000 to $5,000,000; (2) the resignation of all the directors of the Company serving on the Board, during the quarterly period ended July 31, 2019, which was satisfied by the resignation of all of such directors on September 13, 2019, and the appointment of Lawrence P. Cummins, Karyn Augustinus and three non-executive independent Directors nominated by CMBC Limited; (3) the resignation of all the officers of the Company serving, during the quarterly period ended July 31, 2019, which was satisfied by the resignation of all of such officers on September 13, 2019, and the appointment of Lawrence P. Cummins as its President (after undertaking a review of the future plans of the Company, the Board of Directors will appoint a Chief Executive Officer); (4) proof satisfactory to CMBC Limited that fair resolutions have been entered into with certain persons, including Harpreet Sangha, the former Chairman of the Board and Chief Financial Officer of the Company, along with his family and known associates for the cancellation of the shares of the Company currently owned by them; (5) CMBC Limited is satisfied with the possibility of lifting the Cease Trade Order issued by the British Columbia Securities Commission on May 6, 2016, to the Company, ordering all persons to cease trading in the Company’s securities until the Company files the required records completed in accordance with the Securities Act, R.S.B.C. 1996 and the Executive Director revokes the Order; (6) the cancellation of $350,000 amount allegedly outstanding under the terms of the Definitive Acquisition Agreement, dated as of June 18, 2017, between the Company and the selling shareholders of BitReturn.ca; (7) repayment by the majority shareholder of the Company of $169,729 owed by such shareholder to the Company; and (8) the Company’s becoming current in its periodic filing with the SEC.
On November 15, 2019, the Company entered into an Assignment Agreement with CMBC to acquire the assignment of a non-exclusive software license (“License”) for Software from Benchmark Advisors Limited (the “Benchmark Assignment Agreement” and together with the License Agreement, the “CMBC License Agreements”). As consideration for the assignment of the License, the Assignment Agreement provides for the payment of $250,000 to CMBC directly from Bellridge on behalf of the Company as part of the increased line of credit of $5,000,000. The closing of the Assignment Agreement was subject to the same conditions required to be satisfied for consummation of the License Agreement.
As of June 29, 2020, CMBC and the Company entered into a waiver and agreement (the “Waiver Agreement”), pursuant to which the Company and CMBC agreed to close the following two pending licensing arrangements: (1) the License Agreement, and (2) the Benchmark Assignment Agreement.
The closings of the license and assignment pursuant to the CMBC License Agreements were subject to a number of conditions, most of which had not been satisfied on or before the date of the closings. Pursuant to the Waiver Agreement, CMBC, among other things, waived all of the conditions that had not been satisfied in order to consummate the closings of the license and assignment pursuant to the CMBC License Agreements.
As of June 29, 2020, as consideration for the licenses provided under License Agreement and in satisfaction of its payment obligations under the License Agreement, the Company authorized the issuance of 12,455,497 restricted shares Common Stock to Black Cactus Holdings LLC (“Black Cactus Holdings”), the designee of CMBC, to be issued in two certificates each in the name of “Black Cactus Holdings LLC”, as follows: (i) one certificate representing 8,705,497 shares of Common Stock, which was issued and delivered to Black Cactus Holdings, and (ii) one certificate representing 3,750,000 shares of Common Stock, which was supposed to be issued to Black Cactus Holdings, but was reduced to 3,005,025 shares of Common Stock because the Company did not have enough authorized and unissued shares of Common Stock to issue all of such shares.
The certificate for 3,005,025 shares of Common Stock was issued by the Company on July 21, 2020 and is being held in escrow by the Company. The Company is in the process of issuing the certificate for the additional 744,975 shares of Common Stock that will also be held in escrow by the Company, until such time as an aggregate of 2,5000,000 shares of Common Stock issued to three former directors, one of whom is also a former officer, and a former director’s relative (the “Individual Defendants”), have been cancelled on the certified shareholder records of the Company or as otherwise provided in the Waiver Agreement(the “Cancellable Shares”). Promptly after the date upon which the Cancellable Shares have all been cancelled, the Company will instruct the Company’s transfer agent to cancel the shares held in escrow. In the event that all of the Cancellable Shares have not been cancelled on or before July 9, 2021, the Company will release to Black Cactus Holdings one and one-half (1.5) shares of Common Stock for each Cancellable Share that has not been cancelled by such date and any remaining shares of Common Stock represented by the Escrowed Certificate will be cancelled.
Effective as of June 29, 2020, Jeremy Towning notified the Company that he was resigning from his position as the Company’s Chief Executive Officer, but continues as the Chief Financial Officer and a director of the Company.
In connection with the closing of the License Agreement, effective as of June 29, 2020, the Board, pursuant to its powers under the Company’s bylaws, appointed Karyn Augustinus and Lawrence P. Cummins as members of the Company’s board of directors (the “Board”), Lawrence P. Cummins as Chief Executive Officer, and Lawrence C. Cummins as Vice President.
- 19 -
On September 9, 2020, the Company issued a convertible senior secured promissory note to Bellridge for loans provided in tranches, up to an aggregate principal amount of $1,000,000 (the “September 2020 Note”). On September 21, 2020, the Company and Bellridge entered into a correction to convertible secured promissory note (the “Convertible Note Correction), which provides that each tranche provided under the terms of the September 2020 Note is to be provided at an original issue discount (“OID”) of 10%. During the period covered by this quarterly report, Bellridge has funded the September 2020 Note in the aggregate principal amount of $83,600 for an aggregate purchase price of $76,000, net of a $7,600 OID. For a detailed discussion regarding this transaction, please refer to the Unregistered Sales of Equity Securities section in Part II of Item 2 of this quarterly report.
On October 14, 2020, the Company filed a complaint (the “Complaint”) in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida against the Individual Defendants seeking the cancelation of the Cancellable Shares. The Complaint alleges that the Cancellable Shares were transferred in error, and without any intention to transfer possession of the Cancellable Shares to the Individual Defendants, since the Individual Defendants, as of such date had not, and at no time thereafter, performed the services that were to be rendered in consideration for the grant of the Cancellable Shares. The Complaint seeks, among other things, the cancelation and return of the Cancellable Shares to the status of authorized and unissued shares of the Company. Service of process on the Individual Defendants has not yet occurred.
Critical Accounting Policies
As of October 31, 2020, there were no critical accounting policies. See the footnotes to our unaudited financial statements, included elsewhere in this quarterly report on Form 10-Q, for a complete summary of the significant accounting policies used in the presentation of our financial statements. The summary is presented to assist the reader in understanding the financial statements. The accounting policies used conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.
Concentrations, Risks, and Uncertainties
The Company did not have a concentration of business with suppliers or customers constituting greater than 10% of the Company’s gross sales during the reporting period.
Recently Issued Accounting Standards
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
Results of Operations
The following discussion of the Company’s financial condition and the results of operations should be read in conjunction with the unaudited financial statements and notes thereto appearing elsewhere in this quarterly report on Form 10-Q.
There is no historical financial information about us upon which to base an evaluation of our performance. We had net loss of $1,046,490 and $122,669 for the three months ended October 31, 2020 and 2019, respectively and $2,597,596 and $242,334 for the six months ended October 31, 2020 and 2019, respectively.
We did not generate any revenues from our operations for the three months ended October 31, 2020 or 2019 or for the six months ended October 31, 2020 or 2019. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including the financial risks associated with the limited capital resources currently available to us for the implementation of our business strategies.
During the three months ended October 31, 2020 and 2019, we had operating expenses of $160,958 and $1,505, respectively. The increase in operating expenses is primarily due to an increase in professional fees of $96,835, an increase in investor relations of $35,000, and an increase in research and development expenses of $25,000.
During the six months ended October 31, 2020 and 2019, we had operating expenses of $1,569,253 and $4,653, respectively. The increase in operating expenses is primarily due to an increase in license fees of $1,245,550, an increase in professional fees of $248,848, an increase in investor relations of $35,000, and an increase in research and development expenses of $25,000.
Since inception, the majority of our time has been spent refining its business plan and preparing for a primary financial offering.
