Issuer CIK | 0001304741 |
Issuer CCC | XXXXXXXX |
DOS File Number | |
Offering File Number | 024-11209 |
Is this a LIVE or TEST Filing? | ☒ LIVE ☐ TEST |
Would you like a Return Copy? | ☐ |
Notify via Filing Website only? | ☐ |
Since Last Filing? | ☐ |
Name | |
Phone | |
E-Mail Address |
Exact name of issuer as specified in the issuer's charter | Cannagistics Inc. |
Jurisdiction of Incorporation / Organization |
NEVADA
|
Year of Incorporation | 2004 |
CIK | 0001304741 |
Primary Standard Industrial Classification Code | METAL MINING |
I.R.S. Employer Identification Number | 90-0338080 |
Total number of full-time employees | 1 |
Total number of part-time employees | 0 |
Address 1 | 1200 |
Address 2 | Suite 310 |
City | Hauppauge |
State/Country |
NEW YORK
|
Mailing Zip/ Postal Code | 11788 |
Phone | 631-676-7230 |
Name | Scott Doney, Esq. |
Address 1 | |
Address 2 | |
City | |
State/Country | |
Mailing Zip/ Postal Code | |
Phone |
Industry Group (select one) | ☐ Banking ☐ Insurance ☒ Other |
Cash and Cash Equivalents |
$
4830.00 |
Investment Securities |
$
0.00 |
Total Investments |
$
|
Accounts and Notes Receivable |
$
497389.00 |
Loans |
$
|
Property, Plant and Equipment (PP&E): |
$
0.00 |
Property and Equipment |
$
|
Total Assets |
$
529536.00 |
Accounts Payable and Accrued Liabilities |
$
841996.00 |
Policy Liabilities and Accruals |
$
|
Deposits |
$
|
Long Term Debt |
$
0.00 |
Total Liabilities |
$
4150382.00 |
Total Stockholders' Equity |
$
-3620846.00 |
Total Liabilities and Equity |
$
529536.00 |
Total Revenues |
$
0.00 |
Total Interest Income |
$
|
Costs and Expenses Applicable to Revenues |
$
0.00 |
Total Interest Expenses |
$
|
Depreciation and Amortization |
$
0.00 |
Net Income |
$
-177045.00 |
Earnings Per Share - Basic |
$
-0.00 |
Earnings Per Share - Diluted |
$
-0.00 |
Name of Auditor (if any) | BMKR, LLP |
Name of Class (if any) Common Equity | Common Stock |
Common Equity Units Outstanding | 100099277 |
Common Equity CUSIP (if any): | 13767H108 |
Common Equity Units Name of Trading Center or Quotation Medium (if any) | OTC Pink |
Preferred Equity Name of Class (if any) | Preferred Stock |
Preferred Equity Units Outstanding | 10000000 |
Preferred Equity CUSIP (if any) | 13767H108 |
Preferred Equity Name of Trading Center or Quotation Medium (if any) | OTC Pink |
Debt Securities Name of Class (if any) | None |
Debt Securities Units Outstanding | 0 |
Debt Securities CUSIP (if any): | 000000000 |
Debt Securities Name of Trading Center or Quotation Medium (if any) | None |
Check this box to certify that all of the following statements are true for the issuer(s)
☒
Check this box to certify that, as of the time of this filing, each person described in Rule 262 of Regulation A is either not disqualified under that rule or is disqualified but has received a waiver of such disqualification.
☒
Check this box if "bad actor" disclosure under Rule 262(d) is provided in Part II of the offering statement.
☐
Check the appropriate box to indicate whether you are conducting a Tier 1 or Tier 2 offering | ☐ Tier1 ☒ Tier2 |
Check the appropriate box to indicate whether the financial statements have been audited | ☐ Unaudited ☒ Audited |
Types of Securities Offered in this Offering Statement (select all that apply) |
☒Equity (common or preferred stock) |
Does the issuer intend to offer the securities on a delayed or continuous basis pursuant to Rule 251(d)(3)? | ☒ Yes ☐ No |
Does the issuer intend this offering to last more than one year? | ☐ Yes ☒ No |
Does the issuer intend to price this offering after qualification pursuant to Rule 253(b)? | ☒ Yes ☐ No |
Will the issuer be conducting a best efforts offering? | ☒ Yes ☐ No |
Has the issuer used solicitation of interest communications in connection with the proposed offering? | ☐ Yes ☒ No |
Does the proposed offering involve the resale of securities by affiliates of the issuer? | ☐ Yes ☒ No |
Number of securities offered | 43000000 |
Number of securities of that class outstanding | 100099277 |
Price per security |
$
0.2500 |
The portion of the aggregate offering price attributable to securities being offered on behalf of the issuer |
$
10000000.00 |
The portion of the aggregate offering price attributable to securities being offered on behalf of selling securityholders |
$
750000.00 |
The portion of the aggregate offering price attributable to all the securities of the issuer sold pursuant to a qualified offering statement within the 12 months before the qualification of this offering statement |
$
0.00 |
The estimated portion of aggregate sales attributable to securities that may be sold pursuant to any other qualified offering statement concurrently with securities being sold under this offering statement |
$
0.00 |
Total (the sum of the aggregate offering price and aggregate sales in the four preceding paragraphs) |
$
10750000.00 |
Underwriters - Name of Service Provider | Underwriters - Fees |
$
| |
Sales Commissions - Name of Service Provider | Sales Commissions - Fee |
$
| |
Finders' Fees - Name of Service Provider | Finders' Fees - Fees |
$
| |
Audit - Name of Service Provider | Audit - Fees |
$
| |
Legal - Name of Service Provider | The Doney Law Firm | Legal - Fees |
$
7500.00 |
Promoters - Name of Service Provider | Promoters - Fees |
$
| |
Blue Sky Compliance - Name of Service Provider | None | Blue Sky Compliance - Fees |
$
5000.00 |
CRD Number of any broker or dealer listed: | |
Estimated net proceeds to the issuer |
$
|
Clarification of responses (if necessary) |
Selected States and Jurisdictions |
ALABAMA
ALASKA
ARIZONA
ARKANSAS
CALIFORNIA
COLORADO
CONNECTICUT
DELAWARE
FLORIDA
GEORGIA
HAWAII
IDAHO
ILLINOIS
INDIANA
IOWA
KANSAS
KENTUCKY
LOUISIANA
MAINE
MARYLAND
MASSACHUSETTS
MICHIGAN
MINNESOTA
MISSISSIPPI
MISSOURI
MONTANA
NEBRASKA
NEVADA
NEW HAMPSHIRE
NEW JERSEY
NEW MEXICO
NEW YORK
NORTH CAROLINA
NORTH DAKOTA
OHIO
OKLAHOMA
OREGON
PENNSYLVANIA
RHODE ISLAND
SOUTH CAROLINA
SOUTH DAKOTA
TENNESSEE
TEXAS
UTAH
VERMONT
VIRGINIA
WASHINGTON
WEST VIRGINIA
WISCONSIN
WYOMING
DISTRICT OF COLUMBIA
PUERTO RICO
ALBERTA, CANADA
BRITISH COLUMBIA, CANADA
MANITOBA, CANADA
NEW BRUNSWICK, CANADA
NEWFOUNDLAND, CANADA
NOVA SCOTIA, CANADA
ONTARIO, CANADA
PRINCE EDWARD ISLAND, CANADA
QUEBEC, CANADA
SASKATCHEWAN, CANADA
YUKON, CANADA
CANADA (FEDERAL LEVEL)
|
None | ☐ |
Same as the jurisdictions in which the issuer intends to offer the securities | ☒ |
Selected States and Jurisdictions |
ALABAMA
ALASKA
ARIZONA
ARKANSAS
CALIFORNIA
COLORADO
CONNECTICUT
DELAWARE
FLORIDA
GEORGIA
HAWAII
IDAHO
ILLINOIS
INDIANA
IOWA
KANSAS
KENTUCKY
LOUISIANA
MAINE
MARYLAND
MASSACHUSETTS
MICHIGAN
MINNESOTA
MISSISSIPPI
MISSOURI
MONTANA
NEBRASKA
NEVADA
NEW HAMPSHIRE
NEW JERSEY
NEW MEXICO
NEW YORK
NORTH CAROLINA
NORTH DAKOTA
OHIO
OKLAHOMA
OREGON
PENNSYLVANIA
RHODE ISLAND
SOUTH CAROLINA
SOUTH DAKOTA
TENNESSEE
TEXAS
UTAH
VERMONT
VIRGINIA
WASHINGTON
WEST VIRGINIA
WISCONSIN
WYOMING
DISTRICT OF COLUMBIA
PUERTO RICO
ALBERTA, CANADA
BRITISH COLUMBIA, CANADA
MANITOBA, CANADA
NEW BRUNSWICK, CANADA
NEWFOUNDLAND, CANADA
NOVA SCOTIA, CANADA
ONTARIO, CANADA
PRINCE EDWARD ISLAND, CANADA
QUEBEC, CANADA
SASKATCHEWAN, CANADA
YUKON, CANADA
CANADA (FEDERAL LEVEL)
|
None ☐
As to any unregistered securities issued by the issuer of any of its predecessors or affiliated issuers within one year before the filing of this Form 1-A, state:
(a)Name of such issuer | Cannagistics Inc. |
(b)(1) Title of securities issued | Common Stock |
(2) Total Amount of such securities issued | 40000000 |
(3) Amount of such securities sold by or for the account of any person who at the time was a director, officer, promoter or principal securityholder of the issuer of such securities, or was an underwriter of any securities of such issuer. | 0 |
(c)(1) Aggregate consideration for which the securities were issued and basis for computing the amount thereof. | N/A |
(2) Aggregate consideration for which the securities listed in (b)(3) of this item (if any) were issued and the basis for computing the amount thereof (if different from the basis described in (c)(1)). |
(e) Indicate the section of the Securities Act or Commission rule or regulation relied upon for exemption from the registration requirements of such Act and state briefly the facts relied upon for such exemption | N/A |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1-A
Amendment No. 1
TIER 2 OFFERING
OFFERING STATEMENT UNDER THE SECURITIES ACT OF 1933 CURRENT REPORT
CANNAGISTICS INC.
(Exact name of registrant as specified in its charter)
Date: June __, 2020
Nevada | 1000 | 90-0338080 |
(State or Other Jurisdiction of Incorporation) |
(Primary Standard Classification Code) |
(IRS Employer Identification No.)
|
1200 Veterans Highway, Suite 310
Hauppauge, NY 11788
Phone: 631-676-7230
(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)
Empire Stock Transfer, Inc.
1859 Whitney Mesa Dr.
Henderson, NV 89014
Phone: (702) 818-5898
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
THIS OFFERING STATEMENT SHALL ONLY BE QUALIFIED UPON ORDER OF THE COMMISSION, UNLESS A SUBSEQUENT AMENDMENT IS FILED INDICATING THE INTENTION TO BECOME QUALIFIED BY OPERATION OF THE TERMS OF REGULATION A.
PART I - NOTIFICATION
Part I should be read in conjunction with the attached XML Document for Items 1-6
PART I – END
1 |
PRELIMINARY OFFERING CIRCULAR DATED June__, 2020
An offering statement pursuant to Regulation A relating to these securities has been filed with the U.S. Securities and Exchange Commission, which we refer to as the Commission. Information contained in this Preliminary Offering Circular is subject to completion or amendment. These securities may not be sold nor may offers to buy be accepted before the offering statement filed with the Commission is qualified. This Preliminary Offering Circular shall not constitute an offer to sell or the solicitation of an offer to buy nor may there be any sales of these securities in any state in which such offer, solicitation or sale would be unlawful before registration or qualification under the laws of any such state. We may elect to satisfy our obligation to deliver a Final Offering Circular by sending you a notice within two business days after the completion of our sale to you that contains the URL where the Final Offering Circular or the offering statement in which such Final Offering Circular was filed may be obtained.
CANNAGISTICS INC.
43,000,000 SHARES OF COMMON STOCK
$0.001 PAR VALUE PER SHARE
In this public offering we, “Cannagistics Inc.,” are offering 40,000,000 shares of our common stock and our selling shareholder is offering 3,000,000 shares of our common stock including 1,000,000 shares of common stock underlying warrants. We will not receive any of the proceeds from the sale of shares by the selling shareholders. This offering is being conducted on a “best efforts” basis, which means that there is no guarantee that any minimum amount will be sold.
Resale shares may be sold to or through underwriters or dealers, directly to purchasers or through agents designated from time to time by the selling shareholders. For additional information regarding the methods of sale, you should refer to the section entitled “Plan of Distribution” in this offering. There is no minimum number of shares required to be purchased by each investor.
All of the shares being registered for sale by the Company or the selling shareholder will be sold at a fixed price, which will be within a range of $0.25 to $0.001 per share, established at qualification for the duration of the offering pursuant to Rule 253(b). Assuming all of the 40,000,000 shares being offered by the Company are sold, the Company will receive $10,000,000 in gross proceeds. Assuming 30,000,000 shares (75%) being offered by the Company are sold, the Company will receive $7,500,000 in gross proceeds. Assuming 20,000,000 shares (50%) being offered by the Company are sold, the Company will receive $5,000,000 in gross proceeds. Assuming 10,000,000 shares (25%) being offered by the Company are sold, the Company will receive $2,500,000 in gross proceeds. There is no minimum amount we are required to raise from the shares being offered by the Company. There are no arrangements to place the funds received in an escrow, trust, or similar arrangement and the funds will be available to us following deposit into the Company’s bank account. There is no guarantee that we will sell any of the securities being offered in this offering. Additionally, there is no guarantee that this offering will successfully raise enough funds to institute our company’s business plan.
This primary offering will terminate upon the earliest of (i) such time as all of the common stock has been sold pursuant to the Offering Statement or (ii) 365 days from the qualified date of this offering circular, unless extended by our directors for an additional 90 days. We may however, at any time and for any reason terminate the offering.
SHARES OFFERED | PRICE TO | SELLING AGENT | PROCEEDS TO | ||||||
BY COMPANY | PUBLIC(1) | COMMISSIONS | THE COMPANY(2) | ||||||
Per Share | $ | 0.25 | $ | Not Applicable | $ | 0.25 | |||
Minimum Purchase | None | Not applicable | Not applicable | ||||||
Total (40,000,000 shares) | $ | 10,000,000 | $ | Not Applicable | $ | 10,000,000 |
(1) Price range of offering being estimated pursuant to Rule 253(b). Estimate includes a maximum offering price of $0.25 and a maximum number of shares offered in this offering of 40,000,000 shares for an estimated maximum aggregate offering of $10,000,000.
(2) Does not include expenses of the offering, estimated to be $50,000 including legal, accounting and other costs of registration. See “Use of Proceeds” and “Plan of Distribution.”
2 |
SHARES OFFERED SELLING SHAREHOLDERS | PRICE TO PUBLIC(1) | SELLING AGENT COMMISSIONS | PROCEEDS TO THE SELLING SHAREHOLDERS | |||||
Per Share | $ | 0.25 | Not applicable | $ | 0.25 | |||
Minimum Purchase | None | Not applicable | Not applicable | |||||
Total (3,000,000 shares) | $ | 750,000 | Not applicable | $ | 750,000 |
(1) Price range of offering being estimated pursuant to Rule 253(b). Estimate includes a maximum offering price of $0.25 and a maximum number of shares offered in this offering of 3,000,000 shares for an estimated maximum aggregate offering of $750,000.
If all the shares are not sold in the company’s offering, there is the possibility that the amount raised may be minimal and might not even cover the costs of the offering, which the Company estimates at $50,000. The proceeds from the sale of the securities will be placed directly into the Company’s account; any investor who purchases shares will have no assurance that any monies, beside their own, will be subscribed to the offering circular. All proceeds from the sale of the securities are non-refundable, except as may be required by applicable laws. All expenses incurred in this offering are being paid for by the Company.
Our Common Stock trades in the OTCMarket Pink Open Market under the symbol CNGT. There is currently no active trading market for our securities. There is no assurance that a regular trading market will develop, or if developed, that it will be sustained. Therefore, a shareholder may be unable to resell his securities in our company.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE OFFERING CIRCULAR. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
AN OFFERING STATEMENT PURSUANT TO REGULATION A RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE COMMISSION. INFORMATION CONTAINED IN THIS PRELIMINARY OFFERING CIRCULAR IS SUBJECT TO COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED BEFORE THE OFFERING STATEMENT FILED WITH THE COMMISSION IS QUALIFIED. THIS PRELIMINARY OFFERING CIRCULAR SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR MAY THERE BE ANY SALES OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL BEFORE REGISTRATION OR QUALIFICATION UNDER THE LAWS OF SUCH STATE. THE COMPANY MAY ELECT TO SATISFY ITS OBLIGATION TO DELIVER A FINAL OFFERING CIRCULAR BY SENDING YOU A NOTICE WITHIN TWO BUSINESS DAYS AFTER THE COMPLETION OF A SALE TO YOU THAT CONTAINS THE URL WHERE THE FINAL OFFERING CIRCULAR OR THE OFFERING STATEMENT IN WHICH SUCH FINAL OFFERING CIRCULAR WAS FILED MAY BE OBTAINED.
GENERALLY, NO SALE MAY BE MADE TO YOU IN THIS OFFERING IF THE AGGREGATE PURCHASE PRICE YOU PAY IS MORE THAN 10% OF THE GREATER OF YOUR ANNUAL INCOME OR NET WORTH. DIFFERENT RULES APPLY TO ACCREDITED INVESTORS AND NON-NATURAL PERSONS. BEFORE MAKING ANY REPRESENTATION THAT YOUR INVESTMENT DOES NOT EXCEED APPLICABLE THRESHOLDS, WE ENCOURAGE YOU TO REVIEW RULE 251(D)(2)(I)(C) OF REGULATION A. FOR GENERAL INFORMATION ON INVESTING, WE ENCOURAGE YOU TO REFER TO WWW.INVESTOR.GOV.
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE SHARES ONLY IF YOU CAN AFFORD THE COMPLETE LOSS OF YOUR INVESTMENT. PLEASE REFER TO ‘RISK FACTORS’ BEGINNING ON PAGE 10.
THE COMMISSION DOES NOT PASS UPON THE MERITS OF OR GIVE ITS APPROVAL TO ANY SECURITIES OFFERED OR THE TERMS OF THE OFFERING, NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR OTHER SOLICITATION MATERIALS. THESE SECURITIES ARE OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION WITH THE COMMISSION; HOWEVER, THE COMMISSION HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THE SECURITIES OFFERED ARE EXEMPT FROM REGISTRATION.
You should rely only on the information contained in this offering circular and the information we have referred you to. We have not authorized any person to provide you with any information about this Offering, the Company, or the shares of our Common Stock offered hereby that is different from the information included in this offering circular. If anyone provides you with different information, you should not rely on it.
The date of this offering circular is June__, 2020
3 |
The following table of contents has been designed to help you find important information contained in this offering circular. We encourage you to read the entire offering circular.
You should rely only on the information contained in this offering circular or contained in any free writing offering circular filed with the Securities and Exchange Commission. We have not authorized anyone to provide you with additional information or information different from that contained in this offering circular filed with the Securities and Exchange Commission. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are offering to sell, and seeking offers to buy, our common stock only in jurisdictions where offers and sales are permitted. The information contained in this offering circular is accurate only as of the date of this offering circular, regardless of the time of delivery of this offering circular or any sale of shares of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.
4 |
PART - II
This summary highlights information contained elsewhere in this Offering Circular and does not contain all of the information that you should consider in making your investment decision. Before investing in our common stock, you should carefully read this entire Offering Circular, including our consolidated financial statements and the related notes and the information set forth under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in each case included elsewhere in this Offering Circular. Unless otherwise stated, all references to “us,” “our,” “we,” the “Company” and similar designations refer to Cannagistics Inc.
This offering circular, and any supplement to this offering circular include “forward-looking statements”. To the extent that the information presented in this offering circular discusses financial projections, information or expectations about our business plans, results of operations, products or markets, or otherwise makes statements about future events, such statements are forward-looking. Such forward-looking statements can be identified by the use of words such as “intends”, “anticipates”, “believes”, “estimates”, “projects”, “forecasts”, “expects”, “plans” and “proposes”. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. These include, among others, the cautionary statements in the “Risk Factors” section and the “Management’s Discussion and Analysis of Financial Position and Results of Operations” section in this offering circular.
This summary only highlights selected information contained in greater detail elsewhere in this offering circular. This summary may not contain all of the information that you should consider before investing in our common stock. You should carefully read the entire offering circular, including “Risk Factors” beginning on Page 10, and the financial statements, before making an investment decision.
Generally, no sale may be made to you in this offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income or net worth. Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A. For general information on investing, we encourage you to refer to www.investor.gov.
Sale of these shares will commence within two calendar days of the qualification date and it will be a continuous offering pursuant to Rule 251(d)(3)(i)(F).
The Company
Cannagistics, Inc., (hereinafter the “Company”), through its wholly owned subsidiary Global3pl, Inc. (an Ontario corporation) formerly known as KRG Logistics, Inc., has been a third-party logistics provider. In October 2019, the Company determined to pivot away from the traditional logistics business and focus on the digital and tracking aspects of third-party logistics and other digital aspects
Global3pl, Inc., (an Ontario corporation) is in the process of collecting accounts receivables still due and working on a plan to pay its payables. It has entered into an agreement with 10451029 Canada Inc., d/b/a Reliable Logistics, for the assignment and of the assets of Global3pl, Inc., (an Ontario Corporation). The transaction has closed. The terms were that Reliable assumed all of the responsibility for the employees and rent for the facility in exchange for our customer lists.
Subsequently and contemporaneously with this movement away from the operations of Global3pl, Inc., (Ontario) and continuing thereafter and currently the Company has been developing several other projects.