- 20 -
Our results of operations are summarized below:
|
|
|
For the Three
|
|
For the Three
|
|
||
|
Revenue |
|
|
— |
|
|
— |
|
|
Cost of Revenue |
|
|
— |
|
|
— |
|
|
Net Loss (Income) and Comprehensive (Loss) Income |
|
$ |
(1,046,490 |
) |
$ |
(122,669 |
) |
|
Net Loss (Income) per Common Share, Basic and Diluted |
|
$ |
(0.12 |
) |
$ |
(0.01 |
) |
|
Weighted Average Number of Common Shares Outstanding, Basic and Diluted |
|
|
8,696,110 |
|
|
8,303,665 |
|
|
|
|
For the Six
|
|
For the Six
|
|
||
|
Revenue |
|
|
— |
|
|
— |
|
|
Cost of Revenue |
|
|
— |
|
|
— |
|
|
Net Loss (Income) and Comprehensive (Loss) Income |
|
$ |
(2,597,596 |
) |
$ |
(242,334 |
) |
|
Net Loss (Income) per Common Share, Basic and Diluted |
|
$ |
(0.17 |
) |
$ |
(0.03 |
) |
|
Weighted Average Number of Common Shares Outstanding, Basic and Diluted |
|
|
14,992,857 |
|
|
8,303,665 |
|
Management’s Plan of Operation
We do not have adequate funds to satisfy our working capital requirements for the next twelve months. Prior to the additional loan made to us in February 2020, discussed below, we had borrowed a total of $1,000,000 from Bellridge to fund our planned plan of operations in digital currency mining. We sold Bellridge our Senior, Secured Convertible Promissory Notes (the “Notes”). Thus far, Bellridge has purchased $1,000,000 in Notes. Pursuant to the terms of our agreements with Bellridge, we were required to file a registration statement with the SEC to register the shares of Common Stock to be issued under those agreements. We filed the registration statement on April 24, 2018 but it has not yet been declared effective. We received the third tranche of $200,000 from Bellridge after the first set of SEC comments. We may not receive the fourth and final tranche of $500,000 unless and until the registration statement is declared effective by the SEC. We cannot estimate when our registration statement will be declared effective by the SEC. Under certain conditions, Bellridge may not have to purchase the fourth Note. These conditions include any acts constituting default under any of the Notes or the agreements entered into at the time of the first purchase of the Note issued on November 27, 2017. Until such time as we receive the final $500,000 of funding from Bellridge, in the interim, we may not be able to completely implement and commence our proposed plan of operations.
In February 2020, we entered into a securities purchase agreement with Bellridge, pursuant to which we issued a convertible promissory note in the principal amount of $54,271. The funds were used for operating expenses during the year ended April 30, 2020.
As of October 31, 2020, we had not yet had any revenues from our services in the digital currency mining field.
Liquidity and Capital Resources
As of October 31, 2020, we had not generated any revenues from our business operations. As at October 31, 2020, there were 22,066,685 shares of common stock issued and outstanding. Total cash proceeds received from common share issuance since inception to October 31, 2020 is $90,500.
As of October 31, 2020, and 2019, we had no cash on hand. Our cash was not sufficient to meet the obligations associated with being a company that is fully reporting with the SEC. We believe we will require additional financing in the form of share issuance proceeds or advances from our directors.
Our business expansion will require significant capital resources that may be funded through the issuance of common stock or of notes payable or other debt arrangements that may affect our debt structure. Despite our current financial status, we believe that we may be able to issue notes payable or debt instruments in order to start executing our business plan. However, there can be no assurance that we will be able to raise money in this fashion and have not entered into any agreements that would obligate a third party to provide us with capital.
- 21 -
During the six months ended October 31, 2020 and 2019, we had operating expenses of $1,569,253 and $4,653, respectively. Historically, we have relied on loans to fund general and administrative operating expenses. As of October 31, 2020, we had a working capital deficiency of $3,285,323.
As of October 31, 2020, the Company had no external sources of liquidity such as arrangements with credit institutions or off-balance sheet arrangements that will have or are reasonably likely to have a current or future effect on our financial condition or immediate access to capital.
Our independent auditor has expressed substantial doubt about our ability to continue as a going concern and believes that our ability is dependent on our ability to implement our business plan, raise capital and generate revenues. See Note 2 of our financial statements.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect or change on the Company’s financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with the Company is a party, under which the Company has (i) any obligation under a guarantee contract that has any of the characteristics identified in FASB ASC paragraph 460-10-15-4 (Guarantees Topic), as may be modified or supplemented, and that is not excluded from the initial recognition and measurement provisions of FASB ASC paragraphs 460-10-15-7, 460-10-25-1, and 460-10-30-1; (ii) a retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to such entity for such assets; (iii) any obligation, including a contingent obligation, under a contract that would be accounted for as a derivative instrument, except that it is both indexed to the registrant’s own stock and classified in stockholders’ equity in the registrant’s statement of financial position, and therefore excluded from the scope of FASB ASC Topic 815, Derivatives and Hedging, pursuant to FASB ASC subparagraph 815-10-15-74(a), as may be modified or supplemented; or (iv) any obligation, including a contingent obligation, arising out of a variable interest (as defined in the FASB ASC Master Glossary), as may be modified or supplemented) in an unconsolidated entity that is held by, and material to, the registrant, where such entity provides financing, liquidity, market risk or credit risk support to, or engages in leasing, hedging or research and development services with, the registrant.
Subsequent Events
On November 12, 2020, the third tranche of the September 2020 Note was funded in the aggregate principal amount of $55,000 for an aggregate purchase price of $50,000, net of a $5,000 OID. On November 25, 2020, the fourth tranche of the September 2020 Note was funded in the aggregate principal amount of $65,262 for an aggregate purchase price of $59,329, net of a $5,933 OID.
On November 25, 2020, the Company entered into a subscription agreement (“Subscription Agreement”) for a private placement (“Private Placement”) of its Common Stock, with an accredited investor (“Investor”), pursuant to which Subscription Agreement the Company agreed to issue and sell 1,000,000 restricted shares of Common Stock at a price of $0.10 per share (“Purchase Price”) for total gross proceeds of $100,000. The closing of the Private Placement occurred concurrently with the execution of the Subscription Agreement by the parties and the receipt of the Company of $100,000 in funds from the Investor. The Company is in the process of issuing the 1,000,000 shares of Common Stock to the Investor.
Pursuant to the Subscription Agreement, the issuance of the Common Stock is exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Regulation D promulgated thereunder and such Common Stock will therefore be restricted. The Investor gave representations that he is purchasing the Common Stock without a present view toward a distribution of the Common Stock and that he is an “accredited investor” (as defined under Rule 501 of Regulation D).
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not required for smaller reporting companies.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act that are designed to ensure that information required to be disclosed in our reports filed or submitted to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that information is
- 22 -
accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of disclosure controls and procedures as of October 31, 2020 pursuant to Rule 13a-15(b) under the Exchange Act. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were not effective to ensure that information required to be included in our periodic SEC filings is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal controls over financial reporting that occurred during the quarter ended October 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
Not required for smaller reporting companies.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
On September 9, 2020, the Company issued the September 2020 Note to Bellridge. Each tranche payment made under the September 2020 Note is to be made via wire transfer to the escrow account of Company’s attorneys, pursuant to the terms and conditions of the escrow agreement, among the Company, Bellridge, and the Company’s attorneys.
On September 17, 2020, the first tranche of the September 2020 Note was funded in the aggregate principal amount of $50,600 for an aggregate purchase price of $46,000, net of a $4,600 OID. On September 18, 2020, the second tranche of the September 2020 Note was funded in the aggregate principal amount of $33,000 for an aggregate purchase price of $30,000, net of a $3,000 OID.
On September 21, 2020, the Company and Bellridge entered into the Convertible Note Correction, which provides that each tranche provided under the terms of the September 2020 Note is to be provided at an original issue discount (“OID”) of 10%.
The interest on the outstanding principal due under the September 2020 Note accrues at a rate of 10% per annum. All principal and accrued interest under the September 2020 Note is due on September 9, 2021 and is convertible into shares of the Company’s Common Stock at a conversion price equal to the lesser of (i) $0.14 and (ii) 70% of the lowest traded market price in the 20 consecutive trading days prior to the conversion date. In the event of a default, the September 2020 Note is convertible into shares of the Company’s common stock at a conversion price equal to 60% of the lowest traded market price in the 20 consecutive trading days prior to the conversion date. The issuance was made pursuant to an exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company continues to be in default under several convertible notes to Bellridge Capital L.P. as follows:
On November 27, 2018, the Company defaulted on a convertible note, resulting in the note becoming immediately due and payable. Upon default, the interest rate increased to 29% per annum and the Company incurs a late fee at an interest rate equal to 18% per annum on any overdue and unpaid interest under the convertible note. Additionally, the total amount owed on the convertible note upon default is equal to 130% of the outstanding principal and accrued and unpaid interest. During the year ended April 30, 2019, the Company recorded a 30% principal increase of $157,895 as a result of default, increasing the carrying value of the loan to $684,211. During the six months ended October 31, 2020, the Company recorded accretion of discount of $Nil (2019 - $Nil). During the six months ended October 31, 2020, the Company issued 2,052,498 shares of common stock upon the conversion of $150,904 of the Note, comprising of $107,769 principal amount and $43,135 interest. As at October 31, 2020, the carrying value of the principal amount was $576,441 (April 30, 2020 - $684,211), and the Company has recorded accrued interest of $443,499 (April 30, 2020 - $372,243).
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On December 20, 2018, the Company defaulted on a convertible note, resulting in the note becoming immediately due and payable. Upon default, the interest rate increased to 29% per annum and the Company incurs a late fee at an interest rate equal to 18% per annum on any overdue and unpaid interest under the convertible note. Additionally, the total amount owed on the convertible note upon default is equal to 130% of the outstanding principal and accrued and unpaid interest. During the year ended April 30, 2019, the Company recorded a 30% principal increase of $94,737 as a result of default, increasing the carrying value of the loan to $410,527. During the six months ended October 31, 2020, the Company recorded accretion of discount of $Nil (2019 - $Nil). As at October 31, 2020, the carrying value of the principal amount was $410,527 (April 30, 2020 - $410,527), and the Company has recorded accrued interest of $288,098 (April 30, 2020 - $206,584).