During the past 18 months, Global 3PL Inc. (a New York Corporation) has consulted with logistics and technology experts to design and begin the development of a best-of-breed, first-of-kind information technology system. To date, about seven (7) months' worth of custom-coding has been completed with an expectation of an additional 2-3 months of work still required for it to be ready for testing. Upon completion, it is intended that clients shall be able to login to the system to communicate and transact business with the Company in real-time, as it relates to aspects of the client’s supply chain. This can include, the tracking of inbound raw material from various vendors, the manufacturing schedule of finished goods, inventory tracking of raw materials and finished goods, international compliance documentation, and the contacting and tracking of the shipping of the finished goods to their delivery destination(s). Though the Company has high expectations for the functionality of the new system, it does not make any assurances that the system will be completed, shall work as planned if completed, nor be embraced by potential clients as intended.
Therefore Global3pl, Inc. (NY) will be a logistics subsidiary serving the just-in-time inventory & distribution industry, as well as the special and general commodities sector of the North American freight industry. The SaaS-based platform ecosystem will fully integrate all aspects of the Company’s operations, from receiving raw materials for clients, through product manufacturing, document compliance, distribution, and shelf-life batch tracking. It is expected to be operational in the third or fourth quarter of 2020.
5 |
The Company is also in active development in Malta for a GMP Certified facility that will focus on cosmetics, pharmaceutical, nutraceutical or “bioceutical” and medicinal products for our clients, and provide end to end tracking, manufacturing and testing. The Company has commitments from at least two clients for which we will provide the services. We are also in discussions with three other potential operations, in The United States, Canada and Latin America for similar operations.
Our principal place of business is located at 1200 Veterans Highway, Suite 310, Hauppauge, NY 11788. General information about us can be found at wwwcannagistics.io. The information contained on or connected to our website is not incorporated by reference into this Offering Circular on Form 1-A and should not be considered part of this or any other report filed with the SEC.
Risks Affecting Us
Our business will be subject to numerous risks and uncertainties, including those described in “Risk Factors” immediately following this offering circular summary and elsewhere in this offering circular. These risks represent challenges to the successful implementation of our strategy and to the growth and future profitability of our business. These risks include, but are not limited to, the following:
§ | we are an early-stage company with a limited operating history which makes it difficult to evaluate our current business and future prospects and may increase the risk of your investment; |
§ | our inability to attract customers and increase sales to new and existing customers; |
§ | failure of manufacturers and services providers to deliver products or provide services in a cost effective and timely manner; |
§ | our failure to develop, find or market new products; |
§ | our failure to promote and maintain a strong brand; |
§ | failure to achieve or sustain profitability; |
§ | risks associated with the logistics industry; |
§ | our failure to successfully or cost-effectively manage our marketing efforts and channels; |
§ | significant competition; |
§ | the business risks of international operations; |
§ | changing consumer preferences; |
§ | adequate protection of confidential information; |
§ | potential litigation from competitors and health related claims from customers; |
§ | a limited market for our common stock; |
6 |
The Offering
Securities being offered by the Company |
40,000,000 shares of common stock, at a fixed price of $___ offered by us on a “best efforts” basis, which means that there is no guarantee that any minimum amount will be sold, through our officers and directors. Our offering will terminate upon the earliest of (i) such time as all of the common stock has been sold pursuant to the Offering Statement or (ii) 365 days from the qualified date of this offering circular unless extended by our Board of Directors for an additional 90 days. We may however, at any time and for any reason terminate the offering.
|
Securities being offered by the Selling Stockholders | 3,000,000 shares of common stock including 1,000,000 shares of common stock underlying warrants, at a fixed price of $___ offered by selling stockholders in a resale offering. This fixed price applies at all times for the duration of the offering. The offering will terminate upon the earliest of (i) such time as all of the common stock has been sold pursuant to the Offering Statement or (ii) 365 days from the qualified date of this offering circular, unless extended by our Board of Directors for an additional 90 days. We may however, at any time and for any reason terminate the offering. |
Offering price per share | We and the selling shareholders will sell the shares at a fixed price per share of $___ for the duration of this Offering. |
Number of shares of common stock outstanding before the offering of common stock | 105,099,277 common shares are currently issued and outstanding |
Number of shares of common stock outstanding after the offering of common stock | 145,099,277 common shares will be issued and outstanding if we sell all of the shares we are offering herein. |
The minimum number of shares to be sold in this offering | None. |
Use of Proceeds | We intend to use the gross proceeds to us for working capital, for acquisitions, to retire debt and for other corporate purposes. |
Termination of the Offering | This offering will terminate upon the earlier to occur of (i) 365 days after this Offering Statement becomes qualified with the Securities and Exchange Commission, or (ii) the date on which all 43,000,000 shares registered hereunder have been sold. We may, at our discretion, extend the offering for an additional 90 days. At any time and for any reason we may also terminate the offering. |
Subscriptions: |
All subscriptions once accepted by us are irrevocable.
|
Registration Costs |
We estimate our total offering registration costs to be approximately $50,000.
|
Risk Factors: | See “Risk Factors” and the other information in this offering circular for a discussion of the factors you should consider before deciding to invest in shares of our common stock. |
You should rely only upon the information contained in this offering circular. We have not authorized anyone to provide you with information different from that which is contained in this offering circular. We are offering to sell common stock and seeking offers to common stock only in jurisdictions where offers and sales are permitted.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
You should read the following discussion and analysis of our financial condition and results of our operations together with our financial statements and related notes appearing at the end of this Offering Circular. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the section entitled “Risk Factors” and elsewhere in this Offering Circular.
Results of Operation for Nine Months Ended April 30, 2020 and 2019
Revenues
We generated revenue of $0 for the three months ended April 30, 2020, as compared revenues of $0 for same period ended April 30, 2019, based on our discontinued operations. All of our revenues were formerly generated from our freight logistics business.
Our cost of revenues was $0 for the nine months ended April 30, 2020, as compared with cost of revenue of $11,200 for the same period ended April 30, 2019, mostly based on our discontinued operations.
Operating Expenses
Total operating expenses decreased to $377,083 for the nine months ended April 30, 2020 increased from $297,243 for the nine months ended April 30, 2019. Our operating expenses for the nine months ended April 30, 2020 consisted mainly of professional fees of $271,483 and general and administrative expenses of $(25,741), Wages and Benefits of $0, consulting fees of $107,947 and rent of $23,947. Our operating expenses for the nine months ended April 30, 2019 consisted of professional fees of $233,483 and general and administrative expenses of $55,509.
Other Expenses
We had other expenses of $(239,972) for the nine months ended April 30, 2020, compared with other expenses of $(98,996) for the nine months ended April 30,2019. Other expenses for the nine months ended April 30, 2020 consisted mainly of Interest expenses of $(305,249) and interest income of $65,277. Other expenses for the nine months ended April 30, 2019 consisted of interest expense of (144,567), interest income of $65,240, Rental Income of $10,331 and Settlement expenses of ($30,000).
Net Loss
Net loss for the nine months ended April 30, 2020 was $(790,432) compared to net loss of $(770,361) for the nine months ended April 30, 2019.
Results of Operations for the Years Ended July 31, 2019 and 2018
Revenues
We generated revenue of $2,329,899 for the year ended July 31, 2019, as compared with $2,220,755 for the year ended July 31, 2018. All of our revenues were generated from the operations of our operating subsidiary, KRG Logistics, Inc., a third-party freight logistics provider.
Our cost of revenues was $2,150,398 for the fiscal year ended July 31, 2019 as compared with $2,040,280 for the fiscal year ended July 31, 2018.
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Operating Expenses
Operating expenses increased to $2,293,899 for the fiscal year ended July 31, 2019, as compared with $866,475 for the year ended July 31, 2018. Our operating expenses for the year ended July 31, 2019, consisted mainly of Consulting fees of $77,920 and professional fees of $344,267 and general and administrative expenses of $285,185. Wages and Benefits of $493,045 and bad debt allowance of $1,055,783 due from a related party. Our operating expenses for the year ended July 31, 2018, consisted mainly of Consulting fees of $26,535 and professional fees of $369,551 and general and administrative expenses of $255,187 and Wages and Benefits of $196,776.
Other Expenses
We had other expenses of $(1,561,459) for the fiscal year ended July 31, 2019 as compared with $(1,125,501) for the year ended July 31, 2018.
Net Loss
Net loss for the year ended July 31, 2019 was ($3,675,857) as compared with $(1,811,501) for the year ended July 31, 2018.
Liquidity and Capital Resources
As of April 30, 2020, we had current assets of $653,878, consisting of Cash and cash equivalents of $66,046, Accounts and other receivables of $519,149, prepaid expenses of $21,783 and Related Part Receivables of $1,900, after allowance for doubtful accounts of $993,975. Our total current liabilities as of April 30, 2020 were $4,426,673. We therefore had working capital of $(3,772,795) as of April 30, 2020.
Financing activities provided $400,800 for the nine months ended April 30, 2020, as compared with cash provided of $861,610 for the same period ended 2019. Our positive financing cash flow for the nine months ended April 30, 2020 was mainly the result of proceeds from promissory notes and advances to/from related parties. Our financing cash flow for the nine months ended April 30, 2019 was mainly the result proceeds from promissory notes and advances from related parties.
We intend to fund operations through sales and debt and/or equity financing arrangements, which may be insufficient to fund expenditures or other cash requirements. We plan to seek additional financing in a private equity offering to secure funding for operations. There can be no assurance that we will be successful in raising additional funding. If we are not able to secure additional funding, the implementation of our business plan will be impaired. There can be no assurance that such additional financing will be available to us on acceptable terms or at all.
Off Balance Sheet Arrangements
As of April 30, 2020, there were no off-balance sheet arrangements.
Critical Accounting Policies
In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Our accounting policies are discussed in detail in the footnotes to our financial statements for the year ended July 31, 2019, however we consider our critical accounting policies to be those related to inventory, fair value of financial instruments, derivative financial instruments and long-lived assets.
Going Concern
As of April 30, 2020, we had an accumulated deficit of $(6,560,881). Our ability to continue as a going concern is contingent upon the successful completion of additional financing arrangements and our ability to achieve and maintain profitable operations. While we are expanding our best efforts to achieve the above plans, there is no assurance that any such activity will generate funds that will be available for operations. These conditions raise substantial doubt about our ability to continue as a going concern.
Recently Issued Accounting Pronouncements
We do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operation, financial position or cash flow
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Please consider the following risk factors and other information in this offering circular relating to our business before deciding to invest in our common stock.
This offering and any investment in our common stock involves a high degree of risk. You should carefully consider the risks described below and all of the information contained in this offering circular before deciding whether to purchase our common stock. If any of the following risks actually occur, our business, financial condition and results of operations could be harmed. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment.
We consider the following to be the material risks for an investor regarding this offering. Our company should be viewed as a high-risk investment and speculative in nature. An investment in our common stock may result in a complete loss of the invested amount.
An investment in our common stock is highly speculative, and should only be made by persons who can afford to lose their entire investment in us. You should carefully consider the following risk factors and other information in this report before deciding to become a holder of our common stock. If any of the following risks actually occur, our business and financial results could be negatively affected to a significant extent.
Risk Factors Related to the Business of the Company
Our investors may lose their entire investment because our financial status creates a doubt whether we will continue as a going concern.
Our auditors, in their opinion dated January 15, 2020, have stated that currently we do not have sufficient cash, nor do we have a significant source of revenues to cover our operational costs and allow us to continue as a going concern. We may seek to raise operating capital to implement our business plan in an offering of our common stock.
Because we are dependent on outside financing for continuation of our operations, the failure to obtain financing will adversely affect our business and its growth.
Because we currently operate at a significant loss, we are completely dependent on the continued availability of financing in order to continue our business. There can be no assurance that financing sufficient to enable us to continue our operations will be available to us in the future. Moreover, even if we are able to obtain financing, it could be on terms that causes our company’s stock price to suffer or further dilutes shareholder interests in our company. Most of our financing to date has been from the issuance of debt and the sale of equity in our company
Our failure to obtain future financing, financing on terms that are acceptable to us, or to produce levels of revenue to meet our financial needs could result in our inability to continue as a going concern and, as a result, investors in our company could lose their entire investment. The company currently needs additional capital for the next twelve months to allow the expansion of operations. Pursuant to the Warrants described in Item 1, above, we anticipate that a large portion of the additional capital needed may be raised from the exercise of said Warrants. There is no assurance that the Warrants will in fact be exercised. This money is needed to secure necessary human capital and to implement our marketing and distribution plans as well as potential acquisitions and expanding our on-line operations. If we are unable to raise this capital, may not be able to implement our expansion plans.
Our future success is dependent on our implementation of our business plan and we have many significant steps still to take.
Our success will depend in large part in our success in achieving several important steps in the implementation of our business plan, including the following: development of customers, implementing order processing and customer service capabilities, and management of business process. If we are not successful, we will not be able to fully implement or expand our business plan.
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Because our future revenues are unpredictable, and we expect our operating results to fluctuate from period to period.
Our lack of operating history and the emerging nature of the markets in which we expect to compete make it difficult for us to accurately forecast revenues in any given period. As such, revenues could fall short of our expectations if we experience production delays or difficulties. Likewise, revenues could fall short of expectations should our product not be met with the demand we anticipate from the marketplace. We have limited experience in financial planning for our business on which to base our planned operating expenses.
Our operating results are likely to fluctuate substantially from period to period as a result of a number of factors, many of which are beyond our control. These factors include, but are not limited to, the following:
We have generated limited revenue to date and consequently our operations are subject to all risks inherent in the establishment of a new business enterprise. We are currently generating limited revenues and expect to continue to generate revenue in the future, but there can be no assurances that we will ever generate sufficient revenues to achieve profitability. If we do achieve profitability, there can be no assurances that we can sustain or increase profitability.
We may not be able to increase sales or otherwise successfully operate our business, which could have a significant negative impact on our financial condition.
We believe that the key to our success is to increase our revenues and available cash. We may not have the resources required to promote our business and its potential benefits. If we are unable to gain market acceptance of our business, we will not be able to generate enough revenue to achieve and maintain profitability or to continue our operations.
We may not be able to increase our sales or effectively operate our business. To the extent we are unable to achieve sales growth, we may continue to incur losses. We may not be successful or make progress in the growth and operation of our business. Our current and future expense levels are based on operating plans and estimates of future sales and revenues and are subject to increase as strategies are implemented. Even if our sales grow, we may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall.
Further, if we substantially increase our operating expenses to increase sales and marketing, and such expenses are not subsequently followed by increased revenues, our operating performance and results would be adversely affected and, if sustained, could have a material adverse effect on our business. To the extent we implement cost reduction efforts to align our costs with revenue, our sales could be adversely affected.
Because we have had significant turnover in key management personnel, we may not have the leadership and personnel with expertise to guide us to profitable operations.
We have had significant turnover in our executive officers. Our success depends in part upon our ability to retain the services of certain executive officers and other key employees and on the skills, experience and performance of senior management and certain other key personnel, most of whom have either never worked together or who have worked together for only a short period of time.
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We are presently dependent to a great extent upon the experience, abilities and continued services of James Zimbler, our sole officer and director. If he should resign or die we will not have a leader to fill these important roles. If that should occur, until we find another person to serve in those capacities our operations could be suspended as we would not have access to the aforementioned relationships with suppliers. In that event it is possible you could lose most if not all of your entire investment.
The loss of the services of our executive officers or other key employees would have a material adverse effect on our business, operating results and financial condition. Because we are in the early stages of commercialization, we are also dependent on our ability to recruit, retain and motivate personnel with technical, sales and marketing experience. There are a limited number of personnel with these qualifications and competition for such personnel may be intense. Our inability to attract, integrate and retain additional qualified key personnel would materially adversely affect our business, operating results and financial condition.
Our success depends upon achieving a critical mass of customers and strategic relationships.
Our success is largely dependent upon achieving significant market acceptance for our services. The market for our services is at an early stage of development. Our services and brand name may never achieve broad market acceptance, or our existing and potential competitors may offer services that could negatively affect the market acceptance of our services and damage our business prospects.
Our success is also dependent upon attracting significant numbers of distributors and strategic relationships in order to market our services. In particular, our ability to enter into beneficial distribution partnerships will depend in large part upon our success in convincing consumers that our services is of a desired quality. Failure to achieve and maintain a critical mass of market acceptance will seriously harm our business in the markets in which we participate or intend to participate.
The current and future state of the global economy may curtail our operations and our anticipated revenues.
Our business may be adversely affected by changes in domestic and international economic conditions, including inflation, changes in consumer preferences and changes in consumer spending rates, personal bankruptcy and the ability to collect our accounts receivable. Changes in global economic conditions may adversely affect the demand for our merchandise and make it more difficult to collect accounts receivable, thereby negatively affecting our business, operating results and financial condition. The recent disruptions in credit and other financial markets and deterioration of national and global economic conditions could, among other things, impair the financial condition of some of our customers and suppliers, thereby increasing customer bad debts or non-performance by suppliers.
Natural disasters, armed hostilities, terrorism, labor strikes or public health issues could have a material adverse effect on our business.
Armed hostilities, terrorism, natural disasters, or public health issues, whether in the United States or abroad could cause damage and disruption to our company, our suppliers, our manufacturers, or our customers or could create political or economic instability, any of which could have a material adverse impact on our business. Although it is impossible to predict the consequences of any such events, they could result in a decrease in demand for our product or create delay or inefficiencies in our supply chain by making it difficult or impossible for us to deliver products to our customers, or for our manufacturers to deliver products to us, or suppliers to provide component parts
We operate in a highly competitive environment, and if we are unable to compete with our competitors, our business, financial condition, results of operations, cash flows and prospects could be materially adversely affected.
The industry in which we operate is highly competitive, and we compete with numerous other companies, many of which are larger and have significantly greater financial, distribution, advertising and marketing resources. Significant increases in these competitive influences could adversely affect our operations through a decrease in the number and dollar volume of sales.
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For all of our services, we compete with a number of comparably sized and smaller firms, as well as a number of larger firms throughout the United States and Canada. Many of our competitors have the ability to attract customers as a result of their reputation and through their industry connections. Additionally, other reputable companies may decide to enter our markets to compete with us. These companies may have greater name recognition and have greater financial and marketing resources than we do. If these companies are successful in entering the markets in which we participate or if customers choose to go to our competition, we may attract fewer buyers and our revenue could decrease.
If we fail to adequately manage the size of our business, it could have a severe negative effect on our financial results or stock price.
Our management believes that in order to be successful we must appropriately manage the size of our business. This may mean reducing costs and overhead in certain economic periods, and selectively growing in periods of economic expansion. In addition, we will be required to implement operational, financial and management information procedures and controls that are efficient and appropriate for the size and scope of our operations. The management skills and systems currently in place may not be adequate and we may not be able to manage any significant cost reductions or effectively provide for our growth.
Insiders will continue to have substantial control over us and our policies after this offering and will be able to influence corporate matters.
Our officers and directors, whose interests may differ from other stockholders, have the ability to exercise significant control over us. Presently, we have 10,000,000 shares outstanding of our Series D Preferred Stock, with James Zimbler beneficially owning a total of 8,000,000 shares and Solid Bridge Investment LLC owning a total of 2,000,000 shares. Under the Certificate of Designation, holders of Series D Preferred Stock will be entitled to vote together with the holders of our common stock on all matters submitted to shareholders at a rate of seventy-two and one half (72.5) votes for each share held. With 10,000,000 shares outstanding, that amounts to a total vote of 725,000,000 on the outstanding shares of Series D Preferred Stock, with Mr. Zimbler controlling 580,000,000 of those votes. The holders are further entitled to convert each share of their Series D Preferred Stock into seventy-two and one half (72.5) shares of our common stock. Mr. Zimbler is able to exercise significant influence over all matters requiring approval by our stockholders, including the election of directors, the approval of significant corporate transactions, and any change of control of our company. He could prevent transactions, which would be in the best interests of the other shareholders. The interests of our officer and director may not necessarily be in the best interests of the shareholders in general.
With respect to the previously issued Series C Preferred Stock, which also entitled the holder, to vote together with the holders of our common stock on all matters submitted to shareholders at a rate of seventy-two and one half (72.5) votes for each share held, was previously converted into 72,500,000 shares of common stock.
Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses.
Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and new SEC regulations, are creating uncertainty for companies such as ours. These new or changed laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We are committed to maintaining high standards of corporate governance and public disclosure. As a result, we intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, our reputation may be harmed.
If we fail to comply with the new rules under the Sarbanes-Oxley Act related to accounting controls and procedures, or if material weaknesses or other deficiencies are discovered in our internal accounting procedures, our stock price could decline significantly.
Section 404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent auditors addressing these assessments. We are in the process of documenting and testing our internal control procedures, and we may identify material weaknesses in our internal control over financial reporting and other deficiencies. If material weaknesses and deficiencies are detected, it could cause investors to
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lose confidence in our Company and result in a decline in our stock price and consequently affect our financial condition. In addition, if we fail to achieve and maintain the adequacy of our internal controls, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Moreover, effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports and are important to helping prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our Common Stock could drop significantly. In addition, we cannot be certain that additional material weaknesses or significant deficiencies in our internal controls will not be discovered in the future.
Because the barriers to entry into our industry are relatively low, competition is intense, which may result in lower margins or loss of market share.
The trucking industry is extremely competitive. Our principal competitors for LTL freight include national and international LTL companies as well as regional LTL motor carriers, truckload carriers, small package carriers, private carriage, freight forwarders, railroads and airlines. We also face many competitors for our 3PL services. There can be no assurance that we will be successful in meeting the competitive demands of the LTL and/or the 3PL industry.
Our business may be harmed by anti-terrorism measures.
In the aftermath of recent terrorist attacks on the United States, federal, state and municipal authorities have implemented and are implementing various security measures, including checkpoints and travel restrictions on large trucks. Although many companies will be adversely affected by any slowdown in the availability of freight transportation, the negative impact could affect our business disproportionately. For example, we offer specialized services that guarantee on-time delivery. If the new security measures disrupt or impede the timing of our deliveries, we may fail to meet the needs of our customers or may incur increased expenses to do so. We cannot assure you that these measures will not have a material adverse effect on our operating results, our ability to make payments on the exchange notes or the ability of our subsidiaries to make payments under the guarantees.
Because Our Business Depends on Economic Activity To Generate Freight To Haul, Economic And Market Conditions Could Affect The Results Of Our Operations.
Fuel shortages, interest rate fluctuations, economic recession, changes in currency exchange rates and changes in customers' business cycles and business practices are among the factors over which we have no control, but which may adversely affect our financial condition or results of operations. Our operations are primarily conducted in the United States but are also conducted in major foreign countries. As a result, we are subject to the foregoing factors both domestically and internationally.
We Operate in A Highly Competitive Industry, And Our Business Will Suffer If We Are Unable To Adequately Address Potential Downward Pricing Pressures And Other Factors That May Adversely Affect Our Operations And Profitability.
Numerous competitive factors could impair our ability to maintain our current profitability. These factors include, but are not limited to, the following items:
§ | we compete with other transportation service providers of varying sizes, some of which may have more equipment, a broader global network, a wider range of services, greater capital resources or other competitive advantages; |
§ | some of our competitors may reduce their prices to gain business, especially during times of reduced growth rates in the economy, which may limit our ability to maintain or increase prices or maintain revenue; |
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§ | we may be unable to continue to collect fuel surcharges or our fuel surcharge program may become ineffective in mitigating the impact of the fluctuating costs of fuel and other petroleum-based products; |
§ | many customers reduce the number of carriers they use by selecting “core carriers” as approved transportation service providers and we may not be selected; |
§ | many customers periodically accept bids from multiple carriers for their shipping needs, and this process may depress prices or result in the loss of some business to competitors; | |
§ | some shippers may choose to acquire their own trucking fleet or may choose to increase the volume of freight they transport if they have an existing trucking fleet; | |
§ | some shippers may choose to acquire their own trucking fleet or may choose to increase the volume of freight they transport if they have an existing trucking fleet; |
If we are unable to effectively compete with other LTL carriers and 3PL providers, whether on the basis of price, service or otherwise, we may be unable to retain existing customers or attract new customers, either of which could have a material adverse effect on our business, financial condition and results of operations. Furthermore, continued merger and acquisition activity in transportation and logistics could result in stronger or new competitors, which could have a material adverse effect on our business.
Risks Related to the Offering and the Market for our Stock
Because there is no minimum offering amount, funds raised may not be sufficient to complete the plans of the Company as set forth in “Use of Proceeds” in this Offering Circular.
There is no minimum offering amount. If we do not raise the maximum proceeds, funds raised may not be sufficient to complete all plans of the Company as set forth in “Use of Proceeds” in this Offering Circular, which could inhibit our ability to commence to generate revenue.
We have the right to issue additional common stock and preferred stock without consent of stockholders. This would have the effect of diluting investors’ ownership and could decrease the value of their investment.
We have additional authorized, but unissued shares of our common stock that may be issued by us for any purpose without the consent or vote of our stockholders that would dilute stockholders’ percentage ownership of our company.
In addition, our certificate of incorporation authorizes the issuance of shares of preferred stock and/or the conversion of existing outstanding preferred stock into common stock, the rights, preferences, designations and limitations of which may be set by the Board of Directors. Our certificate of incorporation has authorized issuance of up to 10,000,000 shares of preferred stock in the discretion of our Board. The shares of authorized but unissued preferred stock may be issued upon Board of Directors approval; no further stockholder action is required. If issued, the rights, preferences, designations and limitations of such preferred stock would be set by our Board and could operate to the disadvantage of the outstanding common stock. Such terms could include, among others, preferences as to dividends and distributions on liquidation.
Nevada law and certain anti-takeover provisions of our corporate documents could entrench our management or delay or prevent a third party from acquiring us or a change in control even if it would benefit our shareholders.
Certain provisions of Nevada law may have an anti-takeover effect and may delay or prevent a tender offer or other acquisition transaction that a shareholder might consider to be in his or her best interest. The summary of the provisions of Nevada law set forth below does not purport to be complete and is qualified in its entirety by reference to Nevada law.
The issuance of shares of preferred stock, the issuance of rights to purchase such shares, and the imposition of certain other adverse effects on any party contemplating a takeover could be used to discourage an unsolicited acquisition proposal. For instance, the issuance of a series of preferred stock might impede a business combination by including class voting rights that would enable a holder to block such a transaction. In addition, under certain circumstances, the issuance of preferred stock could adversely affect the voting power of holders of our common stock.
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Under Nevada law, a director, in determining what he reasonably believes to be in or not opposed to the best interests of the corporation, does not need to consider only the interests of the corporation’s shareholders in any takeover matter but may also, in his discretion, may consider any of the following:
(i) The interests of the corporation’s employees, suppliers, creditors and customers;
(ii) The economy of the state and nation;
(iii) The impact of any action upon the communities in or near which the corporation’s facilities or operations are located;
(iv) The long-term interests of the corporation and its shareholders, including the possibility that those interests may be best served by the continued independence of the corporation; and
(v) Any other factors relevant to promoting or preserving public or community interests.
Because our board of directors is not required to make any determination on matters affecting potential takeovers solely based on its judgment as to the best interests of our shareholders, our board could act in a manner that would discourage an acquisition attempt or other transaction that some, or a majority, of our shareholders might believe to be in their best interests or in which such shareholders might receive a premium for their stock over the then market price of such stock. Our board presently does not intend to seek shareholder approval prior to the issuance of currently authorized stock, unless otherwise required by law or applicable stock exchange rules.
Investors in this offering will experience immediate and substantial dilution.
If all of the shares offered hereby are sold, investors in this offering will own 27.4% of the then outstanding shares of common stock, but will have paid 100% of the total consideration for our outstanding shares, resulting in a dilution of $0.204 per share. See “Dilution.”
If a market for our common stock does not develop, shareholders may be unable to sell their shares.
Our common stock is quoted under the symbol “CNGT” on the OTCPink operated by OTC Markets Group, Inc., an electronic inter-dealer quotation medium for equity securities. We do not currently have an active trading market. There can be no assurance that an active and liquid trading market will develop or, if developed, that it will be sustained.
Our securities are very thinly traded. Accordingly, it may be difficult to sell shares of our common stock without significantly depressing the value of the stock. Unless we are successful in developing continued investor interest in our stock, sales of our stock could continue to result in major fluctuations in the price of the stock.
The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control.
Our stock price is subject to a number of factors, including:
§ | Technological innovations or new products and services by us or our competitors; |
§ | Government regulation of our products and services; |
§ | The establishment of partnerships with other telecom companies; |
§ | Intellectual property disputes; |
§ | Additions or departures of key personnel; |
§ | Sales of our common stock; |
§ | Our ability to integrate operations, technology, products and services; |
§ | Our ability to execute our business plan; |
§ | Operating results below or exceeding expectations; |
§ | Whether we achieve profits or not; |
§ | Loss or addition of any strategic relationship; |
§ | Industry developments; |
§ | Economic and other external factors; and |
§ | Period-to-period fluctuations in our financial results. |
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Our stock price may fluctuate widely as a result of any of the above. In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.
Because we are subject to the “Penny Stock” rules, the level of trading activity in our stock may be reduced.
The Securities and Exchange Commission has adopted regulations which generally define “penny stock” to be any listed, trading equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules generally require that prior to a transaction in a penny stock, the broker-dealer make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules which may increase the difficulty Purchasers may experience in attempting to liquidate such securities.
We do not expect to pay dividends in the foreseeable future. Any return on investment may be limited to the value of our common stock.
We do not anticipate paying cash dividends on our common stock in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting it at such time as the board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on your investment will occur only if our stock price appreciates.
Because we lack certain internal controls over financial reporting in that we do not have an audit committee and our Board of Directors has no technical knowledge of U.S. GAAP and internal control of financial reporting and relies upon the Company’s financial personnel to advise the Board on such matters, we are subject to increased risk related to financial statement disclosures.
We lack certain internal controls over financial reporting in that we do not yet have an audit committee and our Board of Directors has little technical knowledge of U.S. GAAP and internal control of financial reporting and relies upon the Company’s financial personnel and Accounting firm to advise the Board on such matters. Accordingly, we are subject to increased risk related to financial statement disclosures.
We are no longer an “emerging growth company” and therefore no longer eligible for reduced reporting requirements applicable to emerging growth companies.
It has been five years since our first registered sale of common stock in 2012, so we are no longer eligible for the reduced disclosure requirements applicable to “emerging growth companies.”
Emerging growth companies may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
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We are also a smaller reporting company, and we will remain a smaller reporting company until the fiscal year following the determination that our voting and non-voting common shares held by non-affiliates is more than $250 million measured on the last business day of our second fiscal quarter, or our annual revenues are more than $100 million during the most recently completed fiscal year and our voting and non-voting common shares held by non-affiliates is more than $700 million measured on the last business day of our second fiscal quarter. Similar to emerging growth companies, smaller reporting companies are able to provide simplified executive compensation disclosure, are exempt from the auditor attestation requirements of Section 404, and have certain other reduced disclosure obligations, including, among other things, being required to provide only two years of audited financial statements and not being required to provide selected financial data, supplemental financial information or risk factors.
Since we are no longer eligible for emerging growth company status, we will be subject to the reporting obligations of a smaller reporting company and, if we continue grow, we may be subject to increased reporting requirements applicable to accelerated filers, which are more onerous than those applicable to smaller reporting companies.
This offering circular contains forward-looking statements that involve risk and uncertainties. We use words such as “anticipate”, “believe”, “plan”, “expect”, “future”, “intend”, and similar expressions to identify such forward-looking statements. Investors should be aware that all forward-looking statements contained within this filing are good faith estimates of management as of the date of this filing. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us as described in the “Risk Factors” section and elsewhere in this offering circular.
Cannagistics Inc. (the “Company”) is a complete end to end supply chain management company focused on serving the pharmaceutical, OTC medical, nutraceutical, cosmetic, and CBD/Hemp-related (and other) product industries as a gateway for products to penetrate the USA, E.U., Colombia and Canada marketplace through its GMP certified manufacturing facilities in Baton Rouge Malta, Bogotá, and Toronto. Combining our production and compliance services with our proprietary information and transactional SAAS (Software as a Service) platform (being developed by Corengine for our Global 3PL, Inc. subsidiary), Cannagistics offers its clients a true turn-key supply chain information and management platform.
During the past 18 months, Global 3PL Inc. (a New York Corporation) has consulted with logistics and technology experts to design and begin the development of a best-of-breed, first-of-kind information technology system. To date, about seven (7) months' worth of custom-coding has been completed with an expectation of an additional 2-3 months of work still required for it to be ready for testing. Upon completion, it is intended that clients shall be able to login to the system to communicate and transact business with the Company in real-time, as it relates to aspects of the client’s supply chain. This can include, the tracking of inbound raw material from various vendors, the manufacturing schedule of finished goods, inventory tracking of raw materials and finished goods, international compliance documentation, and the contacting and tracking of the shipping of the finished goods to their delivery destination(s). Though the Company has high expectations for the functionality of the new system, it does not make any assurances that the system will be completed, shall work as planned if completed, nor be embraced by potential clients as intended.
Therefore Global3pl, Inc. (NY) will be a logistics subsidiary serving the just-in-time inventory & distribution industry, as well as the special and general commodities sector of the North American freight industry. The SaaS-based platform ecosystem will fully integrate all aspects of the Company’s operations, from receiving raw materials for clients, through product manufacturing, document compliance, distribution, and shelf-life batch tracking. It is expected to be operational in the third or fourth quarter of 2020.
The Company is also in active development in Malta for a GMP Certified facility that will focus on cosmetics, pharmaceutical, nutraceutical or “bioceutical” and medicinal products for our clients, and provide end to end tracking, manufacturing and testing. The Company has commitments from at least two clients for which we will provide the services. We are also in discussions with three other potential operations, in The United States, Canada and Latin America for similar operations.
Initially the products we intend to focus on are skin care and anti-aging creams and other over the counter products, and subsequently seeking to add products with hemp-based application. Our services would include the production, under their requirements, distribution and handling of orders as a third-party.
We intend to seek the necessary approvals to become GMP Certified facilities, or to partner with already GMP Certified facilities. The process to become GMP Certified has the potential to be expensive and cumbersome and there is no assurance that we will be able to obtain such level of certification.
Global3pl, Inc., (a New York corporation)
Global 3PL, Inc. is a logistics subsidiary with a seasoned team serving the just-in-time inventory & distribution industry, as well as the special and general commodities sector of the North American freight industry. This information pipeline shall operate under four brands: G3PL, AFX, Urban X, and Cannagistis. The SaaS-based platform ecosystem will fully integrate all aspects of the Cannagistics operations, from receiving raw materials for clients, through product manufacturing, document compliance, distribution, and shelf-life batch tracking.
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Our targeted client markets (OTC, pharmaceutical, nutraceutical, cosmetics, and Hemp/CBD-related products) are heavily regulated, and highly fragmented from state to state, and country to country. Every country has their own certified product standards; such as FDA in the U.S. Target client markets require batch product tracking throughout
shelf life and GMP certified standards in manufacturing. There is currently, we believe, a lack of seamless automation across the supply chain.
Our solution offers a fully-automated and scalable service for end to end information, manufacturing, sales, and tracking. We believe the benefits achieved from our logistics services for clients are as follows:
§ | Ability to track products from ingredient stage all the way to sale; |
§ | Provides 24/7 visibility; |
§ | Expands collaboration; |
§ | Proivdes a single point of access: |
§ | Incorporates big data and client behavior statistics; |
§ | Reduces redundancy; |
§ | Increases productivity; |
§ | Offers a subscription based model; and |
§ | Capable of supporting multiple client usage. |
The Company previously announced in September 2019 that it intended to declare a stock dividend with respect to Global3pl, Inc., (New York). The Company has carefully reconsidered its position with respect to the previously announced and subsequently amended spin off of Global3pl, Inc., (a New York corporation). Due to the current situation resulting from the COVID-19 pandemic and especially in light of the development of the supply chain management strategy of the Company, it has been determined that the finalization of the development of the Global3pl platform will be integral and serve as the “engine” for the supply chain management of the Company. Therefore, at this time the “spin-off” has been indefinitely postponed until such time and it may make sense from a business standpoint.
While the Company currently does not have any specific plants or facilities, and ceased its third-party logistics operations as of the second fiscal quarter of the Company, we are continuing the development of our plans to utilize GMP Certified facilities in our business plan. Although our Auditors have included a “going concern” statement in their opinion, we are actively pursuing our plans. However, currently we have only one employee, our President and Director.
GMP Certified Facilities
Cannagistics Lab Malta, is being developed by the Company as a GMP Certified biotech lab with a fundamental skill in initially the cosmetic and then potentially the medicinal, nutraceutical and cannabis/hemp/cbd industries. If we are successful in fully developing such capabilities we intend to seek out and employ a solid team of a multidisciplinary professionals in the pharmaceutical, nutraceutical and over the counter industries, and utilize complex supply chain and logistics management, unique technology and intellectual property. Cannagistics Lab’s purpose is to add value and offer a progress proposal to the Malta medicinal cannabis industry, based on its interest to support, educate, take advantage of and focus on the development of potentially breakthrough medicinal cannabis products with different therapeutic uses in patients around the world to whom science and traditional medicine simply could not reach. Such products will be subject to testing and certification from various governmental agencies, which may be a difficult expensive and time consuming process. Our vision and knowledge will potentially focus on GMP biopharmaceutical cannabis based medicines, - with the highest standards starting from the raw material - for multiple applications in patients, using latest technology, ancestral knowledge, scientific studies, with an exceptional team of research and development following the strictest standards and good distribution practices for export and national use.
The factory is expected to have the following areas for the production process, which will implement the safety protocols and the project will be developed.
§ | Area of receipt: Area of the property that has been destined for the receipt of the raw material and supplies that arrives for the manufacturing process. |
§ | Raw material area: Warehouse equipped with the security measures required for the storage of the raw material. |
§ | Production and manufacturing area: Sector where the manufacturing process will be carried out in which the transforming plant will be in order to obtain the final product. |
§ | Reagents and supplies area: Warehouse equipped with the security measures required for the storage of reagents and supplies. |
§ | Solid waste area: Sector destined for the storage of solid waste produced during the manufacturing process. |
§ | Finished product area: Warehouse equipped with the security measures required for the storage of the finished product. |
§ | Dispatch area: Sector from where the process of dispatch and delivery of the finished product to its final recipient will take place |
§ | Administrative area: Sector of the factory where administrative, accounting and security activities will be developed. |
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We plan to develop or acquire additional GMP facilities to cover different areas of distribution of products. Cannagistics Lab Malta is expected to serve the EU market, and we also have other facilities we plan to develop, including a facility in Baton Rouge serving the United States, Bogata serving Columbia and Toronto serving Canada.
We intend to seek GMP Certification for our potential facilities. The exact procedures and requirements required and necessary to establish our GMP Facilities will depend on the location, current state of the facility and governmental agencies. It is difficult to determine the exact steps that will be required and the expense of achieving the certification. While investigating the required measures necessary, we also intend to seek out and align with already existing operating certified production facilities, either through contracting with them or preferably by joint venture. Initially, our clients’ products, such as the skin care and anti-aging products, will not require the same level of certification as any future potential nutraceutical, medicinal or cannabis/hemp/cbd products.
Competition
The Global Supply Chain management area has many different entities, all competing. Some are very large. However, our model is significantly different from most of the providers already operating.
To be successful in the global supply chain management area, a company must be involved in planning the function of the entire process, from start to finish, or end to end. We intend to concentrate our model on the cannabis, nutraceutical, pharmaceutical and cosmetic areas. We believe this makes our approach unique and distinguishable at this time.
There is no guarantee that a larger, more fully funded, company will determine to seek to gain access to the same business.
Intellectual Property
Our Global3pl SAAS Platform is a proprietary software developed by the Company. The SaaS-based platform ecosystem will fully integrate all aspects of the Cannagistics operations, from receiving raw materials for clients, through product manufacturing, document compliance, distribution, and shelf-life batch tracking.
Government Regulations
We are subject to various types of governmental regulations for the various aspects of our global suppluy chai management operations.
GMP is an acronym of Good Manufacturing Practices. This subjects us to stringent rules and regulations, depending on the jurisdiction where located. For example, a facility in the United States is subject to inspection and regulation by the Food and Drug Administration and possible other agencies. The requirements for facilities in the European Union may be similar or subject to some different interpretations.
Employees
Currently the Company has no full or part time employees, other than our Sole Director/President. Once we have completed the development of our SAAS Platform and our Malta Project we anticipate having no more than 20 employees. If we are successful in the completion of other projects, that number will increase.
We estimate that, at a per share price of $0.25, the net proceeds from the sale of the 40,000,000 shares in this offering will be approximately $9,950,000, after deducting the estimated offering expenses of approximately $50,000.
We intend to use the Net Proceeds of this Offering to in the development of our business plan and growing in our core business. We plan to invest the funds of the offering to:
a) | Retire certain corporate debts and other expenses. Said debts would include two Convertible Promissory Notes in the amounts of $75,000 and $40,000, convertible at a 45% discount to the then current price of the shares of the company and convertible at a 42% discount to the then current price of the shares of the company, respectively; |
b) | Used for potential acquisitions and/or joint ventures with already existing facilities, such as in Baton Rouge, LA, and Canada, and the cost to bring any such facilities up to GMP Standards; |
c) | Payment of compensation and expenses for our Sole Officer and Director in accordance with his compensation agreement; and |
d) | General working capital and general public company expenses . |
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Maximum Offering | |||||||
Amount | Percentage | ||||||
Each | Each | ||||||
Expenses of the Offering (1) | $ | 50,000 | .005% | ||||
Continued development of current projects, including the SAAS Platform | 750,000 | 8.3% | |||||
Potential acquisitions and/or joint ventures with existing facilities in Canada and Baton Rouge, LA, and cost to bring up to GMP Certification | 5,000,000 | 55% | |||||
Retirement of Corporate Debt | 200,000 | 2.2% | |||||
Officer/Director Salary and Expenses | 200,000 | 2.2% | |||||
General Working Capital | 3,150,000 | 34.8% | |||||
TOTAL | 9,050,000 | 100.00% | |||||
Discount and Commission | 1,000,000 | ||||||
TOTAL OF THE OFFERING | $ | 10,000,000 | 100.00% |
(1) Expenses of the offering, estimated to be $50,000.00 include legal and accounting costs of registration.
We expect to use the proceeds if we raise only 50% of the Maximum Offering, or $5,000,000 as follows:
Reduced $ 5,000,000 | |||||||
Amount | Percentage | ||||||
Each | Each | ||||||
Expenses of the Offering (1) | $ | 50,000 | 1% | ||||
Continued development of current projects, including the SAAS Platform | 750,000 | 16.8% | |||||
Potential acquisitions and/or joint ventures with existing facilities in Canada and Baton Rouge, LA, and cost to bring up to GMP Certification | 3,000,000 | 67.4% | |||||
Retirement of Corporate Debt | 200,000 | 4% | |||||
Officer/Director Salary and Expenses | 200,000 | 4% | |||||
General Working Capital | 1,425,000 | 28.7% | |||||
TOTAL | $ | 4,950,000 | 100.00% | ||||
Discount and Commission | 500,000 | ||||||
TOTAL OF THE 50% OFFERING | $ | 5,000,000 | 100.00% |
(1) Expenses of the offering, estimated to be $50,000.00 include legal and accounting costs of registration.
We expect to use the proceeds if we raise only 25% of the Maximum Offering, or $2,500,000 as follows:
Reduced $ 2,500,000 | |||||||
Amount | Percentage | ||||||
Each | Each | ||||||
Expenses of the Offering (1) | $ | 50,000 | 2% | ||||
Continued development of current projects, including the SAAS Platform | 400,000 | 16% | |||||
Potential acquisitions and/or joint ventures with existing facilities in Canada and Baton Rouge, LA, and cost to bring up to GMP Certification | 1,200,000 | 48% | |||||
Retirement of Corporate Debt | 200,000 | 8% | |||||
Officer/Director Salary and Expenses | 200,000 | 8% | |||||
General Working Capital | 450,000 | 18% | |||||
TOTAL | $ | 2,500,000 | 100.00% | ||||
Discount and Commission | 250,000 | ||||||
TOTAL OF THE 25% OFFERING | $ | 2,500,000 | 100.00% |
(1) Expenses of the offering, estimated to be $50,000.00 include legal and accounting costs of registration.