On December 20, 2018, the Company defaulted on another convertible note, resulting in the note becoming immediately due and payable. Upon default, the interest rate increased to 29% per annum and the Company incurs a late fee at an interest rate equal to 18% per annum on any overdue and unpaid interest under the convertible note. Additionally, the total amount owed on the convertible note upon default is equal to 130% of the outstanding principal and accrued and unpaid interest. During the year ended April 30, 2019, the Company recorded a 30% principal increase of $63,158 as a result of default, increasing the carrying value of the loan to $273,685. During the six months ended October 31, 2020, the Company recorded accretion of discount of $Nil (2019 – $Nil). As at October 31, 2020, the carrying value of the principal amount was $273,685 (April 30, 2020 - $273,685), and the Company has recorded accrued interest of $189,303 (April 30, 2020 - $135,152).
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
The information regarding the September 2020 Note as set forth in Part I, Item 2 and Part II, Item 1 of this quarterly report is incorporated by reference into this Item 5.
ITEM 6. EXHIBITS
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Exhibit |
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Description |
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10.1* |
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10.2* |
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10.3* |
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31.1* |
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31.2* |
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32.1* |
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32.2* |
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101.INS** |
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XBRL Instance |
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101.SCH** |
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XBRL Taxonomy Extension Schema |
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101.CAL** |
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XBRL Taxonomy Extension Calculation |
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101.DEF** |
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XBRL Taxonomy Extension Definition |
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101.LAB** |
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XBRL Taxonomy Extension Labels |
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101.PRE** |
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XBRL Taxonomy Extension Presentation |
__________
* Filed herewith.
** To be submitted by amendment.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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BLGI, INC. |
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Date: December 21, 2020 |
By: /s/ Lawrence P. Cummins |
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Lawrence P. Cummins |
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Chief Executive Officer (Principal Executive Officer) |
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Date: December 21, 2020 |
By: /s/ Jeremy Towning |
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Jeremy Towning |
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Chief Financial Officer (Principal Financial Officer) |
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EXHIBIT 10.1
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the “Agreement”) is made and entered into this 1st day of September, 2020 by and among Black Cactus Global, Inc., a Florida corporation having an address at 207 W. Division Street, Suite 137, Chicago, Illinois 60622 (the “Company”), Bellridge Capital, L.P., a Delaware limited partnership having an address at 515 E. Las Olas Blve., Suite 120A, Fort Lauderdale, FL 33301 (“Bellridge”) and Sullivan & Worcester LLP (the “Escrow Agent”).
WHEREAS, the Company and Bellridge have entered into a Promissory Note [and Guarantee], of even date herewith, to which this Agreement is attached as an exhibit (the “Bellridge Grid Note”), pursuant to which Bellridge has agreed to fund loans to the Company, not to exceed $1,000,000, in Tranches; and
WHEREAS, the Bellridge Grid Note provides for the Company’s and Bellridge’s entering into this Agreement for the purpose of funding such Tranches by Bellridge’s wiring such funds to the Sullivan & Worcester LLP Attorney Escrow Account IOLA (the “Escrow Account”), pursuant to the terms and conditions of the Bellridge Grid Note and this Agreement; and
WHEREAS, the Company and Bellridge have agreed to maintain this escrow arrangement, with the Escrow Agent, for a period of not more than ninety (90) days so that the Company can complete the pending recapitalization and restructuring of the Company and, thereafter fund all amounts through its own account;
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and Bellridge each agrees as follows:
ARTICLE I
DEPOSIT IN ESCROW
1.1 Definitions. All initially capitalized terms which are not otherwise defined in this Agreement shall have the meanings given to those terms in the Bellridge Grid Note.
1.2 Term. This Agreement shall be terminated on the date mutually agreed to by the Company and Bellridge, at which time all funds remaining in the Escrow Account (the “Escrow Funds”) will be distributed in accordance with the terms of this Agreement or deposited with any court of competent jurisdiction, whichever is earlier (the “Termination Date”).
1.3 The Deposit. Subject to the terms and conditions set forth in the Bellridge Grid Note and this Agreement, all funds provided by Bellridge, pursuant to the terms and conditions of the Bellridge Grid Note, will be deposited with the Escrow Agent, in the Escrow Account, on behalf of the Company.
1.4 Termination. Upon the Termination Date, this Agreement shall terminate and be of no further force and effect except for those provisions, which by their terms, survive the termination of this Agreement.
ARTICLE II
RELEASE OF ESCROW
2.1 Release of Escrow. Subject to the provisions of Section 3.2 hereafter, the Escrow Agent shall release the Escrow Funds from the Escrow Account upon the instructions of the Company, which shall be provided by written notice (the “Escrow Release Notice”) signed by any authorized officer of the Company set forth on Schedule 1 annexed hereto, in accordance with a budget mutually agreed to by the Company and Bellridge.
2.2 Acknowledgement of Parties; Disputes. The Company acknowledges and agrees that the only terms and conditions upon which the Escrow Funds are to be released are set forth in this Article 2 and in Article 3 hereafter. The Company reaffirms its agreement to abide by the terms and conditions of this Agreement with respect to the release of the Escrow Funds. Any dispute with respect to the release of the Escrow Funds shall be resolved pursuant to the provisions of Section 3.2 hereafter or by the mutual agreement of the Company and Bellridge.
ARTICLE III
CONCERNING THE ESCROW AGENT
3.1 Duties and Responsibilities of the Escrow Agent. The Escrow Agent’s duties and responsibilities shall be subject to the following terms and conditions:
(a) Each of the Company and Bellridge acknowledges and agrees that the Escrow Agent (i) shall not be responsible for or bound by, and shall not be required to inquire into whether the Company is entitled to receipt of the Escrow Funds pursuant to, any other agreement or otherwise; (ii) shall be obligated only for the performance of such duties as are specifically assumed by the Escrow Agent pursuant to this Agreement; (iii) may rely on and shall be protected in acting or refraining from acting upon any written notice, instruction, instrument, statement, request or document furnished to it hereunder and believed by the Escrow Agent in good faith to be genuine and to have been signed or presented by the proper person or party, without being required to determine the authenticity or correctness of any fact stated therein or the propriety or validity or the service thereof; (iv) may assume that any person believed by the Escrow Agent in good faith to be authorized to give notice or make any statement or execute any document in connection with the provisions hereof is so authorized; (v) shall not be under any duty to give the property held by the Escrow Agent hereunder any greater degree of care than the Escrow Agent gives its own similar property; and (vi) may consult counsel satisfactory to the Escrow Agent, the opinion of such counsel to be full and complete authorization and protection in respect of any action taken, suffered or omitted by the Escrow Agent hereunder in good faith and in accordance with the opinion of such counsel.
(b) Each of the Company and Bellridge acknowledges that the Escrow Agent shall not be liable for any action taken by Escrow Agent in good faith and believed by the Escrow Agent to be authorized or within the rights or powers conferred upon the Escrow Agent by this Agreement. The Escrow Agent shall owe a duty only to the Company under this Agreement and to no other person including, without limitation, Bellridge.
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(c) The Company agrees to reimburse the Escrow agent for outside counsel fees and any other reasonable expenses incurred by the Escrow Agent which are incurred in connection with the performance of its duties and responsibilities hereunder.
(d) The Escrow Agent may at any time resign as escrow agent hereunder by giving five (5) days prior written notice of resignation to the Company and Bellridge. Prior to the effective date of the resignation as specified in such notice, the Company and Bellridge will issue to the Escrow Agent mutual instructions (“Instructions”) authorizing delivery of the Escrow Funds to a substitute escrow agent selected by the Company or to the Company to be deposited into its operating account. If the Instructions provide for delivery to a substitute escrow agent and no successor escrow agent is named by the Company, the Escrow Agent may take any action available under the laws of the State of New York for appointment of a successor escrow agent, and assure the continued safekeeping of the Escrow Funds in any manner permitted under the laws of the State of New York.
(e) The Escrow Agent does not have and will not have any interest in the Escrow Funds, but is serving only as escrow agent, having only possession thereof.
(f) This Agreement sets forth exclusively the duties of the Escrow Agent with respect to any and all matters pertinent thereto and no implied duties or obligations shall be created under the terms of this Agreement.
(g) The provisions of this Section 3.1 shall survive the resignation of the Escrow Agent or the termination of this Agreement.
3.2 Dispute Resolution: Judgments. Resolution of disputes arising under this Agreement shall be subject to the following terms and conditions:
(a) If any dispute shall arise with respect to the delivery, ownership, right of possession or disposition of the Escrow Funds, or if the Escrow Agent shall in good faith be uncertain as to its duties or rights hereunder, the Escrow Agent shall be authorized, without liability to anyone, to (i) refrain from taking any action other than to continue to hold the Escrow Funds pending receipt of Instructions from the Company and Bellridge, or (ii) take any other action available under the laws of the State of New York for the safekeeping of the Escrow Funds and, to the extent applicable, shall thereupon be relieved and discharged from all further obligations pursuant to this Agreement. The Escrow Agent may, but shall be under no duty to, institute or defend any legal proceedings which relate to the Escrow Funds. The Escrow Agent shall have the right to retain counsel if it becomes involved in any disagreement, dispute or litigation on account of this Agreement or otherwise determines that it is necessary to consult counsel.