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The expected use of net proceeds from this offering represents our intentions based upon our current plans and business conditions, which could change in the future as our plans and business conditions evolve. The amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including negotiations with the other parties in the merge and acquisitions process of the target companies, the amount of cash available from other sources and any unforeseen cash needs. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering.
If you invest in our shares, your interest will be diluted to the extent of the difference between the public offering price per share of our common stock and the as adjusted net tangible book value per share of our capital stock after this Offering. Our net tangible book value (deficit) as of January 31, 2020 was ($3,628,000) or ($0.037) per share of outstanding common stock, based in 97,599,277 outstanding shares. The current outstanding common shares at January 31, 2020 is 97,599,277 shares therefore the net tangible book value (deficit) is ($0.037) per share of outstanding common stock. Without giving effect to any changes in the net tangible book value after January 31, 2020 other than the new amount of outstanding shares 102,599,277 and the sale of 40,000,000 shares in this offering at the initial public offering price of $0.25 per share, our pro forma net tangible book value as of January 31, 2020 was $ 97,599,277 or $0.037 per share of outstanding common stock. Dilution in net tangible book value per common share, represents the difference between the amount per share paid by the purchasers of our common shares in this offering and the net tangible book value per share of our common stock immediately afterwards. This represents an immediate increase of $0.083 per share of common stock to existing shareholders and an immediate dilution of $0.204 per share of common stock to the new investors, or approximately 81.6% of the assumed initial public offering price of $0.25 per share. The following table illustrates this per share dilution:
Maximum | |||||||
Per Share | Offering | ||||||
Initial price to public | $ | 0.25 | $ | 10,000,000 | |||
Net tangible deficiency as of January 31, 2020 | $ | (0.037 | ) | $ | (3,613,000) | ||
Increase in net tangible book value attributable to new investors | $ | 0.25 | $ | 10,000,000 | |||
As adjusted net tangible book value after this offering | $ | 0.046 | $ | 6,372,000 | |||
Dilution in net tangible book value per share to new investors | $ | 0.204 |
The following table summarizes the differences between the existing shareholders and the new investors with respect to the number of shares of common stock purchased, the total consideration paid, and the average price per share paid, on a maximum offering basis:
Maximum Offering:
Shares Purchased | Total Consideration | ||||||||||||||||||
Number | Percent | Amount | Percent | Average Price Per Share | |||||||||||||||
Existing shareholders | 97,599,277 | 70.9 | % | 2,706,719 | 21.3 | % | $ | 0.028 | |||||||||||
New investors | 40,000,000 | 29.1 | % | 10,000,000 | 78.7 | % | $ | 0.25 | |||||||||||
Total | 137,599,277 | 100 | % | 12,706,719 | 100 | % | $ | 0.092 |
Investors in this offering will experience immediate and substantial dilution.
If all of the shares offered hereby are sold, investors in this offering will own 29.1% of the then outstanding shares of common stock, but will have paid 100% of the total consideration for our outstanding shares, resulting in a dilution of $0.204 per share. See “Dilution.”
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The shares being offered for resale by the selling stockholders consist of 3,000,000 shares of our common stock including 1,000,000 shares of common stock underlying warrants held by one shareholder.
The following table sets forth the name of the selling stockholders, the number of shares of common stock beneficially owned by each of the selling stockholders as of May 4, 2020 and the number of shares of common stock being offered by the selling stockholders. The shares being offered hereby are being registered to permit public secondary trading, and the selling stockholders may offer all or part of the shares for resale from time to time. However, the selling stockholders are under no obligation to sell all or any portion of such shares nor are the selling stockholders obligated to sell any shares immediately upon effectiveness of this offering circular. All information with respect to share ownership has been furnished by the selling stockholders.
Name of selling stockholder |
Shares of Common stock owned prior to offering |
Shares of Common stock to be sold |
Shares of Common stock owned after offering (if all shares are sold) |
Percent of common stock owned after offering (if all shares are sold) |
Citta Alta Capital, Inc. (1) | 3,000,000(2) | 3,000,000(2) | 0 | 0 |
Total | 3,000,000 | 3,000,000 |
(1) | Craig Coaches is the President and control person of Citta Alta Capital, Inc. |
(2) | Includes shares pursuant to a Warrant to purchase shares at $0.15 per share |
This Offering Statement is part the Form 1-A that we filed with the SEC, using a continuous offering process. Periodically, as we have material developments, we will provide an Offering Statement supplement that may add, update or change information contained in this Offering Statement. Any statement that we make in this Offering Statement will be modified or superseded by any inconsistent statement made by us in a subsequent Offering Statement supplement.
We intend to sell the shares in the primary offering through the efforts of our sole officer, James Zimbler. Mr. Zimbler will not receive any compensation for offering or selling the shares in our primary offering. We believe that Mr. Zimbler is exempt from registration as a broker-dealer under the provisions of Rule 3a4-1 promulgated under the Securities Exchange Act of 1934 (the Exchange Act). In particular, Mr. Zimbler:
§ | is not subject to a statutory disqualification, as that term is defined in Section 3(a)(39) of the Securities Act; |
§ | is not to be compensated in connection with his participation by the payment of commissions or other remuneration based either directly or indirectly on transactions in securities; |
§ | is not an associated person of a broker or dealer; |
§ | meet the conditions of the following: |
§ | primarily performs, and will perform at the end of this offering, substantial duties for us or on our behalf otherwise than in connection with transactions in securities; |
§ | is not a broker or dealer, or an associated person of a broker or dealer, within the preceding 12 months; and |
§ | did not participate in selling an offering of securities for any issuer more than once every 12 months other than in reliance on paragraphs (a)(4)(i) or (iii) of Rule 3a4-1 under the Exchange Act. |
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The Selling Shareholders may pledge all or a portion of their respective Selling Shareholder Shares owned as collateral for margin accounts or in loan transactions, and the Selling Shareholder Shares may be resold pursuant to the terms of such pledges, margin accounts or loan transactions. Upon default by any such Selling Shareholder, the pledge in such loan transaction would have the same rights of sale as the Selling Shareholders under this Offering Circular. The Selling Shareholders may also enter into exchange traded listed option transactions, which require the delivery of the Selling Shareholder Shares listed under this Offering Circular. The Selling Shareholders may also transfer the Selling Shareholder Shares owned in other ways not involving market makers or established trading markets, including directly by gift, distribution or other transfer without consideration, and upon any such transfer the transferee would have the same rights of sale as Selling Shareholders under this Offering Circular.
The Selling Shareholders will be affected by the applicable provisions of the Securities Exchange Act of 1934, including, without limitation, Regulation M, which may limit the timing of purchases and sales of any of the securities by the Selling Shareholders or any such other person. We have instructed the Selling Shareholders that they may not purchase any of our securities while they are selling their respective Selling Shareholder Shares under this Offering Circular.
We will not pay for any expenses relating to the sale of Selling Shareholders Shares by the Selling Shareholders, except the expenses related to filing this Offering Circular.
Quotation
Our Common Stock is traded on the OTCMarkets.com Pink Sheet Open Market under the symbol “CNGT.”
Pricing of the Offering
Prior to the offering, there has been a limited public market for our common shares. The initial public offering price was determined by the Company. The principal factors considered in determining the initial public offering price include:
§ | the information set forth in this Offering Statement and otherwise available; |
§ | our history and prospects and the history of and prospects for the industry in which we compete; |
§ | our past and present financial performance; |
§ | our prospects for future earnings and the present state of our development; |
§ | the general condition of the securities markets at the time of this offering; |
§ | the recent market prices of, and demand for, publicly traded common stock of generally comparable companies; and |
§ | other factors deemed relevant by us. |
Investment Limitations
Generally, no sale may be made to you in this offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income or net worth (please see below on how to calculate your net worth). Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A. For general information on investing, we encourage you to refer to www.investor.gov.
Because this is a Tier 2, Regulation A Offering, most investors must comply with the 10% limitation on investment in the Offering. The only investor in this offering exempt from this limitation is an “accredited investor” as defined under Rule 501 of Regulation D under the Securities Act (an “Accredited Investor”). If you meet one of the following tests you should qualify as an Accredited Investor:
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§ | You are a natural person who has had individual income in excess of $200,000 in each of the two most recent years, or joint income with your spouse in excess of $300,000 in each of these years, and have a reasonable expectation of reaching the same income level in the current year; |
§ | You are a natural person and your individual net worth, or joint net worth with your spouse, exceeds $1,000,000 at the time you purchase Offered Shares (please see below on how to calculate your net worth); |
§ | You are an executive officer or general partner of the issuer or a manager or executive officer of the general partner of the issuer; |
§ | You are an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, or the Code, a corporation, a Massachusetts or similar business trust or a partnership, not formed for the specific purpose of acquiring the Offered Shares, with total assets in excess of $5,000,000; |
§ | You are a bank or a savings and loan association or other institution as defined in the Securities Act, a broker or dealer registered pursuant to Section 15 of the Exchange Act, an insurance company as defined by the Securities Act, an investment company registered under the Investment Company Act of 1940 (the “Investment Company Act”), or a business development company as defined in that act, any Small Business Investment Company licensed by the Small Business Investment Act of 1958 or a private business development company as defined in the Investment Advisers Act of 1940; |
§ | You are an entity (including an Individual Retirement Account trust) in which each equity owner is an accredited investor; |
§ | You are a trust with total assets in excess of $5,000,000, your purchase of Offered Shares is directed by a person who either alone or with his purchaser representative(s) (as defined in Regulation D promulgated under the Securities Act) has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the prospective investment, and you were not formed for the specific purpose of investing in the Offered Shares; or |
§ | You are a plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has assets in excess of $5,000,000. |
Offering Period and Expiration Date
Our offering will terminate upon the earliest of (i) such time as all of the common stock has been sold pursuant to the Offering Statement or (ii) 365 days from the qualified date of this offering circular unless extended by our Board of Directors for an additional 90 days. We may however, at any time and for any reason terminate the offering.
Procedures for Subscribing
When you decide to subscribe for shares in this Offering, you should:
Go to www.cannagistics.io home page, click on the “Invest Now” button and follow the procedures as described.
1. | Electronically receive, review, execute and deliver to us a subscription agreement; and |
2. | Deliver funds directly by wire or electronic funds transfer via ACH to the specified account maintained by us. |
As part of this investment, each investor will be required to agree to the terms of the subscription agreement included as Exhibit 1A-4 to the Offering Statement of which this Offering Circular is part.
Any potential investor will have ample time to review the subscription agreement, along with their counsel, prior to making any final investment decision. We shall only deliver such subscription agreement upon request after a potential investor has had ample opportunity to review this Offering Statement.
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The subscription agreement requires investors to indemnify the company and its officers and directors for any claim of brokerage commissions, finders’ fees or similar compensation, if the signatory to the subscription agreement does not have the legal authority to bind the investor and for the other representations and warranties made in Article II of the Subscription Agreement.
Right to Reject Subscriptions. After we receive your complete, executed subscription agreement and the funds required under the subscription agreement have been transferred to our bank account, we have the right to review and accept or reject your subscription in whole or in part, for any reason or for no reason. We will return all monies from rejected subscriptions immediately to you, without interest or deduction.
Acceptance of Subscriptions. Upon our acceptance of a subscription agreement, we will countersign the subscription agreement and issue the shares subscribed at closing. Once you submit the subscription agreement and it is accepted, you may not revoke or change your subscription or request your subscription funds. All accepted subscription agreements are irrevocable.
Under Rule 251 of Regulation A, non-accredited, non-natural investors are subject to the investment limitation and may only invest funds which do not exceed 10% of the greater of the purchaser’s revenue or net assets (as of the purchaser’s most recent fiscal year end). A non-accredited, natural person may only invest funds which do not exceed 10% of the greater of the purchaser’s annual income or net worth (please see below on how to calculate your net worth).
NOTE: For the purposes of calculating your net worth, it is defined as the difference between total assets and total liabilities. This calculation must exclude the value of your primary residence and may exclude any indebtedness secured by your primary residence (up to an amount equal to the value of your primary residence). In the case of fiduciary accounts, net worth and/or income suitability requirements may be satisfied by the beneficiary of the account or by the fiduciary, if the fiduciary directly or indirectly provides funds for the purchase of the Offered Shares.
In order to purchase offered Shares and prior to the acceptance of any funds from an investor, an investor will be required to represent, to the Company’s satisfaction, that he is either an accredited investor or is in compliance with the 10% of net worth or annual income limitation on investment in this offering.
No Escrow
The proceeds of this offering will not be placed into an escrow account. We will offer our shares of common stock on a best efforts basis primarily through an online platform. As there is no minimum offering, upon the approval of any subscription to this Offering Statement, the Company shall immediately deposit said proceeds into the bank account of the Company and may dispose of the proceeds in accordance with the Use of Proceeds.
The following is a summary of the rights of our capital stock as provided in our articles of incorporation and bylaws. For more detailed information, please see our articles of incorporation and bylaws, which have been filed as exhibits to the offering statement of which this Offering Circular is a part.
Our authorized capital stock consists of 250,000,000 shares of common stock, with a par value of $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share. As of April 27, 2020, there were 102,599,277 shares of our common stock issued and outstanding. Our shares are currently held by approximately 185 stockholders of record. As of April 27, 2020, there were 8,000,000 shares of our Series D Preferred Stock issued and outstanding held by our officer and director and another 2,000,000 shares of our Series D Preferred Stock held by Solid Bridge Investments, Inc.
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Common Stock
Our common stock is entitled to one vote per share on all matters submitted to a vote of the shareholders, including the election of directors. Except as otherwise required by law or provided in any resolution adopted by our board of directors with respect to any series of preferred stock, the holders of our common stock will possess all voting power. Generally, all matters to be voted on by shareholders must be approved by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by all shares of our common stock that are present in person or represented by proxy, subject to any voting rights granted to holders of any preferred stock. Holders of our common stock representing fifty percent (50%) of our capital stock issued, outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of our shareholders. A vote by the holders of a majority of our outstanding shares is required to effectuate certain fundamental corporate changes such as liquidation, merger or an amendment to our Articles of Incorporation. Our Articles of Incorporation do not provide for cumulative voting in the election of directors.
Subject to any preferential rights of any outstanding series of preferred stock created by our board of directors from time to time, the holders of shares of our Common Stock will be entitled to such cash dividends as may be declared from time to time by our board of directors from funds available therefore.
Subject to any preferential rights of any outstanding series of preferred stock created from time to time by our board of directors, upon liquidation, dissolution or winding up, the holders of shares of our Common Stock will be entitled to receive pro rata all assets available for distribution to such holders.
In the event of any merger or consolidation with or into another company in connection with which shares of our Common Stock are converted into or exchangeable for shares of stock, other securities or property (including cash), all holders of our Common Stock will be entitled to receive the same kind and amount of shares of stock and other securities and property (including cash). Holders of our Common Stock have no pre-emptive rights, no conversion rights and there are no redemption provisions applicable to our Common Stock.
Preferred Stock
Our board of directors may become authorized to authorize preferred shares of stock and to divide the authorized shares of our preferred stock into one or more series, each of which must be so designated as to distinguish the shares of each series of preferred stock from the shares of all other series and classes. Our board of directors is authorized, within any limitations prescribed by law and our articles of incorporation, to fix and determine the designations, rights, qualifications, preferences, limitations and terms of the shares of any series of preferred stock including, but not limited to, the following:
(1) | The number of shares constituting that series and the distinctive designation of that series, which may be by distinguishing number, letter or title; |
(2) | The dividend rate on the shares of that series, whether dividends will be cumulative, and if so, from which date(s), and the relative rights of priority, if any, of payment of dividends on shares of that series; |
(3) | Whether that series will have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; |
(4) | Whether that series will have conversion privileges, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors determines; |
(5) | Whether or not the shares of that series will be redeemable, and, if so, the terms and conditions of such redemption, including the date or date upon or after which they are redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; |
(6) | Whether that series will have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking fund; |
(7) | The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the corporation, and the relative rights of priority, if any, of payment of shares of that series; and |
(8) | Any other relative rights, preferences and limitations of that series. |
We have no outstanding shares of preferred stock other than 10,000,000 shares of our Series D Preferred Stock.
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Series D Preferred Stock
On May 7, 2019, our Board of Directors voted to designate a class of preferred stock entitled Series D Preferred Stock, consisting of up 8,000,000 shares, par value $0.001. Under the Certificate of Designation, holders of Series D Preferred Stock will participate on an equal basis per-share with holders of our common stock, Series A Preferred Stock and Series C Preferred Stock in any distribution upon winding up, dissolution, or liquidation. Holders of Series D Preferred Stock are entitled to vote together with the holders of our common stock on all matters submitted to shareholders at a rate of 72.5 votes for each share held. Holders of Series D Preferred Stock are entitled to convert each share held for 72.5 shares of common stock. On March 31, 2020 we authorized the issuance of 2,000,000 shares of our Series D Preferred Stock held by Solid Bridge Investments, Inc.
Provisions in Our Articles of Incorporation and By-Laws That Would Delay, Defer or Prevent a Change in Control
Our articles of incorporation authorize our board of directors to issue a class of preferred stock commonly known as a “blank check” preferred stock. Specifically, the preferred stock may be issued from time to time by the board of directors as shares of one (1) or more classes or series. Our board of directors, subject to the provisions of our Articles of Incorporation and limitations imposed by law, is authorized to adopt resolutions; to issue the shares; to fix the number of shares; to change the number of shares constituting any series; and to provide for or change the following: the voting powers; designations; preferences; and relative, participating, optional or other special rights, qualifications, limitations or restrictions, including the following: dividend rights, including whether dividends are cumulative; dividend rates; terms of redemption, including sinking fund provisions; redemption prices; conversion rights and liquidation preferences of the shares constituting any class or series of the preferred stock.
In each such case, we will not need any further action or vote by our shareholders. One of the effects of undesignated preferred stock may be to enable the board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a tender offer, proxy contest, merger or otherwise, and thereby to protect the continuity of our management. The issuance of shares of preferred stock pursuant to the board of director’s authority described above may adversely affect the rights of holders of Common Stock. For example, preferred stock issued by us may rank prior to the Common Stock as to dividend rights, liquidation preference or both, may have full or limited voting rights and may be convertible into shares of Common Stock. Accordingly, the issuance of shares of preferred stock may discourage bids for the Common Stock at a premium or may otherwise adversely affect the market price of the Common Stock.
Dividend Policy
We have never declared or paid any cash dividends on our Common Stock. We currently intend to retain future earnings, if any, to finance the expansion of our business. As a result, we do not anticipate paying any cash dividends in the foreseeable future.
As of January 31, 2020, we had no outstanding Warrants for the purchase of shares of common stock of the Company.
As of January 31, 2020, we had no outstanding options for the purchase of shares of common stock of the Company.
As of January 31, 2020, we had the following Convertible Securities:
Julius Csurgo is the beneficial owner of the shares held by Realty Capital Management. The Note represents 1,367,500 shares of common stock and principal and accrued interest of $16,474 under a convertible note that is convertible into 7,321,778 shares of our common stock.
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Description | January 31, 2020 | ||
Convertible note agreement dated November 1, 2013 in the amount of $30,000 payable and due on demand bearing interest at 12% per annum. Principal and accrued interest is convertible at $.002250 per share. | $ | 11,041 | |
Convertible note agreement dated February 20, 2018 in the amount of $1,034,000 payable and due on demand bearing interest at 10% per annum. Principal and accrued interest is convertible at $.028712 per share. | $ | 1,034,000 | |
Convertible note agreement dated March 13, 2019 in the amount of $800,000 payable and due on March 20, 2020 bearing interest at 24% per annum. (1) | $ | 800,000 | |
Convertible note agreement dated June 28, 2019 in the amount of $300,000 payable and due on June 28, 2020 bearing interest at 20% per annum. (1) | $ | 300,000 | |
Convertible note agreement dated August 6, 2019 in the amount of $31,500 payable and due on August 6, 2020 bearing interest at 20% per annum. (1) | $ | 31,500 | |
Convertible note agreement dated August 19, 2019 in the amount of $3,800 payable and due on August 19, 2020 bearing interest at 24% per annum. (1) | $ | 3,800 | |
Convertible note agreement dated September 4, 2019 in the amount of $36,500 payable and due on September 4, 2020 bearing interest at 20% per annum. (1) | $ | 36,500 | |
Convertible note agreement dated December 4, 2019 in the amount of $95,000 payable and due on December 4, 2020 bearing interest at 12% per annum.(1) | $ | 95,000 | |
Convertible notes, net of discount | $ | 2,311,841 |
The Company recognized $0 of debt discount accretion expense on the above notes. Interest expense related to these notes for the six months ended January 31, 2020 was $187,218
(1) Notes have a conversion rate of discount of (65%) of the price per share paid for the Financing Securities in any Qualified Financing (“Financing Securities Price”) or the opening price on the first day if trading on any such Exchange.
Certain Anti-Takeover Provisions
Nevada Revised Statutes sections 78.378 to 78.379 provide state regulation over the acquisition of a controlling interest in certain Nevada corporations unless the articles of incorporation or bylaws of the corporation provide that the provisions of these sections do not apply. Our articles of incorporation and bylaws do not state that these provisions do not apply. The statute creates a number of restrictions on the ability of a person or entity to acquire control of a Nevada company by setting down certain rules of conduct and voting restrictions in any acquisition attempt, among other things. The statute is limited to corporations that are organized in the state of Nevada and that have 200 or more stockholders, at least 100 of whom are stockholders of record and residents of the State of Nevada; and does business in the State of Nevada directly or through an affiliated corporation. Because of these conditions, the statute currently does not apply to our company.
Listing of Common Stock
Our Common Stock is currently quoted on the OTC Pink under the trading symbol “CNGT.”
Transfer Agent and Registrar
The transfer agent and registrar of our Common Stock is Empire Stock Transfer, located at 1859 Whitney Mesa Dr.
Henderson, NV 89014. Phone: (702) 818-5898.
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Penny Stock Regulation
The SEC has adopted regulations which generally define “penny stock” to be any equity security that has a market price (as defined) of less than $5.00 per share or an exercise price of less than $5.00 per share. Such securities are subject to rules that impose additional sales practice requirements on broker-dealers who sell them. For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchaser of such securities and have received the purchaser’s written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the transaction, of a disclosure schedule prepared by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Finally, among other requirements, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. As the Shares immediately following this Offering will likely be subject to such penny stock rules, purchasers in this Offering will in all likelihood find it more difficult to sell their Shares in the secondary market.
INTERESTS OF NAMED EXPERTS AND COUNSEL
No expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the common stock was employed on a contingency basis, or had, or is to receive, in connection with the offering, a substantial interest, direct or indirect, in the registrant or any of its parents or subsidiaries. Nor was any such person connected with the registrant or any of its parents or subsidiaries as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.
The Doney Law Firm, our independent legal counsel, has provided an opinion on the validity of our common stock.
BMKR, LLP has audited our financial statements included in this prospectus and registration statement to the extent and for the periods set forth in their audit report. BMKR, LLP has presented their report with respect to our audited financial statements. The report of BMKR, LLP is included in reliance upon their authority as experts in accounting and auditing.
The disclosures concerning our properties are contained in the section titled “Description of Business” above and incorporated herein by reference.
I.
We are a party to a case titled William Prusin v. Precious Investments Inc., and Kashif Khan. The litigation was commenced in the Ontario Superior Court of Justice (Commercial List) on July 20, 2016. The litigation stems from a diamond purchase agreement entered into on April 1, 2016 between Dr. William Prusin and Precious Investments Inc. By virtue of the terms of the agreement, Precious Investments purchased Dr. Prusin’s diamond portfolio, which was valued at $3.8 million (CDN) for the purposes of the agreement. In exchange for the diamond portfolio, Dr. Prusin was provided with 1,324,413 common shares of Precious Investments.
In the Statement of Claim, the plaintiff is alleging a breach of the Ontario Securities Act and claims that documents provided to him contain untrue statements of material fact or omissions. The plaintiff has also alleged that Precious Investment and Mr. Khan distributed securities in Ontario without issuing a prospectus and obtaining the required prospectus exemption or a registration exemption. In the alternative, the plaintiff has alleged that Mr. Khan made fraudulent misrepresentations which induced Dr. Prusin to enter into the diamond purchase agreement. The fraudulent misrepresentation allegation involves the future value of Precious shares, the timing by which Dr. Prusin had to sign the diamond purchase agreement, the involvement of Dundee Capital Markets, Mr. Khan’s investment in Precious Investments, and the management team at Precious Investments. Given these allegations, the plaintiff claims that he is entitled to obtain an order rescinding the diamond purchase agreement.
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The Company and Mr. Khan deny all of the plaintiff’s allegations. The Company and Mr. Khan deny that any documents provided to Dr. Prusin constitute an “offering memorandum”, or that any prospectus was required under the Ontario Securities Act since the transaction falls within the exemption set out in National Instrument 45-106. In addition, the defendants deny that any fraudulent misrepresentation was made to Dr. Prusin. The defendants have filed a counter-claim against Dr. Prusin, alleging a breach of the diamond purchase agreement.
The action is currently dormant, although the plaintiff has retained new counsel. Current local Counsel for the Company believes that it will be ultimately successful in defending the action.
II.
KRG Logistics, Inc., now known as Global3pl, Inc., (an Ontario corporation), a now discontinued operational subsidiary of the Company, was named as the defendant in an action in the Ontario Superior Court of Justice by Ron Alvares, one of the original shareholders of KRG Logistics, Inc., when it was purchased by the Company in 2017. The action is for breach of contract for monies due as a result of the Purchase Agreement and for an amount due from a shareholder loan claimed by Mr. Alvares to KRG Logistics on September 30, 2014. The Company intends to defend against the breach of contract claim as the amount claimed to be due is incorrect, based on payments already made. It will also file counter-claims based on intentional interference of contracts by Mr. Alvares and his son for stealing clients of the Company and industrial sabotage of the Company’s software systems. With respect to the claim of an outstanding shareholder loan it is the position of the Company that said shareholder loan was never disclosed to the Company at the time of the purchase and based on information available, any such shareholder loan was paid off with the down payment provided by the Company for the purchase of KRG Logistics, Inc.
Procedurally the plaintiff has named the wrong parties and Counsel in Ontario is waiting for an amended complaint to file an answer and counterclaims.
III.
On February 4, 2020, Jeffrey Gates commenced an action in the Supreme Court of the State of New York, County of Suffolk against the Company and Mr. Zimbler for the non-payment of a Promissory Note, of which the balance of $135,000, plus interest. The Company has retained Counsel to appear and defend the action. The Company has every intention of resolving this matter prior to the Court rendering a decision.
DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following information sets forth the name, age, and position of our current director and executive officer as of the date of this Annual Report.
Name | Age | Position(s) and Office(s) Held |
James W. Zimbler | 55 | Chairman of the Board, Chief Executive Officer and Director |
Set forth below is a brief description of the background and business experience of our current executive officer and director.
James W. Zimbler, CEO and Director
James W. Zimbler is President of Cannagistics, Inc., and was responsible for strategic decision making, capital expenditure planning and staffing issues. He is also a management consultant, through his company Emerging Growth Advisors, Inc., specializing in roll ups and turn-around work. Mr. Zimbler has over 30 years’ experience in the Logistics and Transportation field as a manager and owner of a number of previous operations. Since 2000 he has been involved in various public companies, either as management or consultant, involved in “turn-around” situations, mergers and acquisitions and start-ups. Previously, Mr. Zimbler was a founder and CEO of Eco-Petroleum Solutions, Inc. He has worked with many public and private companies and has been involved in consulting services for capital raising, recapitalization and mergers and acquisitions for various clients since 2000. In addition, he has served on the Board of Directors and/or as an officer of several public companies since 2000, including Eco-Petroleum Solutions, Inc., Accountabilities, Inc., Triton Petroleum Group, Inc., Universal Media, Inc., and Genio Holdings, Inc.
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Term of Office
Our Directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board, subject to their respective employment agreements.
Significant Employees
We have no significant employees other than our officers and directors.
Family Relationships
There are no family relationships between or among the directors, executive officers or persons nominated or chosen by us to become directors or executive officers.
Involvement in Certain Legal Proceedings
During the past 10 years, none of our current directors, nominees for directors or current executive officers has been involved in any legal proceeding identified in Item 401(f) of Regulation S-K, including:
1. Any petition under the Federal bankruptcy laws or any state insolvency law filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he or she was a general partner at or within two years before the time of such filing, or any corporation or business association of which he or she was an executive officer at or within two years before the time of such filing;
2. Any conviction in a criminal proceeding or being named a subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);
3. Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him or her from, or otherwise limiting, the following activities:
i. Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
ii. Engaging in any type of business practice; or
iii. Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;
4. Being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any type of business regulated by the Commodity Futures Trading Commission, securities, investment, insurance or banking activities, or to be associated with persons engaged in any such activity;
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5. Being found by a court of competent jurisdiction in a civil action or by the SEC to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;
6. Being found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;
7. Being subject to, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:
i. Any Federal or State securities or commodities law or regulation; or
ii. Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or
iii. Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
8. Being subject to, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
Committees of the Board
Our full board serves the functions that would normally be served by a separately-designated Audit Committee, Nominating Committee, and Compensation Committee. Further, we do not have an audit committee financial expert on the Board.
Code of Ethics
The Company has not yet adopted a Code of Ethics as defined by applicable rules of the SEC. The Company anticipates that it will adopt a Code of Ethics when appropriate as it hires additional employees and obtains additional officers and directors.
Summary Compensation Table
The table below summarizes all compensation awarded to, earned by, or paid to each named executive officer for our last two completed fiscal years for all services rendered to us.
SUMMARY COMPENSATION TABLE | ||||||||||||||||||||||||||||||||
Name and principal position | Year |
Salary
($) |
Bonus
($) |
Stock
Awards ($) |
Option
Awards ($) |
Non-Equity
Incentive Plan Compensation ($) |
Nonqualified
Deferred Compensation Earnings ($) |
All
Other
Compensation ($) |
Total
($) |
|||||||||||||||||||||||
James W. Zimbler, CEO and Director |
2019 2018 2017 |
151,133 95,000 0 |
0 0 |
8,000,000* 0 0 |
0 0 |
0 0 |
0 0 |
|
0 0 |
__ __ |
* Stock Award was 8,000,000 Series D Preferred Shares
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Narrative to Summery Compensation Table
On October 1, 2018, we entered into an employment agreement with James W. Zimbler (“Zimbler”) to be our Chief Executive Officer (the “Zimbler Agreement”).
The following is a summary of the material terms of the Zimbler Agreement.
§ | The term commences on October 1, 2018 and is for a period of five (5) years, unless terminated earlier as provided therein. |
§ | Zimbler’s initial annual Base Salary is $195,000, with an increase of 3% each year for the term of the Agreement. |
§ | Zimbler is entitled to participate in any Bonus or Executive Compensation Plan established by the Company Zimbler is also entitled to car allowance of up to $1,000 per month for the term of the Zimbler Agreement. |
§ | Zimbler will be entitled to participate in our health and welfare benefit programs and vacation and other benefit programs for which other employees of our company are generally eligible, subject to any eligibility requirements of such plans and programs. |
§ | Upon termination of Zimbler’s employment, he may be entitled to receive certain post-termination severance benefits depending upon whether such termination is by the Company without Cause, in relation to a Change of Control, a resignation by Zimbler for Good Reason, or by reason of Zimbler’s death or disability (as such terms are defined in the Zimbler Agreement). |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 27, 2020, certain information as to shares of our common stock owned by (i) each person known by us to beneficially own more than 5% of our outstanding common stock, (ii) each of our directors, and (iii) all of our executive officers and directors as a group. Unless otherwise stated, the address for each beneficial owner is at 1200 Veterans Highway, Suite 310, Hauppauge, NY 11788.
Common Stock |
Series D
Preferred Stock |
||||||||||||||
Name and Address of Beneficial Owner |
Number of Shares
Owned (1) |
Percent of Class (2) | Number of Shares Owned (1) | Percent of Class (2) | |||||||||||
James Zimbler (3) | 72,500,000 | 70.6% | 8,000,000 | 80% | |||||||||||
All Directors and Executive Officers as a Group (1 person) | 72,500,000 | 70.6% | 8,000.000 | 80% | |||||||||||
5% Holders | |||||||||||||||
Solid Bridge Investments, Inc. (4) | -0- | -0- | 2,000,000 | 20% |
(1) | Unless otherwise indicated, each person or entity named in the table has sole voting power and investment power (or shares that power with that person’s spouse) with respect to all shares of voting stock listed as owned by that person or entity. |
(2) | Pursuant to Rules 13d-3 and 13d-5 of the Exchange Act, beneficial ownership includes any shares as to which a shareholder has sole or shared voting power or investment power, and also any shares which the shareholder has the right to acquire within 60 days, including upon exercise of common shares purchase options or warrants. The percent of class of common stock is based on 102,599,277 shares of common stock as of April 27, 2020. The percent of class of Series D Preferred Stock is based on 102,599,277 shares of common stock as of April 27, 2020. |
(3) | Mr. Zimbler, though Emerging Growth Advisors, Inc., is the holder of 8,000,000 shares of Series D preferred stock, with voting rights of 72.5 shares of common stock per one share of Series D Preferred Stock. |
(4) | Carlos Defex and Veronica Defex are the beneficial owners and control persons for Solid Bridge Investments, Inc. are the holder of 2,000,000 shares of Series D preferred stock, with voting rights of 72.5 shares of common stock per one share of Series D Preferred Stock. |
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Other than described below or the transactions described under the heading “Executive Compensation” (or with respect to which such information is omitted in accordance with SEC regulations), there have not been, and there is not currently proposed, any transaction or series of similar transactions to which we were or will be a participant in which the amount involved exceeded or will exceed the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years, and in which any director, executive officer, holder of 5% or more of any class of our capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest.
We entered into three convertible note agreements dated November 1, 2013, totaling $45,000. These notes matured on November 30, 2015 and bear interest at 12% per annum. Principal and accrued interest is convertible at $.00225 per share. The principal and accrued interest under the notes belong to the following:
Holder | Remaining Principal and Accrued Interest |
Realty Capital Management (Julius Csurgo) | $16,607 |
Helena Growth Capital Ltd. (John Figliolini) | $2,751 |
Torey Jean Gault | $2,338 |
Karrah, Inc. has paid certain of our expenses. The sole owner of Karrah, Inc. is the wife of Kashif Khan, our officer and director. Karrah advanced $442,497 and $0 during the years ended July 31, 2017 and 2016. As of the July 31, 2017 and 2016, there were $691,202 and $133,554 due, respectively.
On March 28, 2016, we signed a letter of intent with Karrah. Pursuant to the letter of intent, the parties set forth their understandings in contemplation of an acquisition of all of the issued and outstanding shares of stock in Karrah, resulting in a parent subsidiary relationship.
On October 26, 2016, we learned that it was not possible to obtain an audit of Karrah that we were required to file with the SEC in connection with the acquisition as a result of the nature of the company’s jewelry inventory. Because we were unable to obtain an audit of Karrah, on October 28, 2016, we have restructured the entire transaction by entering into a Termination and Restructure Agreement. First, we and Karrah have mutually agreed to cancel the Agreement to acquire the issue and outstanding shares of stock in Karrah. Second, we agreed to purchase from Karrah its customer list in exchange for a revised promissory note (the “New Note”). The New Note will be in favor of Karrah valued at $1,500,000 with interest at 6% per annum and will not be secured by the assets of Karrah. The customer list has been invaluable in establishing our current colored diamond inventory. Third, we have acquired some of the inventory from Karrah, and the value of the New Note reflects that consideration as well.
On August 10, 2015, we entered into a Diamond Purchase Agreement (the “Agreement”) with Kashif Khan (“Khan”). Pursuant to the Agreement, we acquired from Khan colored diamonds with a wholesale value of $40,000,000 (the “Assets”). We did not assume any of Khan’s liabilities in the transaction. Pursuant to the Agreement, we acquired from Khan the Assets for three demand secured convertible promissory notes (the “Notes”) in the aggregate principal amount of $40,000,000.
On July 15, 2016, Khan demanded payment on the Notes. We have not raised $5 million in debt or equity financing and no portion of the Notes have been converted. As such, on July 25, 2016, we elected to return the Assets to Khan in lieu of payment.
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This Offering Circular does not purport to restate all of the relevant provisions of the documents referred to or pertinent to the matters discussed herein, all of which must be read for a complete description of the terms relating to an investment in us. Such documents are available for inspection during regular business hours at our office by appointment, and upon written request, copies of documents not annexed to this Offering Circular will be provided to prospective investors. Each prospective investor is invited to ask questions of, and receive answers from, our representatives. Each prospective investor is invited to obtain such information concerning us and this offering, to the extent we possess the same or can acquire it without unreasonable effort or expense, as such prospective investor deems necessary to verify the accuracy of the information referred to into their Offering Circular. Arrangements to ask such questions or obtain such information should be made by contacting James Zimbler - CEO at our executive offices. The telephone number is 631-676-7230. We reserve the right, however, in our sole discretion, to condition access to information that management deems proprietary in nature, on the execution by each prospective investor of appropriate confidentiality agreements prior to having access to such information.
The offering of the common stock is made solely by this Offering Circular and the exhibits hereto. The prospective investors have a right to inquire about and request and receive any additional information they may deem appropriate or necessary to further evaluate this offering and to make an investment decision. Our representatives may prepare written responses to such inquiries or requests if the information requested is available. The use of any documents other than those prepared and expressly authorized by us in connection with this offering is not permitted, and should not be relied upon by any prospective investor.
ONLY INFORMATION OR REPRESENTATIONS CONTAINED HEREIN MAY BE RELIED UPON AS HAVING BEEN AUTHORIZED BY US. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS OFFERING CIRCULAR IN CONNECTION WITH THE OFFER BEING MADE HEREBY, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY US. INVESTORS ARE CAUTIONED NOT TO RELY UPON ANY INFORMATION NOT EXPRESSLY SET FORTH IN THIS OFFERING CIRCULAR. THE INFORMATION PRESENTED IS AS OF THE DATE ON THE COVER HEREOF UNLESS ANOTHER DATE IS SPECIFIED, AND NEITHER THE DELIVERY OF THIS OFFERING CIRCULAR NOR ANY SALE HEREUNDER SHALL CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION PRESENTED SUBSEQUENT TO SUCH DATES(S).
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FINANCIAL STATEMENTS AND EXHIBITS
CANNAGISTICS INC.
INDEX TO AUDITED FINANCIAL STATEMENTS
Page | ||
Report of Independent Registered Public Accounting Firm | F-1 | |
Balance Sheets | F-2 | |
Statement of Operations | F-3 | |
Statement of Changes in Stockholders’ Deficit | F-4 | |
Statement of Cash Flows | F-5 | |
Notes to Financial Statements | F-6 |
37 |
BMKR, LLP Certified Public Accountants
1200 Veterans Memorial Highway, Suite 350, Hauppage, New York 11788 |
T 631 293-5000 F 631 234-4272 www.bmkr.com |
Thomas G. Kober, CPA | Charles W. Blanchfield, CPA (Retired) |
Alfred M. Rizzo, CPA | Bruce A. Meyer, CPA (Retired) |
Joseph Mortimer, CPA |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FIRM
To the Board of Directors and
Stockholders of Cannagistics, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Cannagistic, Inc. and Subsidiaries (the Company) as of July 31, 2019 and 2018, and the related statements of income, comprehensive income, stockholders' equity, and cash flows for each of the years in the two- year period ended July 31, 2019, and the related notes ( collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of July 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the two- year period ended July 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Substantial Doubt About the Company's Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the financial statements, the Company incurred a net loss of $3,675,857 during the year ended July 31, 2019, and, as of that date, had a working capital deficiency of $3,310,840 and net deficit of $3,100,729. The Company needs additional financing to maintain its operations and any future financing is not assured. As a result, has stated that substantial doubt exists about the Company's ability to continue as a going concern. Management's evaluation of the events and conditions and management's plans regarding those matters are described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to the going concern.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
BMKR, LLP
We have served as the Company’s auditor since 2017
Hauppauge, NY 11788
January 15, 2020
Member American Institute of Certified Public Accounts
Member Public Company Accounting Oversight Board
F-1 |
CANNAGISTICS, Inc., also known as PRECIOUS INVESTMENTS INC.,
GLOBAL3PL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AUDITED)
See accompanying notes to the consolidated financial statements
F-2 |
CANNAGISTICS, Inc., also known as PRECIOUS INVESTMENTS INC.,
GLOBAL3PL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AUDITED)
July 31, 2019 | July 31, 2018 | ||||||
Revenues | $ | 2,329,899 | $ | 2,220,755 | |||
Cost of revenue | 2,150,398 | 2,040,280 | |||||
Gross profit | 179,501 | 180,475 | |||||
Operating expenses | |||||||
General and administrative expenses | 285,185 | 255,187 | |||||
Bad debt | 1,055,783 | — | |||||
Wages and benefits | 493,045 | 196,776 | |||||
Rent | 37,699 | 18,426 | |||||
Consulting | 77,920 | 26,535 | |||||
Professional fees | 344,267 | 369,551 | |||||
Total operating expenses | 2,293,899 | 866,475 | |||||
Loss from operations | (2,114,398 | ) | (686,000) | ||||
Other income (expense) | |||||||
Interest Income | 88,471 | 45,893 | |||||
Interest expense | (253,206 | ) | (74,667) | ||||
Gain on sale of assets | — | 4,588 | |||||
Loss on conversion of debt | (1,289,724 | ) | (862,499) | ||||
Loss on conversion of stock | (99,000 | ) | — | ||||
Loss on issuance of stock | (8,000 | ) | (238,816) | ||||
Total other expense | (1,561,459 | ) | (1,125,501) | ||||
Net loss | (3,675,857 | ) | (1,811,501) | ||||
Net loss Attributable to Company | 3,675,857 | 1,811,501 | |||||
Net loss per common share: basic and diluted | $ | (0.14 | ) | $ | (0.13) | ||
Basic and diluted weighted average common shares outstanding | 26,008,484 | 14,355,645 |
See accompanying notes to the consolidated financial statements
F-3 |
CANNAGISTICS, Inc., also known as PRECIOUS INVESTMENTS INC.,
GLOBAL3PL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(AUDITED)
Common Stock | Preferred Stock C | Preferred Stock D | |||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Additional Paid-in Capital | Treasury Stock | Noncontrolling Interest | Accumulated Deficit | Total Stockholders' Deficit | |||||||||||||||||||||||||||||||||
Balance, July 31, 2017 | 12,565,645 | $ | 12,566 | — | $ | — | — | $ | — | $ | 78,391,183 | $ | (45,000 | ) | $ | (20,932 | ) | $ | (79,507,419 | ) | $ | (1,169,602) | |||||||||||||||||||||
Acquisition adjustment to equity | (78,316,705 | ) | 20,932 | 79,507,419 | 1,211,646 | ||||||||||||||||||||||||||||||||||||||
Stock issued to settle convertible debt | 1,540,000 | 1,540 | 946,340 | 947,880 | |||||||||||||||||||||||||||||||||||||||
Shares issued for cash | 250,000 | 250 | 1,000,000 | 1,000 | 249,750 | 251,000 | |||||||||||||||||||||||||||||||||||||
Merger adjustments | (89 | ) | (329,918 | ) | (330,007) | ||||||||||||||||||||||||||||||||||||||
Foreign Currency Adjustment | 27,725 | 27,725 | |||||||||||||||||||||||||||||||||||||||||
Net loss | (1,811,501 | ) | (1,811,501) | ||||||||||||||||||||||||||||||||||||||||
Balance, July 31, 2018 | 14,355,645 | $ | 14,267 | 1,000,000 | $ | 1,000 | — | $ | — | $ | 1,270,568 | $ | (45,000 | ) | $ | — | $ | (2,113,694 | ) | $ | (872,859) | ||||||||||||||||||||||
Stock issued to convert preferred to common stock | 72,500,000 | 72,500 | (1,000,000 | ) | (1,000 | ) | 27,500 | 99,000 | |||||||||||||||||||||||||||||||||||
Stock issued to settle convertible debt | 6,261,778 | 6,262 | 25,898 | 32,160 | |||||||||||||||||||||||||||||||||||||||
Shares issued for cash | 8,000,000 | 8,000 | 8,000 | ||||||||||||||||||||||||||||||||||||||||
Conversion of debt | 1,289,724 | 1,289,724 | |||||||||||||||||||||||||||||||||||||||||
Adjustment to equity | 654 | 1 | 1 | ||||||||||||||||||||||||||||||||||||||||
Foreign Currency Adjustment | 19,102 | 19,102 | |||||||||||||||||||||||||||||||||||||||||
Net loss | (3,675,857 | ) | (3,675,857 | ||||||||||||||||||||||||||||||||||||||||
Balance, July 31, 2019 | 93,118,077 | $ | 93,029 | — | $ | — | 8,000,000 | $ | 8,000 | $ | 2,613,690 | $ | (45,000 | ) | $ | — | $ | (5,770,449 | ) | $ | (3,100,729 |
See accompanying notes to the consolidated financial statements
F-4 |
CANNAGISTICS, Inc., also known as PRECIOUS INVESTMENTS INC.,
GLOBAL3PL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AUDITED)
For The Year Ended | |||||||
July 31, 2019 | July 31, 2018 | ||||||
Cash Flows from Operating Activities | |||||||
Net loss | (3,675,857 | ) | (1,811,501) | ||||
Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||
Gain on sale of assets | — | (4,588) | |||||
Gain/(loss) on conversion of debt | 1,299,594 | 862,499 | |||||
Loss on conversion of stock | 99,000 | — | |||||
Loss on issuance of stock | 8,000 | 238,816 | |||||
Foreign currency adjustment | 19,102 | (27,725) | |||||
Depreciation expense | 8,806 | 15,802 | |||||
Bad debt | 1,055,783 | ||||||
Asset merger adjustment | — | 330,007 | |||||
Changes in assets and liabilities | |||||||
Accounts receivable | 62,780 | (537,139) | |||||
Inventory | — | 203,000 | |||||
Prepaid expense | (5,361 | ) | (11,154) | ||||
Accounts payable and accrued expenses | 63,878 | 581,671 | |||||
Net cash used in operating activities | (1,064,274 | ) | (160,312) | ||||
Cash Flows from Investing Activities | |||||||
Proceeds from sale of assets | — | 8,462 | |||||
Purchase of equipment | (17,972 | ) | (20,492) | ||||
Increase in restricted cash | (152,181 | ) | — | ||||
(Increase) decrease in security deposits | 33,077 | (36,711) | |||||
Net cash used in investing activities | (137,076 | ) | (48,741) | ||||
Cash Flows from Financing Activities | |||||||
Proceeds from the sale of common stock | — | 1,701 | |||||
Proceeds from the sale of preferred stock | — | 1,000 | |||||
Proceeds from the line of credit | — | 264,935 | |||||
Proceeds from promissory notes | 6,100 | 198,900 | |||||
Proceeds from convertible notes | 1,116,881 | 1,024,552 | |||||
Proceeds from additional paid in capital | — | 249,750 | |||||
Payments on line of credit | (6,227 | ) | — | ||||
Payments on promissory notes | (40,000 | ) | — | ||||
Payments on notes payable related party | 151,317 | (319,544) | |||||
Advances to/from related parties | (40,329 | ) | (1,209,000) | ||||
Net cash provided by (used in) financing activities | 1,187,742 | 212,294 | |||||
Net increase in cash | (13,608 | ) | 3,241 | ||||
Cash, beginning of period | 14,238 | 10,997 | |||||
Cash, end of period | 630 | 14,238 | |||||
Supplemental disclosure of cash flow information | |||||||
Cash paid for interest | 52,322 | 74,667 | |||||
Cash paid for tax | — | — | |||||
Non-cash investing and financing transactions | |||||||
Acquisition adjustment to equity | — | 1,211,646 | |||||
Shares issued to settle convertible debt | — | 947,880 |
See accompanying notes to the consolidated financial statements
F-5 |
Cannagistics, Inc., also known as Precious Investments Inc.,
GLOBASL3PL INC and Subsidiaries
Notes to Condensed Financial Statements (Audited)
July 31, 2019
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Organization and Description of Business
Cannagistics, Inc. (Formerly FIGO Ventures, Inc.) (‘The Company’) was incorporated under the laws of the State of Nevada on May 26, 2004. The Company was an Exploration Stage Company with the principle business being the acquisition and exploration of resource properties.