(b) In the event that any of the Escrow Funds shall be attached, garnished or levied upon by any court order, or the delivery thereof shall be stayed or enjoined by an order of a court, or any order, judgment or decree shall be made or entered by any court order affecting the Escrow Funds, the Escrow Agent is hereby expressly authorized, in its sole discretion, to respond as it deems appropriate or to comply with all writs, orders or decrees so entered or issued, or which it is advised by legal counsel of its own choosing is binding upon it. In the event
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that the Escrow Agent obeys or complies with any such writ, order or decree it shall not be liable to any of the parties or to any other person, firm or corporation, if, such writ, order or decree be subsequently reversed, modified, annulled, set aside or vacated.
3.3 Indemnification. The Company and Bellridge shall, jointly and severally, indemnify, defend and hold harmless the Escrow Agent from and against any and all loss, liability, cost, damage and reasonable expense, including, without limitation, reasonable attorneys’ fees and expenses or other professional fees and reasonable expenses which the Escrow Agent may suffer or incur by reason of any action, claim or proceeding brought against the Escrow Agent, arising out of or relating in any way to this Agreement or any transaction to which this Agreement relates, unless such loss, liability, cost, damage or expense shall have been determined to have been caused by the willful misconduct or gross negligence of the Escrow Agent. The provisions of this Section 3.3 shall survive the resignation or removal of the Escrow Agent and the termination of this Agreement.
3.4 Limitation of Liability. THE ESCROW AGENT SHALL NOT BE LIABLE, DIRECTLY OR INDIRECTLY, FOR ANY (i) DAMAGES, LOSSES OR EXPENSES ARISING OUT OF THE SERVICES PROVIDED HEREUNDER, OTHER THAN DAMAGES, LOSSES OR EXPENSES WHICH HAVE BEEN FINALLY ADJUDICATED TO HAVE DIRECTLY RESULTED FROM THE ESCROW AGENT’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, OR (ii) SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES OR LOSSES OF ANY KIND WHATSOEVER (INCLUDING WITHOUT LIMITATION LOST PROFITS), EVEN IF THE ESCROW AGENT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSSES OR DAMAGES AND REGARDLESS OF THE FORM OF ACTION.
3.5 Reliance. The Escrow Agent shall not be liable for any action taken or not taken by it in accordance with the Instructions or consent of the Company or its agents, representatives, successors, or assigns. The Escrow Agent shall not be liable for acting or refraining from acting upon any notice, request, consent, direction, requisition, certificate, order, affidavit, letter, or other paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, without further inquiry into the person’s or persons’ authority.
ARTICLE IV
MISCELLANEOUS
4.1 Entire Agreement; Amendments. This Agreement contains the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.
4.2 Amendments; Waivers. No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by the Company, Bellridge and the Escrow Agent or, in the case of a waiver, by the party against whom enforcement of any such waiver is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any other provision, condition or requirement hereof, nor shall any
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delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right accruing to it thereafter.
4.3 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their heirs, successors and permitted assigns.
4.4 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other person.
4.5 Notices. All notices and other communications hereunder shall be in writing and shall be deemed duly given (a) on the date of delivery if delivered personally, or if by facsimile or email, upon written confirmation of receipt by facsimile or email, or (b) on the first Business Day following the date of dispatch if delivered utilizing a next-day service by FedEx or other nationally recognized overnight delivery service. All notices hereunder shall be delivered to the addresses set forth below, or pursuant to such other instructions as may be designated in writing by the party to receive such notice:
If to the Company:
Black Cactus Global, Inc.
207 W. Division Street, Suite 137
Chicago, IL 60622
Attention: Lawrence P. Cummins, CEP
Email:
If to Bellridge:
Bellridge Capital, L.P.
If to Escrow Agent:
Sullivan & Worcester LLP
1633 Broadway
New York, NY 10019
Attention: David E. Danovitch, Esq.
Email: ddanovitch@sullivanlaw.com
4.6 Continued Representation of the Company and Bellridge. The Company and Bellridge each acknowledge and agree that the Escrow Agent serves as counsel to the Company and Bellridge in connection with certain matters. In furtherance thereof, unless not waivable pursuant to applicable law, the Company and Bellridge each waive irrevocably all conflicts of
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interest that may arise or be deemed to arise by reason of the foregoing circumstances. Without limiting the generality of the foregoing, the Company and Bellridge each specifically agrees that the Escrow Agent may continue to act as counsel to the Company and Bellridge in connection with any and all matters notwithstanding its service as the Escrow Agent, unless the Escrow Agent determines that any such representation would result in a conflict of interest.
4.7 Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party hereby irrevocably submits to the jurisdiction of the state and federal courts sitting in New York, New York for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery). Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. If any party shall commence an action or proceeding to enforce any provisions of the documents contemplated herein, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorney’s fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding. If the Escrow Agent represents itself, it shall be entitled to recover legal fees, in connection with such representation, at its normal hourly billable rates, as if representing an independent party.
4.8 Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other parties, it being understood that all parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or electronically in .pdf format, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile or .pdf signature page were an original thereof.
4.9 Severability. In case any one or more of the provisions of this Agreement shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision which shall be a reasonable substitute therefore, and upon so agreeing, shall incorporate such substitute provision in this Agreement.
Signature Page Follows
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IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
BLACK CACTUS GLOBAL INC.
By:____________________________
Name: Lawrence P. Cummins
Title: Chief Executive Officer
BELLRIDGE CAPITAL, L.P.
By:____________________________
Name:
Title:
ESCROW AGENT:
SULLIVAN & WORCESTER LLP
By:_______________________________
David E. Danovitch, Esq., Partner
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SCHEDULE 1
Authorized Signatories
Black Cactus Global Inc.
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Bellridge Capital, L.P.
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Signature |
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EXHIBIT 10.2
NEITHER THIS NOTE NOR THE COMMON STOCK INTO WHICH IT MAY BE CONVERTED HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND NEITHER MAY BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS SO REGISTERED OR UNLESS SOLD PURSUANT TO AN EXEMPTION THEREFROM.
CONVERTIBLE SECURED PROMISSORY NOTE
September 9, 2020 (the “Effective Date”)
FOR VALUE RECEIVED, Black Cactus Global Inc., a Florida corporation (the “Maker”) hereby promises to pay to the order of Bellridge Capital, L.P. (the “Payee”) the principal sum set out on the grid attached to this Note, not to exceed ONE MILLION DOLLARS ($1,000,000), or, if less, the aggregate unpaid principal amount of all tranche payments made to the Maker by Payee (each a “Tranche”) together with interest, in each case in the manner described herein. Certain terms used herein are defined in Annex A.
1. Draw Downs. The initial Tranche of $45,000 will be immediately available to the Maker, subject to the satisfaction of all required conditions hereunder. Additional Tranches will be made available to the Maker on the funding dates (each a “Funding Date”), and in the corresponding dollar amounts set forth on the Schedule of Tranches attached hereto as Exhibit 1 (the “Schedule of Tranches”). Each additional Tranche will be funded within seven (7) business days following receipt by the Payee on a Funding Date of a letter from Maker requesting payment under the corresponding Tranche and a certification signed by an authorized officer of the Maker that all conditions to funding set forth herein have been satisfied and that the Maker is not in breach of any representation, warranty or covenant provided in this Note or any other agreement or document between the Maker and the Payee related to the subject matter contained in such agreements or documents.
The Maker hereby authorizes the Payee to endorse on the Schedule of Tranches annexed to this Note all Tranches made to the Maker and all payments of principal amounts in respect of such Tranches, which endorsements shall, in the absence of manifest error, be conclusive as to the outstanding principal amount of all Tranches; provided, however, that the failure to make such notation with respect to any Tranche or payment shall not limit or otherwise affect the obligations of the Maker under this Note.
In connection with the foregoing, the Payee agrees that each Tranche payment made hereunder shall be made via wire transfer to the escrow account of the Maker’s attorneys, Sullivan & Worcester LLP (the “Escrow Agent”), pursuant to the terms and conditions of the Escrow Agreement, among the Maker, Payee and the Escrow Agent, in the form attached hereto as Exhibit 2, on or prior to the date of such advance.
2. Payments of Principal. Subject to the acceleration provisions of Section 9, all unpaid principal, fees and accrued and unpaid interest shall be due and payable in full on September 9, 2021 (the “Maturity Date”).
3. Interest. The unpaid principal amount of this Note shall accrue interest on the basis of a 360 day year at 10% per annum, provided that upon the occurrence and during the continuance of an Event of Default the outstanding principal amount of this Note and any accrued and unpaid interest and all other overdue amounts shall each bear interest until paid at the stated rate plus 3% per annum. Accrued interest shall be payable (a) upon the payment or prepayment of any principal owing under this Note (but only on the principal amount so paid or prepaid), (b) on the last business day of each month and (c) on the Maturity Date. In the event of a conversion of this Note prior to the Maturity Date pursuant to the terms set forth in Section 6, all accrued and unpaid interest shall be added to the principal amount being converted as of the date of conversion to determine the amount of securities into which this Note shall be converted.