The Company had allowed its charter with the state of Nevada to be revoked by the Secretary of State for failure to file the required annual lists and pay the required annual fees. Its last known officers and directors reflected in the records of the Secretary of State were unresponsive or stated they were no longer involved with the Company. The purported replacement officers and directors were unresponsive.
On September 14, 2012, NPNC Management, LLC filed a petition in the Eighth Judicial District Court in Clark County, Nevada and was appointed custodian of the Company on October 15, 2012.
In order to obtain basic operating capital to pay for the reinstatement of the Company’s good standing with the Nevada Secretary of State, to bring the Company’s account current with creditors essential for the reorganization of the Company, such as the transfer agent, and for basic general corporate purposes, on October 24, 2012, the interim board authorized the sale of 55,000,000 (2,200,000 split adjusted) shares of common stock for $6,000 to NPNC Management, LLC, in a private placement transaction exempt from the Securities Act of 1933, as amended, pursuant to section 4(2) thereof and the rules and regulations promulgated there under.
On October 24, 2012, NPNC Management, LLC appointed Bryan Clark as director of the Company, to hold office until such time as the shareholders elected a board. The interim board, consisting of Mr. Clark, further acted to appoint Mr. Clark as president, treasurer, and secretary of the Company, to act on behalf of the Company, and to hold such offices until removed by any subsequent board elected by the shareholders.
On November 13, 2013, Bryan Clark tendered his resignation from all positions as an Officer and Director of the Company and the Board appointed Anna Wlodarkiewicz as a Director, President, Secretary and Treasurer of the Company.
On October 9, 2014, Ania Wlodarkiewicz tendered her resignation from all positions as an Officer and Director of the Company and the Board appointed Nataliya Hearn as a Director, President, Secretary and Treasurer of the Company.
On March 28, 2016, Nataliya Hearn resigned as the Company’s Chief Executive Officer and Director. Mr. Kashif Khan is the Company’s sole officer and director.
The Company then completed an asset purchase agreement dated August 10, 2015 where the Company acquired from Kashif Khan, its sole officer and director, colored diamonds with a wholesale value of US$4 Million, which he was in control of, in exchange for issuing three secured demand convertible promissory notes totaling US$4 Million.
On March 1, 2017, the Company then entered into a joint venture agreement with Eddeb Management (“Eddeb”). The purpose of the joint venture is to build a fund for the purpose of trading in precious gems, notably, colored diamonds.
F-6 |
Cannagistics, Inc., also known as Precious Investments Inc.,
GLOBASL3PL INC and Subsidiaries
Notes to Condensed Financial Statements (Audited)
July 31, 2019
On November 16, 2017, the Company entered into an Agreement of Merger and Plan of Reorganization (the “Merger Agreement”) with American Freight Xchange, Inc., a privately held New York corporation (“American Freight”), and Shipzooka Acquisition Corp. (“Shipzooka Sub”), a newly formed wholly-owned Nevada subsidiary of Precious Investments, Inc. In connection with the closing of this merger transaction, Shipzooka Sub merged with and into American Freight (the “Merger”) on December 5, 2017, with the filing of Articles of Merger with the Nevada Secretary of State and Certificate of Merger with the New York Division of Corporations.
The transaction resulted in the Company acquiring Subsidiary by the exchange of all of the outstanding shares of Subsidiary for 1,000,000 newly issued Series C Preferred shares of stock, $0.001 par value (the “Preferred Stock”) of Parent which have conversion and voting rights of 72.5 votes for each share, representing approximately 90.2% of the voting rights
For accounting purposes, the transaction was treated as a reverse merger since the acquired entity now forms the basis for operations and the transaction resulted in a change in control, with the acquired company electing to become the successor issuer for reporting purposes. The accompanying financial statements have been prepared to reflect the assets, liabilities and operations of American Freight Xchange, Inc. exclusive of Precious Investments, Inc since all predecessor operations were discontinued.
As part of the transaction, amounts due to former officers were forgiven, with the balances recorded as Contributed Capital. For equity purposes, accumulated deficit shown are those American Freight Xchange, Inc. Shipzooka Acquisition Corp. is a dormant corporation.
The Company is both a less-than-truckload (“LTL”) and a Third-Party Logistics (“3PL”) carrier, providing regional, inter-regional and national LTL and or 3PL services. These include arranging for ground and air expedited transportation and consumer household pickup and delivery (“P&D”), through a single integrated organization. In addition to our core LTL services, we offer a range of value-added services which cover different areas, such as, truckload brokerage, supply chain consulting and warehousing and pick and ship services.
On July 23, 2018 the Company amended the name of its subsidiary, KRG Logistics, Inc., to Global3pl, Inc. (an Ontario corporation).
On September 4, 2018 the Company incorporated Cannagistics, Inc., in the province of Ontario, Canada. This is intended to be a new line of business for the Company but is dormant at this time.
On April 17, 2019, we filed Articles of Merger with the Secretary of State of Nevada in order to effectuate a merger with our wholly owned subsidiary, Cannagistics, Inc. Shareholder approval was not required under Section 92A.180 of the Nevada Revised Statutes. As part of the merger, our board of directors authorized a change in our name to “Cannagistics, Inc.” and our Articles of Incorporation have been amended to reflect this name change.
On September 26, 2019, the Board of Directors approved the registered spinout of its Global3pl, Inc., (a New York corporation) (“Global3pl”) subsidiary. Global3pl is to be a logistics technology provider, along with the American Freight Xchange and UrtbanX Platforms that have been under development by the Company.
The Board of Directors also declared a stock dividend for all shareholders, with a record date of October 10, 2019. For every 50 shares of common stock of the Company, all shareholders of record on the record date will receive one share of common stock in Global3pl. Global3pl will also file a registration statement as part of its raise of capital to complete the development of American Freight Xchange, a North American freight broker-driven 3pl network to handle the management of long haul LTL (less than truckload), and specialty freight (white glove) services and Urbanx, a North American network of rush-messenger local trucking services for forward and reverse last mile delivery (including white glove service).
F-7 |
Cannagistics, Inc., also known as Precious Investments Inc.,
GLOBASL3PL INC and Subsidiaries
Notes to Condensed Financial Statements (Audited)
July 31, 2019
On September 18, 2019, the Company announced, with a press release, the signing of a Letter of Intent (the “LOI”) with Unified Cannabis of Calgary, Canada (“Unified”) whereby Unified will merge qualified assets into the Company in an all-stock transaction. The Company will then raise the capital necessary to effectuate the merger of the assets and acquisition targets of Unified and for the explosive organic growth strategy of Cannagistics and Unified, combined, thus creating the first CBD/Hemp/Cannabis International Vertically Optimized Company (CIVOC).
Effective October 1, 2019, the Company suspended operations of its subsidiary Global3pl, Inc., (an Ontario corporation, formerly known as KRG Logistics, Inc.), suspended future operations related to the operations in Mississauga, Ontario. It is in the process of collecting accounts receivables still due and working on a plan to pay its payables. It has entered into an agreement with 10451029 Canada Inc., d/b/a Reliable Logistics, for the assignment and of the assets of Global3pl, Inc., (an Ontario Corporation). The transaction has not yet completed.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of Cannagistics, Inc. and its wholly owned subsidiaries American Freight Xchange, Inc and Global3pl, Inc. (Ontario), formerly known as KRG Logistics, Inc. All significant inter-company transactions and balances have been eliminated.
Basis of Presentation
We have summarized our most significant accounting policies for the fiscal period ended July 31, 2019.
Accounts receivable and allowance for doubtful accounts
Accounts receivable are stated at the amount management expects to collect. The Company generally does not require collateral to support customer receivables. The Company provides an allowance for doubtful accounts based upon a review of the outstanding accounts receivable, historical collection information and existing economic conditions. As of July 31, 2019, and 2018 the allowance for doubtful accounts was $0 and $0, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Income Taxes
The Company accounts for income taxes under ASC 740 "Income Taxes," which codified SFAS 109, "Accounting for Income Taxes" and FIN 48 “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109.” Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.
F-8 |
Cannagistics, Inc., also known as Precious Investments Inc.,
GLOBASL3PL INC and Subsidiaries
Notes to Condensed Financial Statements (Audited)
July 31, 2019
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.
The Company reviews the terms of convertible loans, equity instruments and other financing arrangements to determine whether there are embedded derivative instruments, including embedded conversion options that are required to be bifurcated and accounted for separately as a derivative financial instrument. Also, in connection with the issuance of financing instruments, the Company may issue freestanding options or warrants to employees and non-employees in connection with consulting or other services. These options or warrants may, depending on their terms, be accounted for as derivative instrument liabilities, rather than as equity.
Derivative financial instruments are initially measured at their fair value. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at fair value and then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. To the extent that the initial fair values of the freestanding and/or bifurcated derivative instrument liabilities exceed the total proceeds received an immediate charge to income is recognized in order to initially record the derivative instrument liabilities at their fair value.
The discount from the face value of the convertible debt instruments resulting from allocating some or all of the proceeds to the derivative instruments, together with the stated rate of interest on the instrument, is amortized over the life of the instrument through periodic charges to income, using the effective interest method.
The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. If reclassification is required, the fair value of the derivative instrument, as of the determination date, is reclassified. Any previous charges or credits to income for changes in the fair value of the derivative instrument are not reversed. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within twelve months of the balance sheet date.
Fair value of financial instruments
The Company’s financial instruments consist of its liabilities. The carrying amount of payables and the loan payable – related party approximate fair value because of the short-term nature of these items. The promissory notes, and convertible notes payables are measured at amortized cost using the effective interest method, which approximates fair value due to the relationship between the interest rate on long-term debt and the Company’s incremental risk adjusted borrowing rate.
Inventories
The Company does not hold any inventory as assets. All inventory in operations is owned by the shipper.
Revenue Recognition
The Company recognizes revenue related to transaction from its third-party logistics sales when (i) the seller’s price is substantially fixed, (ii) shipment has occurred causing the buyer to be obligated to pay for product, (iii) the buyer has economic substance apart from the seller, and (iv) there is no significant obligation for future performance to directly bring about the resale of the product by the buyer as required by ASC 605 – Revenue Recognition. Cost of sales, rebates
In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers” (Topic 606) which establishes revenue recognition standards. ASU 2014-09 was effective for annual reporting periods beginning after December 15,2017. We adopted ASU 2014-09 effective August 1, 2018. ASU 2014-09 has not had a significant effect on the Company’s financial position and results of operations.
FASB ASC Topic 830, Foreign Currency Matters (formerly FASB Statement No. 52, Foreign Currency Translation) provides accounting guidance for transactions denominated in a foreign currency, and for operations undertaken in a foreign currency environment. To prepare consolidated financial statements, an entity translates all functional currency financial statements into a single reporting currency. The same applies if an entity uses different currencies for reporting purposes and for its functional currency. The company reports its currency in US dollars.
F-9 |
Cannagistics, Inc., also known as Precious Investments Inc.,
GLOBASL3PL INC and Subsidiaries
Notes to Condensed Financial Statements (Audited)
July 31, 2019
NOTE 3 – GOING CONCERN
Management does not expect existing cash as of July 31, 2019 to be sufficient to fund the Company’s operations for at least twelve months from the issuance date of these December 31, 2019 financial statements. These financial statements have been prepared on a going concern basis which assumes the Company will continue to realize its assets and discharge its liabilities in the normal course of business. As of December 31, 2019, the Company has incurred losses totaling $4,714,166 since inception, has not yet generated material revenue from operations, and will require additional funds to maintain its operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern within one year after the consolidated financial statements are issued. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become due. The Company intends to finance operating costs over the next twelve months through its existing financial resources and we may also raise additional capital through equity offerings, debt financings, collaborations and/or licensing arrangements. If adequate funds are not available on acceptable terms, we may be required to delay, reduce the scope of, or curtail, our operations. The accompanying consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 4 – EQUIPMENT AND IMPROVEMENTS
Equipment and improvements are summarized as follows:
July 31, 2019 | July 31, 2019 | ||||||
Furniture and fixtures | $ | 76,930 | $ | 71,513 | |||
Machinery and equipment | 205,900 | 195,813 | |||||
Transportation equipment | 11,185 | 11,293 | |||||
Building improvements | 4,413 | 4,456 | |||||
298,428 | 283,075 | ||||||
Less accumulated depreciation and amortization | 244,132 | 237,945 | |||||
$ | 54,296 | $ | 45,130 | ||||
Depreciation and amortization expense: | |||||||
8,806 | $ | 15,802 |
NOTE 5 – PROMISSORY NOTES
Some notes have matured as of July 31, 2017 and have not been paid. They are due on demand and recorded as current liabilities. Interest expense for the year ended July 31, 2019 and 2018 was $18,644 and $4,285 respectively.
F-10 |
Cannagistics, Inc., also known as Precious Investments Inc.,
GLOBASL3PL INC and Subsidiaries
Notes to Condensed Financial Statements (Audited)
July 31, 2019
NOTE 6 - CONVERTIBLE DEBT
Convertible debt as of July 31, 2019 and July 31, 2018 consisted of the following:
Description | July 31, 2019 | July 31, 2018 | |||||
Convertible note agreement dated November 1, 2013 in the amount of $30,000 payable and due on demand bearing interest at 12% per annum. Principal and accrued interest is convertible at $.002250 per share. | $ | 11,0411 | $ | 0 | |||
Convertible note agreement dated February 20, 2018 in the amount of $1,034,000 payable and due on demand bearing interest at 10% per annum. Principal and accrued interest is convertible at $.028712 per share. | $ | 1,034,0000 | $ | 1,034,000 | |||
Convertible note agreement dated March 13, 2019 in the amount of $800,000 payable and due on March 20, 2020 bearing interest at 24% per annum. | $ | 800,0000 | $ | 0 | |||
C Convertible note agreement dated June 28, 2019 in the amount of $300,000 payable and due on June 28, 2020 bearing interest at 20% per annum. | $ | 300,0000 | $ | 0 | |||
Convertible notes, net of discount | $ | 2,145,041 | $ | 1,034,000 |
The Company recognized $0 of debt discount accretion expense on the above notes. Interest expense related to these notes for the year ended July 31, 2019 and 2018 was $163,668 and $19,547, respectively.
NOTE 7 - LINE OF CREDIT
The Company has a line of credit with a maximum borrowing limit of $400,000, bearing an interest rate of prime plus 3.25% per annum and secured by a General Security Agreement. As of July 31, 2019, and July 31, 2018, $258,708 and $264,935 were drawn on the line of credit, respectively. Interest expense for the years ended July 31, 2019 and 2018 were $18,567 and $12,058 respectively. Beginning February 1, 2019, the Company is required to maintain a cash collateral account in the amount of $200,000 in Canadian dollars. The Company has invested in a Guaranteed Investment Certificate for a one-year term at an interest rate of .25%.
NOTE 8 – RELATED PARTY TRANSACTIONS
A shareholder of the Company has paid certain expenses of the Company. These amounts are reflected as a loan payable to related party. The shareholder advanced 35,777.24 and $16,978 during the year ended July 31, 2019 and 2018. As of the July 31, 2019 and July 31, 2018, there were $365,945 and $406,274 due to related parties, a shareholder, respectively.
The Company has consulting agreements with two of its shareholders to provide management and financial services that commenced on December 1, 2017. For the year ended July 31, 2019 and 2018 consulting fees paid were $169,719 and $178,860 respectively. The consulting fees are included as part of professional fees on the Company’s consolidated statements of operations.
The Company on February 20, 2018 entered into a related party (that being Recommerce Group, Inc. and our President is a principal in Recommerce Group, Inc.) note receivable in the amount of $1,034,000. The Company made an additional advance in the amount of $175,000 that is non-interest bearing. The note is payable and due on demand and bears interest at the rate of 10%. A total of $153,217 has been applied as payments against this Note. Interest income in the amount of $64,695 for the year ended July 31, 2019 has been recorded in the financial statements. An allowance for Bad Debt, related to the Related Party Note with Recommerce Group, Inc. has been added to the Balance Sheet.
F-11 |
Cannagistics, Inc., also known as Precious Investments Inc.,
GLOBASL3PL INC and Subsidiaries
Notes to Condensed Financial Statements (Audited)
July 31, 2019
NOTE 9 – TRANSFER AND ASSIGNMENT OF ASSETS
On November 16, 2017, the Company entered into an agreement of conveyance, transfer and assignment of assets (the “Agreement”) with its former officer Kashif Khan and the non-controlling owners of the Company subsidiary Flawless Funds GP (assignees), in which the Company was returned 16,000,000 shares of its common stock in consideration of all assets related to its previous colored diamond business which had a book value related to accounts receivable of $20,000. Additionally, the assignees agreed to pay up to $100,000 in liabilities on the behalf of the Company. As of July 31, 2018, the 16,000,000 shares have been returned and the Company has recorded the net consideration received of $80,000 as an increase to additional paid in capital.
NOTE 10 – STOCKHOLDERS’ EQUITY
The Company is authorized to issue 250,000,000 shares of its $0.001 par value common stock and 10,000,000 shares of Preferred stock. As of July 31, 2019, and 2018 there were 93,118,077 and 14,355,645 shares, respectively, of common stock outstanding. There were, also, 8,000,000 shares of Series D Preferred stock outstanding as of July 31, 2019 and 1,000,000 shares of Series C Preferred stock outstanding as of July 31, 2018.
On November 1, 2017, we effected a one-for-four reverse stock split. All share and per share information has been retroactively adjusted to reflect the stock split.
On November 7, 2017, the Company designated 1,000,000 shares of Preferred Stock as Series C Preferred stock, par value $0.001 per share (the “Series C Preferred Stock”). Each share of Series C Preferred Stock is convertible into 72.5 common shares and has voting rights based on this ratio. As of July 31, 2018, there were 1,000,000 shares of Preferred C shares issued and outstanding. On May 15, 2019, the 1,000,000 shares were converted to 72,500,000 shares of common stock.
On April 29, 2019, the Company designated 10,000,000 shares of Preferred Stock as Series D Preferred stock, par value $0.001 per share (the “Series C Preferred Stock”). Each share of Series D Preferred Stock is convertible into 72.5 common shares and has voting rights based on this ratio. As of July 31, 2019, there were 8,000,000 shares of Preferred D shares issued and outstanding.
NOTE 11 – INCOME TAXES
The Company is subject to United States federal and state income taxes at an approximate rate of 20%. The reconciliation of the provision for income taxes at the United States federal statutory rate compared to the Company’s income tax expense as reported is as follows:
July 31, 2019 |
July 31, 2018 |
||||||
Expected income tax at statutory rate | $ | (735,171 | ) | $ | (362,300) | ||
Permanent differences | — | — | |||||
Change in valuation allowance | 735,171 | 362,300 | |||||
Provision for income taxes | $ | — | $ | — |
The significant components of deferred income tax assets and liabilities at July 31, 2019 and 2018 are as follows:
July 31, 2019 |
July 31, 2018 |
||||||
Net operating loss carry-forward | $ | 2,443,167 | $ | 1,707,996 | |||
Valuation allowance | (735,171 | ) | (341,599) | ||||
Net deferred income tax asset | $ | $ | — |
F-12 |
Cannagistics, Inc., also known as Precious Investments Inc.,
GLOBASL3PL INC and Subsidiaries
Notes to Condensed Financial Statements (Audited)
July 31, 2019
The Company has net operating losses carried forward of approximately $4 million and $2 million as of July 31, 2019 and 2018, respectively, available to offset taxable income in future years which expire beginning in fiscal 2039.
As of and for the years ended July 31, 2019 and 2018, management does not believe the Company has any uncertain tax positions. Accordingly, there are no recognized tax benefits at July 31, 2019 and 2018.
NOTE 12 – COMMITMENTS AND CONTINGENCIES
Litigations, Claims and Assessments
The Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise that may harm its business. The Company is currently not aware of any such legal proceedings or claims that they believe will have, individually or in the aggregate, a material adverse effect on its business, financial condition or operating results.
Operating Leases
The Company in February 2019 assumed a lease agreement for a facility site and entered into a lease agreement for office space. The facility site lease has a term of twenty-three months expiring on December 31, 2020 and the office space lease has a five-year term and begins April 1, 2019 and ends March 31, 2024.
Effective October 1, 2019, the Company suspended operations of its subsidiary Global3pl, Inc., (an Ontario corporation, formerly known as KRG Logistics, Inc.), suspended future operations related to the operations in Mississauga, Ontario. It is in the process of collecting accounts receivables still due and working on a plan to pay its payables. It has entered into an agreement with 10451029 Canada Inc., d/b/a Reliable Logistics, for the assignment and of the assets of Global3pl, Inc., (an Ontario Corporation). The transaction has not yet been completed.
The Company on July 31, 2019 entered into a lease agreement for additional office space. The lease has a commencement date of June 1, 2019 and has a lease term of five years expiring on May 31, 2024.
Future minimum lease payments, as set forth in the lease, are below:
Year | Amount | |||||
2019-2020 | $ | 21,912 | ||||
2020-2021 | $ | 22,569 | ||||
2021-2022 | $ | 23,246 | ||||
2022-2023 | $ | 23,943 | ||||
2023-2024 | $ | 20,449 |
NOTE 13 - SUBSEQUENT EVENTS
Sanguine Group, LLC, has loaned the Company additional funds not already included in the established promissory note. These funds are not yet reduced to a written agreement.
Garden State Holdings loaned the Company $55,000 on December 4, 2019. There is no written note at this time, but Garden State Holdings has committed to loan the Company up to $175,000.
Sanguine Group, LLC and Garden State Holdings are entities controlled by the same person, who is an investor in the Company.
Emerging Growth Advisors, Inc., controlled by James W. Zimbler, our President/Director has loaned the company a total of $35,777.24. There is no terms or written note.
F-13 |
CANNAGISTICS INC.
INDEX TO UNAUDITED FINANCIAL STATEMENTS
Page | ||
Balance Sheets | F-15 | |
Statement of Operations | F-16 | |
Statement of Changes in Stockholders’ Deficit | F-17 | |
Statement of Cash Flows | F-18 | |
Notes to Financial Statements | F-19 |
F-14 |
CANNAGISTICS INC., also known as PRECIOUS INVESTMENTS INC.,
GLOBAL3PL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
See accompanying notes to the consolidated financial statements
F-15 |
CANNAGISTICS INC., also known as PRECIOUS INVESTMENTS, INC.,
GLOBAL3PL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
April 30, 2020 | April 30, 2019 | April 30, 2020 | April 30, 2019 | |||||||||||||
Revenues | $ | — | $ | — | $ | — | $ | — | ||||||||
Cost of revenue | — | 11,200 | — | 11,200 | ||||||||||||
Gross profit | — | (11,200 | ) | — | (11,200 | ) | ||||||||||
Operating expenses | ||||||||||||||||
General and administrative expenses | (5,302 | ) | 74,833 | (25,741 | ) | 55,509 | ||||||||||
Wages and benefits | — | — | — | — | ||||||||||||
Rent | 7,268 | 8,006 | 23,394 | 8,006 | ||||||||||||
Consulting | 59,675 | — | 107,947 | — | ||||||||||||
Professional fees | 125,032 | — | 271,483 | 233,728 | ||||||||||||
Total operating expenses | 186,673 | 82,839 | 377,083 | 297,243 | ||||||||||||
Loss from operations | (186,673 | ) | (94,039 | ) | (377,083 | ) | (308,443 | ) | ||||||||
Other income (expense) | ||||||||||||||||
Rental Income | — | 10,331 | — | 10,331 | ||||||||||||
Interest Income | 21,759 | 22,020 | 65,277 | 65,240 | ||||||||||||
Interest expense | (105,402 | ) | (83,466 | ) | (305,249 | ) | (144,567 | ) | ||||||||
Settlement expense | — | (10,000 | ) | — | (30,000 | ) | ||||||||||
Total other expense | (83,643 | ) | (61,115 | ) | (239,972 | ) | (98,996 | ) | ||||||||
Loss from continuing operations | (270,316 | ) | (155,154 | ) | (617,055 | ) | (407,439 | ) | ||||||||
Discontinued operations, including loss on disposal |
— | (110,175 | ) | (173,377 | ) | (362,922 | ) | |||||||||
Net loss | (270,316 | ) | (265,329 | ) | (790,432 | ) | (770,361 | ) | ||||||||
Net loss per common share: basic and diluted | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.02 | ) | ||||
Basic and diluted weighted average common shares outstanding | 97,617,423 | 25,086,788 | 96,590,051 | 25,086,788 |
See accompanying notes to the consolidated financial statements
F-16 |
CANNAGISTICS INC., also known as PRECIOUS INVESTMENTS INC.,
GLOBAL3PL, INC. AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS’ DEFICIT
(UNAUDITED)
Common Stock | Preferred Stock C | Preferred Stock D | ||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Additional Paid-in Capital | Treasury Stock | Noncontrolling Interest | Accumulated Deficit | Total Stockholders' Deficit | ||||||||||||||||||||||||||||||||||
Balance, July 31, 2018 | 14,355,645 | $ | 14,267 | 1,000,000 | $ | 1,000 | — | $ | — | $ | 1,270,568 | $ | (45,000 | ) | $ | — | $ | (2,113,694 | ) | $ | (872,859 | ) | ||||||||||||||||||||||
Stock issued to convert preferred to common stock | 72,500,000 | 72,500 | (1,000,000 | ) | (1,000 | ) | 27,500 | 99,000 | ||||||||||||||||||||||||||||||||||||
Stock issued to settle convertible debt | 6,261,778 | 6,262 | 25,898 | 32,160 | ||||||||||||||||||||||||||||||||||||||||
Shares issued for cash | 8,000,000 | 8,000 | 8,000 | |||||||||||||||||||||||||||||||||||||||||
Conversion of debt | 1,289,724 | 1,289,724 | ||||||||||||||||||||||||||||||||||||||||||
Adjustment to equity | 654 | 1 | 1 | |||||||||||||||||||||||||||||||||||||||||
Foreign Currency Adjustment | 19,102 | 19,102 | ||||||||||||||||||||||||||||||||||||||||||
Net loss | (3,675,857 | ) | (3,675,857 | ) | ||||||||||||||||||||||||||||||||||||||||
Balance, July 31, 2019 | 93,118,077 | $ | 93,030 | — | $ | — | 8,000,000 | $ | 8,000 | $ | 2,613,690 | $ | (45,000 | ) | $ | — | $ | (5,770,449 | ) | $ | (3,100,729 | ) | ||||||||||||||||||||||
Shares issued to settle convertible debt | 4,500,000 | 4,500 | 40,500 | 45,000 | ||||||||||||||||||||||||||||||||||||||||
Shares issued for cash | 3,000,000 | 3,000 | 72,000 | — | 75,000 | |||||||||||||||||||||||||||||||||||||||
Shares issued for services | 2,000,000 | 2,000 | 2,000 | |||||||||||||||||||||||||||||||||||||||||
Adjustment to equity | (18,800 | ) | 70 | (70 | ) | — | ||||||||||||||||||||||||||||||||||||||
Net loss | (790,432 | ) | (790,432 | ) | ||||||||||||||||||||||||||||||||||||||||
Balance, April 30, 2020 | 100,599,277 | $ | 100,600 | — | $ | — | 10,000,000 | $ | 10,000 | $ | 2,726,120 | $ | (45,000 | ) | $ | — | $ | (6,560,881 | ) | $ | (3,769,161 | ) |
See accompanying notes to the consolidated financial statements
F-17 |
CANNAGISTICS INC., also known as PRECIOUS INVESTMENTS INC.,
GLOBAL3PL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For The Nine Months Ended | ||||||||
April 30, 2020 | April 30, 2019 | |||||||
Cash Flows from Operating Activities | ||||||||
Net loss | (790,432 | ) | (770,361 | ) | ||||
Loss from discontinued operations | 173,377 | 362,922 | ||||||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
Foreign currency adjustment | 1,351 | 51,920 | ||||||
Depreciation expense | — | 12,094 | ||||||
Accrued interest receivable | (65,278 | ) | — | |||||
Accrued interest | 305,249 | |||||||
Bad debt | (62,308 | ) | — | |||||
Stock based compensation | 2,000 | |||||||
Changes in assets and liabilities | ||||||||
Accounts receivable | (20,383 | ) | (11,819 | ) | ||||
Prepaid expense | (5,268 | ) | (31,519 | ) | ||||
Accounts payable and accrued expenses | 147,514 | 11,562 | ||||||
Net cash used in operating activities of continuing operations | (173,377 | ) | (375,201 | ) | ||||
Net cash used in operating activities discontinued operations | (173,377 | ) | (362,922 | ) | ||||
Net cash used in operating activities | (487,555 | ) | (738,123 | ) | ||||
Cash Flows from Investing Activities | ||||||||
Purchase of equipment | — | (24,831 | ) | |||||
Sale of equipment | (10 | ) | — | |||||
(Increase) decrease in restricted cash | 152,181 | (149,486 | ) | |||||
(Increase) decrease in security deposits | — | 36,711 | ||||||
Net cash used in financing activities | 152,171 | (137,606 | ) | |||||
Cash Flows from Financing Activities | ||||||||
Proceeds from promissory notes | 165,000 | 700,000 | ||||||
Proceeds from convertible notes, net of amortization of $3,500 | 99,000 | — | ||||||
Proceeds from line of credit | 276,321 | — | ||||||
Proceeds from loans | 71,800 | — | ||||||
Proceeds from stock purchase | 75,000 | — | ||||||
Payments on loans | (12,176 | ) | — | |||||
Payments on promissory notes | (2,500 | ) | — | |||||
Payments on line of credit | (245,787 | ) | (10,808 | ) | ||||
Payments on convertible debt | (45,000 | ) | — | |||||
Advances to/from related parties | 19,142 | 172,418 | ||||||
Net cash provided by financing activities | 400,800 | 861,610 | ||||||
Net increase in cash | 65,416 | (14,119 | ) | |||||
Cash, beginning of period | 630 | 14,238 | ||||||
Cash, end of period | 66,046 | 119 | ||||||
Supplemental disclosure of cash flow information | ||||||||
Cash paid for interest | — | 13,544 | ||||||
Cash paid for tax | — | — | ||||||
Non-cash investing and financing transactions | ||||||||
Acquisition adjustment to equity | — | — | ||||||
Shares issued to settle convertible debt | — | — |
See accompanying notes to the consolidated financial statements
F-18 |
Cannagistics, Inc., also known as Precious Investments Inc.
GLOBAL3PL INC and Subsidiaries
Notes to Financial Statements
April 30, 2020
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Organization and Description of Business
Cannagistics, Inc. (Formerly FIGO Ventures, Inc., formerly Precious Investments, Inc.) (‘The Company’) was incorporated under the laws of the State of Nevada on May 26, 2004. The Company was an Exploration Stage Company with the principle business being the acquisition and exploration of resource properties.
The Company had allowed its charter with the state of Nevada to be revoked by the Secretary of State for failure to file the required annual lists and pay the required annual fees. Its last known officers and directors reflected in the records of the Secretary of State were unresponsive or stated they were no longer involved with the Company. The purported replacement officers and directors were unresponsive.
On September 14, 2012, NPNC Management, LLC filed a petition in the Eighth Judicial District Court in Clark County, Nevada and was appointed custodian of the Company on January 15, 2012.
On October 24, 2012, the interim board authorized the sale of 55,000,000 (2,200,000 split adjusted) shares of common stock for $6,000 to NPNC Management, LLC, in a private placement transaction exempt from the Securities Act of 1933, as amended, pursuant to section 4(2) thereof and the rules and regulations promulgated there under.
On March 1, 2017, the Company then entered into a joint venture agreement with Eddeb Management (“Eddeb”). The purpose of the joint venture is to build a fund for the purpose of trading in precious gems, notably, colored diamonds.
On November 16, 2017, the Company entered into an Agreement of Merger and Plan of Reorganization (the “Merger Agreement”) with American Freight Xchange, Inc., a privately held New York corporation (“American Freight”), and Shipzooka Acquisition Corp. (“Shipzooka Sub”), a newly formed wholly-owned Nevada subsidiary of Precious Investments, Inc. In connection with the closing of this merger transaction, Shipzooka Sub merged with and into American Freight (the “Merger”) on December 5, 2017, with the filing of Articles of Merger with the Nevada Secretary of State and Certificate of Merger with the New York Division of Corporations.
The transaction resulted in the Company acquiring Subsidiary by the exchange of all of the outstanding shares of Subsidiary for 1,000,000 newly issued Series C Preferred shares of stock, $0.001 par value (the “Preferred Stock”) of Parent which have conversion and voting rights of 72.5 votes for each share, representing approximately 90.2% of the voting rights
For accounting purposes, the transaction was treated as a reverse merger since the acquired entity now forms the basis for operations and the transaction resulted in a change in control, with the acquired company electing to become the successor issuer for reporting purposes. The accompanying financial statements have been prepared to reflect the assets, liabilities and operations of American Freight Xchange, Inc. exclusive of Precious Investments, Inc since all predecessor operations were discontinued.
As part of the transaction, amounts due to former officers were forgiven, with the balances recorded as Contributed Capital. For equity purposes, accumulated deficit shown are those American Freight Xchange, Inc. Shipzooka Acquisition Corp. is a dormant corporation.
F-19 |
Cannagistics, Inc., also known as Precious Investments Inc.
GLOBAL3PL INC and Subsidiaries
Notes to Financial Statements
April 30, 2020
On July 23, 2018 the Company amended the name of its subsidiary, KRG Logistics, Inc., to Global3pl, Inc. (an Ontario corporation).
On September 4, 2018 the Company incorporated Cannagistics, Inc., in the province of Ontario, Canada. This is intended to be a possible new line of business for the Company but is dormant at this time.
On April 17, 2019, we filed Articles of Merger with the Secretary of State of Nevada in order to effectuate a merger with our wholly owned subsidiary, Cannagistics, Inc. Shareholder approval was not required under Section 92A.180 of the Nevada Revised Statutes. As part of the merger, our board of directors authorized a change in our name to “Cannagistics, Inc.” and our Articles of Incorporation have been amended to reflect this name change.
On September 26, 2019, the Board of Directors approved the registered spinout of its Global3pl, Inc., (a New York corporation) (“Global3pl”) subsidiary. Global3pl is to be a logistics technology provider, along with the American Freight Xchange and UrbanX Platforms that have been under development by the Company.
The Board of Directors also declared a stock dividend for all shareholders, with a record date of October 10, 2019. For every 50 shares of common stock of the Company, all shareholders of record on the record date will receive one share of common stock in Global3pl. Global3pl will also file a registration statement as part of its raise of capital to complete the development of American Freight Xchange, a North American freight broker-driven 3pl network to handle the management of long haul LTL (less than truckload), and specialty freight (white glove) services and Urbanx, a North American network of rush-messenger local trucking services for forward and reverse last mile delivery (including white glove service).
Effective October 1, 2019, the Company suspended operations of its subsidiary Global3pl, Inc., formerly known as KRG Logistics, Inc., (an Ontario corporation), suspended future operations related to the operations in Mississauga, Ontario. It is in the process of collecting accounts receivables still due and working on a plan to pay its payables. It has entered into an agreement with 10451029 Canada Inc., d/b/a Reliable Logistics, for the assignment and of the assets of Global3pl, Inc., (an Ontario Corporation). The transaction was completed on November 6, 2019. The Company anticipates formally liquidating and dissolving the subsidiary in the next fiscal Quarter. This is a separate corporation from Global3pl, Inc. (A New York corporation).
Current Projects in Development
Malta Project
Cannagistics Lab Malta, is an emerging biotech lab with an intrinsic knowledge in the medicinal cannabis industry. With a solid team of a multidisciplinary professionals in the pharmaceutical industry, complex supply chain and logistics management, unique technology and intellectual property, Cannagistics Lab purpose is to add value and offer a progress proposal to Malta medicinal cannabis industry, based on its interest to support, educate, take advantage of and focus on the development of breakthrough medicinal cannabis products with different therapeutic uses in patients around the world to whom science and traditional medicine simply could not reach; our vision and knowledge allows us to focus on GMP biopharmaceutical cannabis based medicines, -with the highest standards starting from the raw material- for multiple applications in patients, using latest technology, ancestral knowledge, scientific studies, with an exceptional team of research and development following the strictest standards and good distribution practices for export and national use.
F-20 |
Cannagistics, Inc., also known as Precious Investments Inc.
GLOBAL3PL INC and Subsidiaries
Notes to Financial Statements
April 30, 2020
Manufacturing areas description:
The factory will have the following areas for the production process, which will implement the safety protocols and the project will be developed.
Area of receipt: Area of the property that has been destined for the receipt of the raw material and supplies that arrives for the manufacturing process.
Raw material area: Warehouse equipped with the security measures required for the storage of the raw material.
Production and manufacturing area: Sector where the manufacturing process will be carried out in which the transforming plant will be in order to obtain the final product.
Reagents and supplies area: Warehouse equipped with the security measures required for the storage of reagents and supplies.
Solid waste area: Sector destined for the storage of solid waste produced during the manufacturing process.
Finished product area: Warehouse equipped with the security measures required for the storage of the finished product.
Dispatch area: Sector from where the process of dispatch and delivery of the finished product to its final recipient will take place
Administrative area: Sector of the factory where administrative, accounting and security activities will be developed.
Global3pl, Inc (New York Corporation)
Global 3PL, Inc. (NY) is a logistics subsidiary with a seasoned industry team focused on the development of a SaaS platform serving the just-in-time warehouse inventory & distribution industry, as well as general and special commodities segment of the North American freight industry. It intends to operate three integrated brands: AFX, G3PL, and Urban X
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of Cannagistics, Inc. and its wholly owned subsidiaries American Freight Xchange, Inc and Global3pl, Inc. (Ontario), formerly known as KRG Logistics, Inc. All significant inter-company transactions and balances have been eliminated.
Basis of Presentation
We have summarized our most significant accounting policies for the fiscal period ended July 31, 2019.
Unaudited Consolidated Interim Financial Statements
These unaudited condensed consolidated interim financial statements have been prepared on the same basis as the annual financial statement and should be read in conjunction with those annual financial statements filed on Form 10-K for the year ended July 31, 2019. In the opinion of management, these unaudited condensed consolidated interim
F-21 |
Cannagistics, Inc., also known as Precious Investments Inc.
GLOBAL3PL INC and Subsidiaries
Notes to Financial Statements
April 30, 2020
financial statements reflect adjustments, necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative of the results for a full year or for any future period.
Unaudited Consolidated Interim Financial Statements
These unaudited condensed consolidated interim financial statements have been prepared on the same basis as the annual financial statement and should be read in conjunction with those annual financial statements filed on Form 10-K for the year ended July 31, 2019. In the opinion of management, these unaudited condensed consolidated interim financial statements reflect adjustments, necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative of the results for a full year or for any future period.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Income Taxes
The Company accounts for income taxes under ASC 740 "Income Taxes," which codified SFAS 109, "Accounting for Income Taxes" and FIN 48 “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109.” Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.
The Company reviews the terms of convertible loans, equity instruments and other financing arrangements to determine whether there are embedded derivative instruments, including embedded conversion options that are required to be bifurcated and accounted for separately as a derivative financial instrument. Also, in connection with the issuance of financing instruments, the Company may issue freestanding options or warrants to employees and non-employees in connection with consulting or other services. These options or warrants may, depending on their terms, be accounted for as derivative instrument liabilities, rather than as equity.