4. Prepayments. Immediately upon a Change of Control, the Maker shall repay all unpaid principal at 130% of the principal amount outstanding plus all accrued and unpaid interest thereon and all other amounts hereunder. In addition, subject to the below, the Maker may at any time and from time to time prepay any principal amount of this Note in whole or in part subject to the below. Any repayment or prepayment, whether voluntary, mandatory, upon acceleration, or otherwise shall be made at 130% of the principal amount hereof. If the Maker elects to prepay all or any part of this Note, it shall provide written notice of such election (a “Prepayment Notice”) to the Payee fixing a date for prepayment of such amounts (the “Prepayment Date”), which date shall not be earlier than the fifth (5th) Business Day after the date of the Prepayment Notice (provided that the Maker shall have confirmed the Payee’s receipt of the Prepayment Notice on or prior to such date).
5. Payment Terms. All payments of principal of, and interest upon, this Note shall be made by the Maker to the Payee and shall be paid in cash in immediately available funds in lawful money of the United States by wire transfer to the bank account designated by the Payee in writing from time to time. All payments under this Note shall be made without withholding, defense, set-off, counterclaim or deduction. Payments and prepayments made to the Payee by the Maker hereunder shall be applied first to expenses recoverable under Section 14, then accrued interest and then to principal. If the due date of any payment under this Note would otherwise fall on a day that is not a business day, such due date shall be extended to the next succeeding business day, and interest shall be payable on any principal so extended for the period of such extension.
6. Conversion.
(a) Automatic Conversion. At any time after the first Funding Date until this Note is no longer outstanding, any outstanding principal portion of this Note shall be convertible, in whole or in part, into shares of Common Stock at the option of the Payee, at any time and from time to time (subject to the conversion limitations set forth in Section 6(d) hereof). The Payee shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Exhibit 3 (each, a “Notice of Conversion”), specifying therein the principal amount of this Note to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. No ink-original Notice of Conversion shall 3be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. To effect conversions
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hereunder, the Payee shall not be required to physically surrender this Note to the Company unless the entire principal amount of this Note, plus all accrued and unpaid interest thereon, has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Note in an amount equal to the applicable conversion. The Payee and the Maker shall maintain records showing the principal amount(s) converted and the date of such conversion(s). The Maker may deliver an objection to any Notice of Conversion within one (1) Business Day of delivery of such Notice of Conversion. In the event of any dispute or discrepancy, the records of the Payee shall be controlling and determinative in the absence of manifest error. The Payee, and any assignee by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note may be less than the amount stated on the face hereof.
(b) Conversion Price. The conversion price in effect on any Conversion Date shall be equal to the lower of (i) [$0.007]and (ii) 70% of the lowest trading price for the Company’s Common Stock during the twenty (20) Trading Days immediately preceding the delivery by the Holder of a Notice of Conversion (the “Conversion Price”). Notwithstanding anything herein to the contrary, at any time after the occurrence of any Event of Default the Payee may require the Maker to, at such Payee’s option and otherwise in accordance with the provisions for conversion herein, convert all or any part of this Note into Common Stock at the Alternate Conversion Price. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction that proportionately decreases or increases the Common Stock during such measuring period. Nothing herein shall limit a Payee’s right to pursue actual damages or declare an Event of Default pursuant to Section 9 hereof and the Payee shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Payee from seeking to enforce damages pursuant to any other Section hereof or under applicable law.
(c) Mechanics of Conversion.
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Conversion Shares Issuable Upon Conversion of Principal Amount. The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Note to be converted by (y) the Conversion Price (or Alternate Conversion Price, in accordance with Section 6(b)). |
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(ii) |
Delivery of Certificate Upon Conversion. Not later than three (3) Trading Days after each Conversion Date (the “Share Delivery Date”), the Maker shall deliver, or cause to be delivered, to the Payee a certificate or certificates representing the Conversion Shares which, on or after the six month anniversary of the Effective Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the SPA representing the number of Conversion Shares being acquired upon the conversion of this Note. All certificate or certificates required to be |
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delivered by the Company under this Section 6(c) shall be delivered electronically through the Depository Trust Company or another established clearing corporation performing similar functions. If the Conversion Date is prior to) the six month anniversary of the Original Issue Date then the Conversion Shares shall bear a restrictive legend in the following form, as appropriate: |
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“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE PAYEE), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.” |
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(iii) |
Failure to Deliver Certificates. If, in the case of any Notice of Conversion, such certificate or certificates are not delivered to or as directed by the applicable Payee by the Share Delivery Date, the Payee shall be entitled to elect by written notice to the Maker at any time on or before its receipt of such certificate or certificates, to rescind such Conversion, in which event the Maker shall promptly return to the Payee any original Note delivered to the Maker and the Payee shall promptly return to the Maker the Common Stock certificates issued to such Payee pursuant to the rescinded Conversion Notice. |
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(iv) |
Obligation Absolute; Partial Liquidated Damages. The Maker’s obligations to issue and deliver the Conversion Shares upon conversion of this Note in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Payee to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Payee or any other Person of any obligation to the Maker or any violation or alleged violation of law by the Payee or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Maker to the Payee in connection with the issuance of such Conversion Shares; provided, however, that such delivery |
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shall not operate as a waiver by the Maker of any such action the Maker may have against the Payee. In the event the Payee shall elect to convert any or all of the outstanding principal amount hereof, the Maker may not refuse conversion based on any claim that the Payee or anyone associated or affiliated with the Payee has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Payee, restraining and or enjoining conversion of all or part of this Note shall have been sought and obtained, and the Maker posts a surety bond for the benefit of the Payee in the amount of 150% of the outstanding principal amount of this Note, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Payee to the extent it obtains judgment. In the absence of such injunction, the Maker shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If the Maker fails for any reason to deliver to the Payee such certificate or certificates pursuant to Section 6(c)(ii) by the Share Delivery Date, the Maker shall pay to the Payee, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $10 per Trading Day (increasing to $20 per Trading Day on the fifth (5th) Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Share Delivery Date until such certificates are delivered or Payee rescinds such conversion. Nothing herein shall limit a Payee’s right to pursue actual damages or declare an Event of Default pursuant to Section 9 hereof for the Maker’s failure to deliver Conversion Shares within the period specified herein and the Payee shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Payee from seeking to enforce damages pursuant to any other Section hereof or under applicable law. |
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(v) |
Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Payee, if the Maker fails for any reason to deliver to the Payee such certificate or certificates by the Share Delivery Date pursuant to Section 6(c)(ii), and if after such Share Delivery Date the Payee is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Payee’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Payee of the Conversion Shares which the Payee was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Maker shall (A) pay in cash to the Payee (in addition to any other remedies available to or elected by the Payee) the amount, if any, by which (x) the Payee’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) |
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the product of (1) the aggregate number of shares of Common Stock that the Payee was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Payee, either reissue (if surrendered) this Note in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the Payee the number of shares of Common Stock that would have been issued if the Maker had timely complied with its delivery requirements under Section 6(c)(ii). For example, if the Payee purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Note with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Maker shall be required to pay the Payee $1,000. The Payee shall provide the Maker written notice indicating the amounts payable to the Payee in respect of the Buy-In and, upon request of the Maker, evidence of the amount of such loss. Nothing herein shall limit a Payee’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Maker’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Note as required pursuant to the terms hereof. |
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(vi) |
Reservation of Shares Issuable Upon Conversion. The Maker covenants that, subject to the terms and conditions set forth in the SPA, it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock a number of shares of Common Stock at least equal to the following formula: 3 x (P/CP), where P equals the outstanding principal amount of this Note from time to time and CP equals the Alternate Conversion Price in effect from time to time, in the name of the Payee, for the sole purpose of issuance upon conversion of this Note, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Payee (and the other holders of the Notes), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the SPA) be issuable (taking into account the adjustments and restrictions as set forth herein) upon the conversion of the then outstanding principal amount of this Note. The Maker covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable. |
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(vii) |
Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Note. As to any fraction of a share which the Payee would otherwise be entitled to purchase upon |
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such conversion, the Maker shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share. |
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(viii) |
Transfer Taxes and Expenses. The issuance of certificates for shares of the Common Stock on conversion of this Note shall be made without charge to the Payee hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that, the Maker shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Payee of this Note so converted and the Maker shall not be required to issue or deliver such certificates unless or until the Person or Persons requesting the issuance thereof shall have paid to the Maker the amount of such tax or shall have established to the satisfaction of the Maker that such tax has been paid. The Maker shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion. |
(d) Payee’s Conversion Limitations. The Maker shall not effect any conversion of this Note, and a Payee shall not have the right to convert any portion of this Note, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Payee (together with the Payee’s Affiliates, and any Persons acting as a group together with the Payee or any of the Payee’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Payee and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted principal amount of this Note beneficially owned by the Payee or any of its Affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Maker subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other Notes or the Warrants) beneficially owned by the Payee or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 6(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 6(d) applies, the determination of whether this Note is convertible (in relation to other securities owned by the Payee together with any Affiliates) and of which principal amount of this Note is convertible shall be in the sole discretion of the Payee, and the submission of a Notice of Conversion shall be deemed to be the Payee’s determination of whether this Note may be converted (in relation to other securities owned by the Payee together with any Affiliates) and which principal amount of this Note is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Payee will be deemed to represent to the Maker each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Maker shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above
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shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 6(d), in determining the number of outstanding shares of Common Stock, the Payee may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Maker’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Maker, or (iii) a more recent written notice by the Maker or the Maker’s transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Payee, the Maker shall within two Trading Days confirm orally and in writing to the Payee the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Maker, including this Note, by the Payee or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Note held by the Payee. The Payee, upon not less than 61 days’ prior notice to the Maker, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 6(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Note held by the Payee and the Beneficial Ownership Limitation provisions of this Section 6(d) shall continue to apply. Any such increase or decrease will not be effective until the 61st day after such notice is delivered to the Maker. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 6(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Note.
7. Adjustments; Reorganizations.
(a) Adjustment for Stock Splits and Combinations. If the outstanding shares of Common Stock of the Maker shall be subdivided into a greater number of shares, or a dividend in Common Stock or other securities of the Maker convertible into or exchangeable for Common Stock (in which latter event the number of shares of Common Stock issuable upon the conversion or exchange of such securities shall be deemed to have been distributed) shall be paid in respect to the Common Stock of the Maker, the Conversion Price in effect immediately prior to such subdivision or at the record date of such dividend shall, simultaneously with the effectiveness of such subdivision or immediately after the record date of such dividend, be proportionately reduced, and conversely, if outstanding shares of the Common Stock of the Maker shall be combined into a smaller number of shares, the Conversion Price in effect immediately prior to such combination shall simultaneously with the effectiveness of such combination, be proportionately increased. Any adjustment to the Conversion Price under this Section 7(a) shall become effective at the close of business on the date the subdivision or combination referred to herein becomes effective.
(b) Reorganizations, Mergers, Consolidations or Reclassifications. In the event of any capital reorganization, any reclassification of the Common Stock of the Maker (other than a change
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in par value), or the consolidation or merger of the Maker with or into another Person (each a “Reorganization”), the Payee shall thereafter be entitled to receive, and provision shall be made therefor in any agreement relating to a Reorganization, upon conversion of this Note (or deemed conversion of this Note in the event that the Reorganization is consummated at such time as this Note is not otherwise convertible under the terms hereof), the kind and number of shares of Common Stock or other securities or property (including cash) of the Maker, or other corporation resulting from or surviving such Reorganization, to which a holder of the number of shares of the Common Stock of the Maker which this Note entitled the holder thereof to convert into immediately prior to such Reorganization would have been entitled to receive with respect to such Reorganization; and in any such case appropriate adjustment shall be made in the application of the provisions herein set forth with respect to the rights and interests thereafter of the Payee of this Note, to the end that the provisions set forth herein (including the specified changes and other adjustments to the Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any shares, other securities or property thereafter receivable upon conversion of this Note. In the event of a Reorganization in which the equity securities of the Maker into which this Note is then convertible are exchangeable for or convertible into securities of another issuer, the shares of common stock of which are securities registered under or subject to Section 12 or 15(d) of the Securities Exchange Act of 1934, as amended, any agreement relating to such Reorganization shall provide for the assumption of this Note by such issuer, to the extent not previously converted or redeemed, which Note shall thereafter be convertible into the shares of common stock of such issuer on the basis set forth in this Section 7(b). The provisions of this Section 7(b) shall similarly apply to successive Reorganizations.
(c) No Impairment. The Maker shall not participate in any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action for the purpose of avoiding or seeking to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Maker, but shall at all times in good faith use its best efforts in carrying out all such action as may be reasonably necessary or appropriate in order to protect the conversion rights of the Payee against dilution or other impairment.
8. Reserved.
9. Events of Default. An “Event of Default” shall exist hereunder if any one or more of the following events shall occur:
(a) the Maker shall fail (i) to pay any principal or any portion thereof when due, or (ii) to pay any interest or any portion thereof or any other amount hereunder within three business days the same becomes due; or
(b) Maker shall fail to perform or observe any term, covenant or agreement to be performed or observed by it contained in Sections 11 or 12; or
(c) Maker shall fail to perform or observe any other covenant or agreement contained herein for ten days after notice thereof; or
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(d) any material representation or warranty of Maker made herein or in connection herewith proves to have been materially incorrect when made or reaffirmed; or
(e) Maker institutes or consents to any proceeding under any bankruptcy laws relating to it or to all or any part of its property, or is unable or admits in writing its inability to pay its debts as they mature, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any part of its property; or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed without the application or consent of Maker, as applicable; or any proceeding under a Debtor Relief Law relating to Maker or to all or any part of its property is instituted without its consent and remains undismissed for thirty (30) days from the commencement of any such proceeding; or any judgment, writ, warrant of attachment or execution or similar process is issued or levied against all or any material part of its property and is not released, vacated or fully bonded within ten calendar days after its issue or levy; or
( ) (i) a judgment against Maker is entered for the payment of money exceeding $75,000 and, absent procurement of a stay of execution, any such judgment remains unbonded or unsatisfied for ten calendar days after the date of entry of judgment, or in any event later than 60 days prior to the date of any proposed sale thereunder; or
(f) (i) failure of Maker to pay when due any principal of or interest on or any other amount payable in respect of one or more items of Indebtedness (other than Indebtedness under this Note) with an aggregate principal amount of $75,000 or more, in each case beyond the grace period, if any, provided therefor or (ii) breach or default by Maker with respect to any term of (1) one or more items of Indebtedness in the aggregate principal amounts referred to in clause (i) above or (2) any loan agreement, mortgage, indenture or other agreement relating to such Indebtedness, in each case beyond the grace period, if any, provided therefor, if the effect of such breach or default is to cause, or to permit the holder or holders of that Indebtedness (or a trustee on behalf of such holder or holders), to cause, that Indebtedness to become or be declared due and payable (or redeemable) prior to its stated maturity or the stated maturity of any underlying obligation, as the case may be; or
(g) there shall have occurred any condition or event that has or is reasonably likely to have a Material Adverse Effect; or
(h) Maker shall contest the validity or enforceability of any part of this Note.
10. Remedies. Upon the occurrence of any Event of Default specified in Section 9 above, the principal amount of this Note together with any interest thereon, all fees and all other Obligations (including the Prepayment Premium) shall become immediately and automatically due and payable, without presentment, demand, notice, protest or other requirements of any kind (all of which are hereby expressly waived by the Maker). Upon the occurrence and during the continuance of any other Event of Default, the Payee may, by written notice to the Maker, declare the principal amount of this Note together with any interest thereon to be due and payable, and the principal amount of this Note together with any such interest shall thereupon immediately become
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due and payable without presentment, further notice, protest or other requirements of any kind (all of which are hereby expressly waived by the Maker). Following any such demand, the Maker shall immediately pay to such holder all amounts due and payable with respect to this Note.
If the Obligations are accelerated for any reason, including because of default, sale, transfer or encumbrance (including that by operation of law or otherwise), the Prepayment Premium will also be automatically due and payable regardless of whether the Obligations were voluntarily or involuntarily prepaid, repaid, paid, satisfied, distributed or discharged and shall constitute part of the Obligations, in view of the impracticability and extreme difficulty of ascertaining actual damages and by mutual agreement of the parties as to a reasonable calculation of the Payee’s lost profits as a result thereof. Any Prepayment Premium payable above shall be presumed to be the liquidated damages sustained by the Payee as the result of the early termination and the Maker agrees that it is reasonable under the circumstances currently existing. THE MAKER EXPRESSLY WAIVES THE PROVISIONS OF ANY PRESENT OR FUTURE STATUTE OR LAW WHICH PROHIBITS OR MAY PROHIBIT THE COLLECTION OF THE FOREGOING PREPAYMENT PREMIUM OR DAMAGES IN CONNECTION WITH ANY SUCH VOLUNTARY OR INVOLUNTARY ACCELERATION OF THIS NOTE, ANY RECISSION OF SUCH ACCELERATION, THE EARLIER MATURITY OF THIS NOTE OR THE COMMENCEMENT OF ANY INSOLVENCY PROCEEDING OR OTHER PROCEEDING PURSUANT TO ANY DEBTOR RELIEF LAWS, OR PURSUANT TO A PLAN OF REORGANIZATION. The Maker expressly agrees that: (A) the Prepayment Premium and any discount on the loan provided for herein is reasonable and is the product of an arm’s length transaction between sophisticated business people, ably represented by counsel, (B) the Prepayment Premium shall be payable notwithstanding the then prevailing market rates at the time payment is made, (C) there has been a course of conduct between the Payee and the Maker giving specific consideration in this transaction for such agreement to pay the Prepayment Premium and (D) the Maker shall be estopped hereafter from claiming differently than as agreed to in this paragraph. The Maker expressly acknowledges that its agreement to pay the Prepayment Premium to the Payee as herein described is a material inducement to the Payee to accept this Note.
11. Maker’s Representations. Maker represents and warrants to the Payee as follows:
It is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and Maker has full power and authority to execute, deliver and perform its obligations under this Note. It has duly authorized and taken all other appropriate action for the execution, delivery and performance of this Note and any other document or instrument delivered pursuant hereto or in connection herewith and the consummation of the transactions provided for in this Note. It has duly executed and delivered this Note and this Note constitutes its legal, valid and binding obligation, enforceable in accordance with its terms except as enforceability thereof may be limited by bankruptcy, insolvency, moratorium and similar laws and by equitable principles, whether considered at law or in equity. Its execution and delivery of this Note, the performance of the transactions contemplated by this Note and the fulfillment of the terms of this Note will not (i) conflict with or violate any of its constitutive documents or its contractual obligations, (ii) conflict with or violate any order, judgment or decree of governmental authority binding on it, (iii) require any approval of its equity holders or any approval or consent of any Person under any contractual obligation of Maker, except for such approvals or consents which will be obtained on
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or before the date hereof, or (iv) conflict with or violate any applicable laws, or (v) result in or require the creation or imposition of any Lien upon any of its properties or assets (other than any Liens created hereunder). It has duly obtained, effected or given all authorizations, consents, licenses, orders or approvals of or registrations or declarations with any governmental authority or any other Person required in connection with the execution and delivery of this Note and the performance of the transactions contemplated by this Note, and such authorizations, consents, licenses, orders or approvals of or registrations or declarations are in full force and effect. There has been no increase in salary or other compensation (cash or otherwise) payable or to become payable to any director, officer, contractor or advisor of Maker or any of its Subsidiaries. There are no actions, suits or proceedings by or before any arbitrator or governmental authority pending against or, to the knowledge of Maker, threatened against or affecting Maker or any of its Subsidiaries (A) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect or (B) that involve this Note or the transactions contemplated hereby. It is not an “investment company” as defined in, or subject to regulation under, the Investment Company Act of 1940. None of the reports, financial statements, certificates or other information furnished by or on behalf of Maker in connection with this Note contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.
12. Covenants. Maker covenants and agrees as provided in Annex B.
13. Governing Law; Submission to Jurisdiction; Waiver of Jury Trial, Etc. This Note shall be governed by, and construed in accordance with, the law of the State of New York. The Maker and the Payee hereby submit to the exclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York state court sitting in New York City, borough of Manhattan for the purposes of all legal proceedings arising out of or relating to this Note or the transactions contemplated hereby. This Note may be executed in any number of counterparts, each of which, when so executed, shall be deemed to be an original and all of which, taken together, shall constitute one and the same Note. Delivery of an executed counterpart of a signature page to this Note by electronic transmission shall be as effective as delivery of an original executed counterpart of this Note. This Section 13 shall survive the termination of this Note. EACH PARTY HERETO IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS NOTE OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF THE PARTIES HERETO IN THE NEGOTIATION, PERFORMANCE OR ENFORCEMENT HEREOF.
14. Expenses; Amendments; Notices. The Maker shall pay on demand all costs and expenses of the Payee (i) in connection with the negotiation, preparation, administration, execution and delivery of this Note and any other agreement in connection herewith, including filing fees, taxes, assessments, reasonable attorney’s fees and expenses, (ii) in connection with each amendment, forbearance, waiver, consent, refinancing, restructuring, reorganization (including any fees (including attorneys’ fees) and costs incurred by the Payee for any reason in respect of the bankruptcy of the Maker), enforcement or attempted enforcement, and any matter related thereto, and in each case including all reasonable out of pocket expenses of the Payee or the Payee’s attorneys that are related thereto, and (iii) the reasonable fees and costs of consultants, appraisers,
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accountants and the like engaged by the Payee in respect of the Maker’s obligations hereunder. The Maker shall reimburse, hold harmless and indemnify the Payee and its directors, officer, employees, advisors agents and affiliates from any and all loss, liability or legal or other expense with respect to or resulting from this Note, except losses or damages resulting from Payee’s own gross negligence or willful misconduct. This Note may not be changed, modified or terminated orally, but only by an agreement in writing signed by the Maker and the Payee. All notices and other communications in respect of this Note shall be given or made in writing at the address as shall be designated by such party in a notice to the other party. Except as otherwise provided in this Note, all such communications shall be deemed to have been duly given when transmitted by electronic transmission or personally delivered or, in the case of a mailed notice, upon receipt, in each case given or addressed as aforesaid.
15. Right of Setoff. The Payee and each of its affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by the Payee or any such affiliate to or for the credit or the account of Maker against any and all of the obligations of Maker now or hereafter existing hereunder to the Payee or, irrespective of whether or not the Payee shall have made any demand hereunder and although such obligations of Maker may be contingent or unmatured or are owed to a branch or office of the Payee different from the branch or office holding such deposit or obligated on such indebtedness. The rights of the Payee and its affiliates hereunder are in addition to other rights and remedies (including other rights of setoff) that the Payee or its affiliates may have.
16. Assignments. The Payee may at any time assign all or a portion of its rights and obligations under this Note without the prior written consent of the Maker. From and after the effective date specified in each assignment and assumption, the assignee thereunder shall be a party to this Note and, to the extent of the interest assigned by such assignment and assumption, have the rights and obligations of the Payee under this Note, and the Payee shall, to the extent of the interest assigned by such assignment and assumption, be released from its obligations under this Note (and, in the case of an assignment and assumption covering all of the Payee’s rights and obligations under this Note, the Payee shall cease to be a party hereto) but shall continue to be entitled to the benefits of Section 13 with respect to facts and circumstances occurring prior to the effective date of such assignment.
17. Reserved.
18. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any person shall be construed to include such person’s successors and assigns, (c) the words “herein”,
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“hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Note in its entirety and not to any particular provision hereof, (d) all references herein to Sections, Annexes and Schedules shall be construed to refer to Sections, Annexes and Schedules of this Note and (e) any reference to any law or regulation herein shall, unless otherwise specified, refer to such law or regulation as amended, supplemented or otherwise modified from time to time.
Signature Page Follows
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IN WITNESS WHEREOF, the Maker has caused this Note to be executed and delivered by their duly authorized officers, as of the date and year and at a place first above written.
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BLACK CACTUS GLOBAL, INC. |
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as the Maker |
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By: |
/s/ |
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Name: |
Lawrence P. Cummins |
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Title: |
Chief Executive Officer |
The undersigned hereby agrees and acknowledges the terms of the foregoing:
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BELLRIDGE CAPITAL, L.P. |
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By: |
/s/ |
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Name: |
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Title: |
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Annex A
Definitions. The following capitalized terms, when used in this Note, shall have the following meanings:
“Affiliate” means, as applied to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, “control” (including, with correlative meanings, the terms “controlling”, “controlled by” and “under common control with”), as applied to any Person, means the possession, directly or indirectly, of the power (i) to vote 10% or more of the Equity Interests having ordinary voting power for the election of directors of such Person or (ii) to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise.
“Alternate Conversion Price” means 60% of the lowest traded price in the twenty (20) Trading Days prior to the Conversion Date.
“Change of Control” means any person or “group” (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act as in effect on the date hereof, but excluding any employee benefit plan of such person and its subsidiaries and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) shall have acquired beneficial ownership (within the meaning of Rules 13d-3 and 13d-5 of the Exchange Act as in effect on the Closing Date) of Equity Interests of the Maker representing more than 50% of the voting interests represented by the issued and outstanding Equity Interests of the Maker (determined on a fully diluted basis but not giving effect to contingent voting rights that have not yet vested).
“Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of this Note in accordance with the terms hereof.
“Debtor Relief Law” means the Bankruptcy Reform Act of 1978, codified as 11 U.S.C. §§101 et seq, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.
“Equity Interests” means shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a Person, and any warrants, options or other rights entitling the holder thereof to purchase or acquire any such equity interest.
“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute.
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“Indebtedness” of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (g) all guarantees by such Person of Indebtedness of others, (h) all capital lease obligations of such Person, (i) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty and (j) all obligations, contingent or otherwise, of such Person in respect of bankers’ acceptances. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor.
“Lien” means (i) any lien, mortgage, pledge, assignment, security interest, charge or encumbrance of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, and any lease or license in the nature thereof) and any option, trust or other preferential arrangement having the practical effect of any of the foregoing and (ii) in the case of Equity Interests, any purchase option, call or similar right of a third party with respect to such Equity Interests.
“Material Adverse Effect” means a material adverse effect on and/or material adverse developments with respect to (i) the business, operations, properties, assets or condition (financial or otherwise) of the Maker and its Subsidiaries taken as a whole, (ii) the ability of the Maker to fully and timely perform its Obligations, (iii) the legality, validity, binding effect or enforceability against the Maker of this Note, or (iv) the rights, remedies and benefits available to, or conferred upon, the Payee under this Note.
“Obligations” means, collectively, (a) in the case of the Maker, all obligations of the Maker under this Note to pay principal, fees and interest (including default interest and the Prepayment Premium) on this Note and other amounts whatsoever, whether direct or indirect, absolute or contingent, now or hereafter from time to time owing by the Maker to the Payee and (b) in the case of each of the foregoing, including all interest thereon and expenses related thereto, including any interest or expenses accruing or arising after the commencement of any case under any Debtor Relief Law (whether or not such interest or expenses are enforceable, allowed or allowable as a claim in whole or in part in such case).
“Permitted Investments” means (a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States), in each case maturing within one year from the date of acquisition thereof and (b) investments in certificates of
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deposit, banker’s acceptances and time deposits maturing within 180 days from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States or any State thereof which has a combined capital and surplus and undivided profits of not less than $50,000.
“Permitted Liens” means, with respect to any Person: (a) Liens arising by operation of law which were incurred in the ordinary course of business, including carriers’, warehousemen’s and mechanics’ Liens and other similar Liens arising in the ordinary course of business, and which (i) do not in the aggregate materially detract from the value of the property subject thereto or materially impair the use thereof in the operations of the business of such Person or (ii) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property subject to such Liens and for which adequate reserves have been made if required in accordance with generally accepted accounting principles; (b) pledges or deposits made in the ordinary course of business in connection with workers’ compensation, unemployment insurance or other similar social security legislation; (c) Liens securing taxes, assessments and other governmental charges, the payment of which is not yet due or is being contested in good faith by appropriate proceedings promptly initiated and diligently conducted and for which such reserve or other appropriate provisions, if any, as shall be required by generally accepted accounting principles shall have been made; and (d) Liens securing any extension, renewal, replacement or refinancing of an indebtedness secured by a Lien permitted by this Note.
“Person” means and includes natural persons, corporations, limited partnerships, general partnerships, limited liability companies, limited liability partnerships, joint stock companies, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and governmental authorities.
“Prepayment Date” shall have the meaning set forth in Section 4 hereof. “Prepayment Notice” shall have the meaning set forth in Section 4 hereof.
“Prepayment Premium” means any additional amounts and fees above the principal amount to be paid pursuant to Section 4.
“Reorganization” shall have the meaning set forth in Section 7(b) hereof.
“Restricted Payment” means any dividend or other distribution (whether in cash, securities or other property) with respect to any Equity Interests in Maker or any Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such Equity Interests or any option, warrant or other right to acquire any such Equity Interests.
“Subsidiary” means, with respect to any Person, any corporation, partnership, limited liability company, association, joint venture or other business entity of which more than 50% of the total voting power of shares of stock or other ownership interests entitled (without regard to the occurrence of any contingency) to vote in the election of the Person or Persons (whether directors,
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managers, trustees or other Persons performing similar functions) having the power to direct or cause the direction of the management and policies thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof.
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Annex B
Maker covenants and agrees as follows:
(a) Indebtedness. The Maker will not, and will not permit any Subsidiary to, create, incur, assume or permit to exist any Indebtedness, except any Indebtedness created hereunder.
(b) Liens. The Maker will not, and will not permit any Subsidiary to, create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except Permitted Liens.
(c) Fundamental Changes. The Maker will not, and will not permit any Subsidiary to, merge into or consolidate with any other Person (other than Maker or another Subsidiary), or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or any substantial part of its assets (other than to Maker or any of its Subsidiaries), or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve.
(d) Investments, Loans, Advances, Guarantees and Acquisitions. The Maker will not, and will not permit any of its Subsidiaries to, purchase, hold or acquire any capital stock, evidences of indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person constituting a business unit, except Permitted Investments and investments by the Maker existing on the date hereof in the capital stock of its Subsidiaries.
(e) Restricted Payments. The Maker will not, and will not permit any of its Subsidiaries to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except Subsidiaries may declare and pay dividends ratably with respect to their Equity Interests.
(f) Transactions with Affiliates. The Maker will not, and will not permit any of its Subsidiaries to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except in the ordinary course of business at prices and on terms and conditions not less favorable to the Maker or such Subsidiary than could be obtained on an arm’s-length basis from unrelated third parties and transactions between or among the Maker and its Subsidiaries not involving any other Affiliate.
(g) Hedge Agreements. Neither Maker nor any of its Subsidiaries shall enter into any hedge agreement, interest rate swap, cap, collar or floor agreement, or other interest rate management device with any Person in connection with any Indebtedness of Maker or any such Subsidiary.
(h) Employment Matters. Maker shall not create a new executive-level position or hire a new executive-level employee to be employed by Make or any of its Subsidiaries; provided that, in consultation with, and with the consent of, the Payee, Maker may fill an executive-level position
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that becomes vacant after the date hereof. Maker shall not increase the salary or other compensation (cash or otherwise) payable or to become payable to any director, officer, contractor or advisor of Maker or any of its Subsidiaries beyond the respective amounts paid to such individuals as of the date hereof.
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EXHIBIT 1
Schedule of Tranches
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Amount |
Date |
Payee Endorsement |
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$[_____] |
Upon Execution (“Initial Tranche”) |
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$[_____] |
[_____] |
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$[_____] |
[_____] |
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$[_____] |
[_____] |
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$[_____] |
[_____] |
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$[_____] |
[_____] |
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$[_____] |
[_____] |
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$[_____] |
[_____] |
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$[_____] |
[_____] |
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EXHIBIT 2
Form of Escrow Agreement
Attached
EXHIBIT 3
Notice of Conversion
The undersigned hereby elects to convert principal under the CONVERTIBLE SECURED PROMISSORY NOTE due [_________], 202[_] of Black Cactus Global Inc. (the “Maker”), into shares of common stock (the “Common Stock”), of the Maker according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Maker in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.
By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 6 of this Note, as determined in accordance with Section 13(d) of the Exchange Act.
The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.
Conversion calculations:
Date to Effect Conversion:
Principal Amount of Note to be Converted:
Number of shares of Common Stock to be issued:
Signature:
Name:
DWAC Instructions:
Broker No:
Account No:
EXHIBIT 10.3
BLACK CACTUS GLOBAL, INC.
CORRECTION TO CONVERTIBLE SECURED PROMISSORY NOTE
Black Cactus Global, Inc., a Florida corporation (the “Maker”) issued a convertible promissory note to Bellridge Capital, L.P. (the “Payee”), effective as of September 9, 2020, for loans provided in tranches, up to an aggregate principal amount of $1,000,000 (the “Note”).
The undersigned hereby agree that each tranche provided under the terms of the Note is to be provided by the Payee to the Maker at an original issuance discount of 10%. So, for example, if the Payee provides a tranche payment in the amount of $50,000, the outstanding principal amount applicable to such tranche shall be $55,000. Exhibit 1, shall be revised to provide for such original issuance discount. The Payee has endorsed Exhibit 1, attached hereto, to reflect the first two tranches provided, prior to the date hereof, and all future tranches shall be provided in the same manner.
In addition, the Maker and the Payee hereby agree and acknowledge that notwithstanding the fact that the title of the Note is Convertible Secured Promissory Note, the Note does not provide for any security and is a non-secured convertible promissory note.
All other provisions of the Note remain unchanged.
IN WITNESS WHEREOF, the undersigned have executed and delivered this document, by their duly authorized officers, as of the dates set forth next to their signatures.
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BLACK CACTUS GLOBAL, INC. |
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September 21, 2020 |
By: ___________________________ |
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Lawrence P. Cummins |
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Chief Executive Officer |
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BELRIDGE CAPITAL, L.P. |
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September 21, 2020 |
By: ____________________________ |
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Robert Klimov |
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Managing Partner |
EXHIBIT 1
Schedule of Tranches
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Amount Deposited |
Principal Amount |
Date |
Payee Endorsement |
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$46,000 |
$50,600 |
Upon Execution (“Initial Tranche”) |
__________________ |
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$30,000 |
$33,000 |
9/18/2020 |
__________________ |
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[________] |
[_______] |
[________] |
__________________ |
EXHIBIT 31.1
CERTIFICATIONS
I, Lawrence P. Cummins, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q for the quarter ended October 31, 2020 of BLGI, Inc.; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: December 21, 2020
| /s/ Lawrence P. Cummins | |
| Lawrence P. Cummins | |
| Chief Executive Officer | |
| (Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATIONS
I, Jeremy Towning, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q for the quarter ended October 31, 2020 of BLGI, Inc.; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: December 21, 2020
| /s/ Jeremy Towning | |
| Jeremy Towning | |
| Chief Financial Officer | |
| (Principal Financial Officer) |
EXHIBIT 32.1
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of BLGI, Inc. (the “Company”) on Form 10-Q for the period ended October 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lawrence P. Cummins, Chief Executive Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Dated: December 21, 2020 | /s/ Lawrence P. Cummins |
| Lawrence P. Cummins | |
| Chief Executive Officer | |
| (Principal Executive Officer) |
EXHIBIT 32.2
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of BLGI, Inc. (the “Company”) on Form 10-Q for the period ended October 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeremy Towning, Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Dated: December 21, 2020 | /s/ Jeremy Towning |
| Jeremy Towning | |
| Chief Financial Officer | |
| (Principal Financial Officer) |