Derivative financial instruments are initially measured at their fair value. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at fair value and then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. To the extent that the initial fair values of the freestanding and/or bifurcated derivative instrument liabilities exceed the total proceeds received an immediate charge to income is recognized in order to initially record the derivative instrument liabilities at their fair value.
F-22 |
Cannagistics, Inc., also known as Precious Investments Inc.
GLOBAL3PL INC and Subsidiaries
Notes to Financial Statements
April 30, 2020
The discount from the face value of the convertible debt instruments resulting from allocating some or all of the proceeds to the derivative instruments, together with the stated rate of interest on the instrument, is amortized over the life of the instrument through periodic charges to income, using the effective interest method.
The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. If reclassification is required, the fair value of the derivative instrument, as of the determination date, is reclassified. Any previous charges or credits to income for changes in the fair value of the derivative instrument are not reversed. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within twelve months of the balance sheet date.
Fair value of financial instruments
The Company’s financial instruments consist of its liabilities. The carrying amount of payables and the loan payable – related party approximate fair value because of the short-term nature of these items. The promissory notes, and convertible notes payables are measured at amortized cost using the effective interest method, which approximates fair value due to the relationship between the interest rate on long-term debt and the Company’s incremental risk adjusted borrowing rate.
Accounts receivable and allowance for doubtful accounts
Accounts receivable are stated at the amount management expects to collect. The Company generally does not require collateral to support customer receivables. The Company provides an allowance for doubtful accounts based upon a review of the outstanding accounts receivable, historical collection information and existing economic conditions. As of April 30, 2020, and 2019 the allowance for doubtful accounts was $0 and $0, respectively.
Revenue Recognition
The Company recognizes revenue related to transaction from its third-party logistics sales when (i) the seller’s price is substantially fixed, (ii) shipment has occurred causing the buyer to be obligated to pay for product, (iii) the buyer has economic substance apart from the seller, and (iv) there is no significant obligation for future performance to directly bring about the resale of the product by the buyer as required by ASC 605 – Revenue Recognition. Cost of sales, rebates
In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers” (Topic 606) which establishes revenue recognition standards. ASU 2014-09 was effective for annual reporting periods beginning after December 15,2017. We adopted ASU 2014-09 effective August 1, 2018. ASU 2014-09 has not had a significant effect on the Company’s financial position and results of operations.
FASB ASC Topic 830, Foreign Currency Matters (formerly FASB Statement No. 52, Foreign Currency Translation) provides accounting guidance for transactions denominated in a foreign currency, and for operations undertaken in a foreign currency environment. To prepare consolidated financial statements, an entity translates all functional currency financial statements into a single reporting currency. The same applies if an entity uses different currencies for reporting purposes and for its functional currency. The company reports its currency in US dollars.
F-23 |
Cannagistics, Inc., also known as Precious Investments Inc.
GLOBAL3PL INC and Subsidiaries
Notes to Financial Statements
April 30, 2020
Leases
In February 2016, FASB issued ASU-2016-02 (Topic 842) “Leases”, provides accounting guidance for leases, recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018.
NOTE 3 – GOING CONCERN
Management does not expect existing cash as of April 30, 2020 to be sufficient to fund the Company’s operations for at least twelve months from the issuance date of these April 30, 2020 financial statements. These financial statements have been prepared on a going concern basis which assumes the Company will continue to realize its assets and discharge its liabilities in the normal course of business. As of April 30, 2020, the Company has incurred losses totaling $6,560,881 since inception, has not yet generated material revenue from operations, and will require additional funds to maintain its operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern within one year after the consolidated financial statements are issued. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become due. The Company intends to finance operating costs over the next twelve months through its existing financial resources and we may also raise additional capital through equity offerings, debt financings, collaborations and/or licensing arrangements. If adequate funds are not available on acceptable terms, we may be required to delay, reduce the scope of, or curtail, our operations. The accompanying consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 4 – DISCONTINUED OPERATIONS
On November 6, 2019, the Company discontinued its operations of subsidiary Global3pl, Inc., formerly known as KRG Logistics, Inc., (an Ontario corporation) and sold the assets of $54,315 for $10 dollars. The transactions resulted in a loss of $119,081 as reported on the income statement as of April 30, 2020. The assets and liabilities and results of operations for Global3pl, Inc. for each of the presented periods is as follows:
April 30, 2020 | July 31, 2019 | |||||||
Assets | ||||||||
Equipment and improvements | $ | — | $ | 54,296 | ||||
Total assets | $ | — | $ | 54,296 | ||||
Liabilities | $ | — | $ | — |
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
April 30, 2020 | April 30, 2019 | April 30, 2020 | April 30, 2019 | |||||||||||||
Revenues | $ | — | $ | 625,385 | $ | 295,312 | $ | 1,791,693 | ||||||||
Cost of revenue | — | 583,031 | 295,223 | 1,712,819 | ||||||||||||
Gross Profit | — | 42,354 | 89 | 78,874 | ||||||||||||
Operating expenses | ||||||||||||||||
General and administrative | — | (14,976 | ) | 32,546 | 153,719 | |||||||||||
Wages and benefits | — | 77,861 | 24,070 | 217,219 | ||||||||||||
Rent | — | 2,877 | — | 21,753 | ||||||||||||
Professional fees | — | 86,767 | 3,016 | 49,105 | ||||||||||||
Total operating expenses | — | 152,529 | 59,632 | 441,796 | ||||||||||||
Loss from operations | — | (110,175 | ) | (59,543 | ) | (362,922 | ) | |||||||||
Interest expense | — | — | (5,223 | ) | — | |||||||||||
Loss from operations of discontinued operations | — | (110,175 | ) | (64,766 | ) | (362,922 | ) | |||||||||
Loss on disposal of discontinued operations | — | — | (54,315 | ) | — | |||||||||||
Loss from discontinued operations | $ | — | $ | (110,175 | ) | $ | (119,081 | ) | $ | (362,922 | ) |
F-24 |
Cannagistics, Inc., also known as Precious Investments Inc.
GLOBAL3PL INC and Subsidiaries
Notes to Financial Statements
April 30, 2020
NOTE 5 – PROMISSORY NOTES
Promissory notes payable as of April 30, 2020 and July 31, 2019 consisted of the following:
Interest expense for the nine months ended April 30, 2020 and 2019 was $12,885 and $2,790 respectively.
F-25 |
Cannagistics, Inc., also known as Precious Investments Inc.
GLOBAL3PL INC and Subsidiaries
Notes to Financial Statements
April 30, 2020
NOTE 6 - CONVERTIBLE DEBT
Convertible debt as of April 30, 2020 and July 31, 2019 consisted of the following:
Description | April 30, 2020 | April 30, 2019 | ||||||
Convertible note agreement dated November 1, 2013 in the amount of $30,000 payable and due on demand bearing interest at 12% per annum. Principal and accrued interest is convertible at $.002250 per share. | $ | 11,041 | $ | 11,041 | ||||
Convertible note agreement dated February 20, 2018 in the amount of $1,034,000 payable and due on demand bearing interest at 10% per annum. Principal and accrued interest is convertible at $.028712 per share. | $ | 1,034,000 | $ | 1,034,000 | ||||
Convertible note agreement dated March 13, 2019 in the amount of $800,000 payable and due on March 20, 2020 bearing interest at 24% per annum. | $ | 800,000 | $ | 700,000 | ||||
Convertible note agreement dated June 28, 2019 in the amount of $300,000 payable and due on June 28, 2020 bearing interest at 20% per annum. | $ | 300,000 | $ | — | ||||
Convertible note agreement dated August 6, 2019 in the amount of $31,500 payable and due on August 6, 2020 bearing interest at 20% per annum. | $ | 31,500 | $ | — | ||||
Convertible note agreement dated August 19, 2019 in the amount of $3,800 payable and due on August 19, 2020 bearing interest at 24% per annum. | $ | 3,800 | $ | — | ||||
Convertible note agreement dated September 4, 2019 in the amount of $36,500 payable and due on September 4, 2020 bearing interest at 20% per annum. | $ | 36,500 | $ | — | ||||
Convertible note agreement dated December 4, 2019 in the amount of $95,000 payable and due on December 4, 2020 bearing interest at 12% per annum. | $ | 95,000 | $ | — | ||||
Convertible note agreement dated February 10, 2020 in the amount of $15,000 payable and due on February 10, 2021 bearing interest at 12% per annum. | $ | 15,000 | $ | — | ||||
Convertible note agreement dated February 21, 2020 in the amount of $47,500 payable and due on February 28, 2021 bearing interest at 12% per annum. | $ | 47,500 | $ | — | ||||
Convertible note agreement dated February 28, 2020 in the amount of $67.500 payable and due on November 28, 2020 bearing interest at 8% per annum. | $ | 67,500 | $ | — | ||||
Convertible note agreement dated April 15, 2020 in the amount of $95,000 payable and due on April 15, 2021 bearing interest at 10% per annum, net of discount. | $ | 31,500 | $ | — | ||||
Convertible notes, net of discount | $ | 2,475,341 | $ | 1,745,041 |
F-26 |
Cannagistics, Inc., also known as Precious Investments Inc.
GLOBAL3PL INC and Subsidiaries
Notes to Financial Statements
April 30, 2020
The Company recognized $0 of debt discount accretion expense on the above notes. Interest expense related to these notes for the nine months ended April 30, 2020 and 2019 was $284,564 and $57,806.
NOTE 7 - LINE OF CREDIT
The Company has a line of credit with a maximum borrowing limit of $400,000, bearing an interest rate of prime plus 3.25% per annum and secured by a General Security Agreement. As of April 30, 2020, and July 31, 2019, $289,242 and $258,708 were drawn on the line of credit, respectively. Interest expense for the nine months ended April 30, 2020 and 2019 was $0 and $13,554 respectively. Beginning February 1, 2019, the Company is required to maintain a cash collateral account in the amount of $200,000 in Canadian dollars. The Company has invested in a Guaranteed Investment Certificate for a one-year term at an interest rate of .25%.
NOTE 8 – RELATED PARTY TRANSACTIONS
A shareholder of the Company has paid certain expenses of the Company. These amounts are reflected as a loan payable to related party. The shareholder advanced $12,500 and $0 during the nine months ended April 30, 2020 and 2019, respectively. As of April 30, 2020, and 2019, there were $387,834 and $496,912 due to related parties, and a shareholder, respectively.
The Company has consulting agreements with two of its shareholders to provide management and financial services that commenced on December 1, 2017. For the three months ended April 30, 2020 and 2019 consulting fees paid were $87,792 and $68,465 respectively. For the nine months ended April 30, 2020 and 2019 consulting fees paid were $146,334 and $201,857 respectively. The consulting fees are included as part of professional fees on the Company’s consolidated statements of operations.
The Company on February 20, 2018 entered into a related party (that being Recommerce Group, Inc. and our President is a principal in Recommerce Group, Inc.) note receivable in the amount of $1,034,000. The Company made an additional advance in the amount of $175,000 that is non-interest bearing. The note is payable and due on demand and bears interest at the rate of 10%. A total of $153,217 has been applied as payments against this Note. Interest expense in the amount of $25,496 and $21,475 for the three months ended April 30, 2020 and 2019, respectively, has been recorded in the financial statements. Interest expense in the amount of $77,621 and $43,220 for the nine months ended April 30, 2020 and 2019, respectively, has been recorded in the financial statements.
NOTE 9 – STOCKHOLDERS’ EQUITY (DEFICIT)
The Company is authorized to issue 250,000,000 shares of its $0.001 par value common stock and 10,000,000 shares of Preferred stock. As of April 30, 2020, and July 31, 2019, there were 100,599,277 and 93,118,077 shares of common stock outstanding. There were 10,000,000 shares of Series D Preferred stock outstanding as of April 30, 2020 and 8,000,000 shares of Series D Preferred Stock outstanding as of July 31, 2019.
On November 1, 2017, we effected a one-for- four reverse stock split. All share and per share information has been retroactively adjusted to reflect the stock split.
F-27 |
Cannagistics, Inc., also known as Precious Investments Inc.
GLOBAL3PL INC and Subsidiaries
Notes to Financial Statements
April 30, 2020
On November 7, 2017, the Company designated 1,000,000 shares of Preferred Stock as Series C Preferred stock, par value $0.001 per share (the “Series C Preferred Stock”). Each share of Series C Preferred Stock is convertible into 72.5 common shares and has voting rights based on this ratio. As of January 31, 2018, there were 1,000,000 shares of
Preferred C shares issued and outstanding. On May 15, 2019, the 1,000,000 shares were converted to 72,500,000 shares of common stock.
On April 29, 2019, the Company designated 10,000,000 shares of Preferred Stock as Series D Preferred stock, par value $0.001 per share (the “Series D Preferred Stock”). Each share of Series D Preferred Stock is convertible into 72.5 common shares and has voting rights based on this ratio. There were 10,000,000 shares of Series D Preferred stock outstanding as of April 30, 2020 and 8,000,000 shares of Series D Preferred Stock outstanding as of July 31, 2019.
NOTE 10 – WARRANT
On April 15, 2020, the Company issued a five-year Common Stock Purchase Warrant in connection with a $31,500 convertible promissory note. The warrant is convertible into 437,500 shares of the Company’s common stock at $.12 per share.
On April 23, 2020, the Company issued a three-year Common Stock Purchase Warrant in connection with a $75,000 investment in the Company’s common stock. The warrant has a conversion price of $.15 per share of the Company’s common stock.
NOTE 11 – COMMITMENTS AND CONTINGENCIES
Litigations, Claims and Assessments
The Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise that may harm its business. The Company is currently not aware of any such legal proceedings or claims that they believe will have, individually or in the aggregate, a material adverse effect on its business, financial condition or operating results.
Operating Leases
The Company in February 2019 assumed a lease agreement for a facility site and entered into a lease agreement for office space. The facility site lease has a term of twenty-three months expiring on December 31, 2020 and the office space lease has a five-year term and begins April 1, 2019 and ends March 31, 2024.
Effective October 1, 2019, the Company suspended operations of its subsidiary Global3pl, Inc., (an Ontario corporation, formerly known as KRG Logistics, Inc.), suspended future operations related to the operations in Mississauga, Ontario. It is in the process of collecting accounts receivables still due and working on a plan to pay its payables. It has entered into an agreement with 10451029 Canada Inc., d/b/a Reliable Logistics, for the assignment and of the assets of Global3pl, Inc., (an Ontario Corporation). The transaction has not yet been completed.
F-28 |
Cannagistics, Inc., also known as Precious Investments Inc.
GLOBAL3PL INC and Subsidiaries
Notes to Financial Statements
April 30, 2020
The Company on July 31, 2019 entered into a lease agreement for additional office space. The lease has a commencement date of June 1, 2019 and has a lease term of five years expiring on May 31, 2024.
Future minimum lease payments, as set forth in the lease, are below:
Year | Amount | |||||
2019-2020 | $ | 3,363 | ||||
2020-2021 | $ | 22,737 | ||||
2021-2022 | $ | 23,415 | ||||
2022-2023 | $ | 24,122 | ||||
2023-2024 | $ | 14,314 |
NOTE 13 – SUBSEQUENT EVENTS
Management of the Company has evaluated the subsequent events that have occurred through the date of the report and determined that the following subsequent events require disclosure:
Sanguine Group, LLC, has loaned the Company additional funds not already included in the established promissory note. These funds are not yet reduced to a written agreement.
Garden State Holdings loaned the Company $55,000 on December 4, 2019. There is no written note at this time, but Garden State Holdings has committed to loan the Company up to $175,000.
Sanguine Group, LLC and Garden State Holdings are entities controlled by the same person, who is an investor in the Company.
Emerging Growth Advisors, Inc., controlled by James W. Zimbler, our President/Director has loaned the company a total of $57,277.24. There is no terms or written note.
On May 6, 2020, the Company filed an Offering Statement under Regulation A on form 1-A for a Tier II Offering of 43,000,000 shares.
F-29 |
PART III
EXHIBITS TO OFFERING STATEMENT
Exhibit No. | Description |
Exhibit 2.1 | Agreement and Plan of Merger(1) |
Exhibit 2.2 | Agreement of Conveyance, Transfer and Assignment of Assets(1) |
Exhibit 3.1 | Articles of Incorporation of the Registrant (2) |
Exhibit 3.2 | Certificate of Amendment(5) |
Exhibit 3.3 | Certificate of Change(5) |
Exhibit 3.4 | Bylaws(6) |
Exhibit 3.5 | Amended and Restated Certificate of Designation for Series C Preferred Stock(1) |
Exhibit 3.6 | Certificate of Designation for Series D Preferred Stock(3) |
Exhibit 3.7 | Certificate of Change(4) |
Exhibit 3.8 | Certificate of Merger(3) |
Exhibit 4.1 | Convertible Promissory Note with EMA Financial, LLC, dated February 28, 2020 |
Exhibit 4.2 | Convertible Promissory Note with Crown Bridge Partners, LLC dated April 15, 2020 |
Exhibit 5.1 | Opinion of The Doney Law Firm with consent to use(7) |
Exhibit 10.1 | Employment Agreement, dated October 1, 2018 with James W. Zimbler |
Exhibit 23.1 | Consent of BMKR, LLP |
Exhibit 99.1 | Form of Subscription Agreement(7) |
(1) | Incorporated by reference to the Form 8-K filed with the SEC on December 5, 2017 |
(2) | Incorporated by reference to the Company’s Registration Statement on Form S-1/A filed with the SEC on May 14, 2014. |
(3) | Incorporated by reference to the Form 8-K filed with the SEC on May 17, 2019 |
(4) | Incorporated by reference to the Form 8-K filed with the SEC on November 2, 2017 |
(5) | Incorporated by reference to the Form 8-K filed with the SEC on July 31, 2015. |
(6) | Incorporated by reference to the Form S-1 filed with the SEC on April 15, 2014. | |
(7) | Incorporated by reference to the Form 1-A filed with the SEC on May 6, 2020 |
38 |
Pursuant to the requirements of Regulation A, the issuer certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form 1-A and has duly caused this offering statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Hauppauge, New York, on June 17, 2020.
Cannagistics Inc.
By: | /s/ James Zimbler |
James Zimbler | |
Chief Executive Officer, Principal Executive Officer, Chief Financial Officer, Principal Financial Officer, Principal Accounting Officer and Director |
This Offering Circular has been signed below by the following persons in the capacities and on the date indicated.
By: | /s/ James Zimbler |
James Zimbler | |
Chief Executive Officer, Principal Executive Officer, Chief Financial Officer, Principal Financial Officer, Principal Accounting Officer and Director |
39 |
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE 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 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 HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
Issue Date: February 28, 2020
Principal Amount: $525,000.00
Purchase Price: $472,500.00
Original Issue Discount: $52,500.00
8% CONVERTIBLE NOTE
FOR VALUE RECEIVED, CANNAGISTICS, INC., a Nevada corporation ("Borrower" or "Company") (Trading Symbol: CNGT), hereby promises to pay to the order of EMA FINANCIAL, LLC, a Delaware limited liability company, or its registered assigns (the " Holder"), the sum of up to $525,000.00 as set forth herein, together with interest on the unpaid principal balance hereof at the rate of eight percent (8%) per annum (the "Interest Rate") plus any and all amounts due hereunder are paid in full, and any additional amounts set forth herein, including without limitation any Additional Principal (as defined herein), at maturity or upon acceleration or otherwise, as set forth herein. Interest shall be computed on the basis of a 365-day year and the actual number of days elapsed. The consideration to the Borrower for this Note is up to $472,500.00 (the "Consideration"). The Holder shall pay $67,500.00 of the Consideration (the "First Tranche") within a reasonable amount of time of the full execution of the transactional documents related to this Note. At the closing of the First Tranche, the outstanding principal amount under this Note shall be $75,000.00, consisting of the First Tranche plus the prorated portion of the OID (as defined herein). The Holder may pay, in its sole discretion, such additional amounts of the Consideration and at such dates as the Holder may choose in its sole discretion. The maturity date for each tranche funded shall be nine (9) calendar months from the funding date of the respective tranche (each a "Maturity Date"), and is the date upon which the principal sum of each respective tranche, as well as any accrued and unpaid interest and other penalties relating to that respective tranche, shall be due and payable. Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of twenty-four (24%) per annum from the due date thereof until the same is paid ("Default Interest"). All payments due hereunder shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of
the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. As used in this Note, the term " business day" shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed. Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement entered into by and between the Company and Holder dated on or about the date hereof, pursuant to which this Note was originally issued (the " Purchase Agreement" ). The Holder may, by written notice to the Borrower at least five (5) days before the Maturity Date (as may have been previously extended) of the respective tranche under this Note, extend the Maturity Date of the respective tranche under this Note to up to one (1) year following the date of the original Maturity Date of the respective tranche under this Note.
This Note carries a prorated original issue discount of up to $52,500.00 (the "OID"), to cover the Holder's monitoring costs associated with the purchase and sale of the Note, which is included in the principal balance of this Note. Thus, the purchase price of this Note shall be up to $472,500.00, computed as follows: the Principal Amount minus the OID.
This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Borrower and will not impose personal liability upon the holder thereof.
The following terms shall also apply to this Note:
ARTICLE I. CONVERSION RIGHTS
1.1. Conversion Right. The Holder shall have the right, in its sole and absolute discretion, at any time from time to time, to convert all or any part of the outstanding amount due under this Note (such outstanding amount includes but is not limited to the principal, interest and/or Default Interest accrued, plus any and all other amounts owed pursuant to the terms of this Note) into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price (the "Conversion Price") determined as provided herein (a "Conversion"); provided, however , that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the " Exchange Act"), and Regulation 13D-G thereunder, except as otherwise provided in clause (1) of such proviso. provided, further, however, that the limitations on conversion may be waived by the Holder upon, at the election of the Holder, not less than 61 days' prior notice to the Borrower, and the
2 |
provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by the Holder, as may be specified in such notice of waiver). The number of shares of Common Stock to be issued upon each Conversion of this Note ("Conversion Shares") shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the "Notice of Conversion",) delivered to the Borrower by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower or Borrower' s transfer agent before 11:59 p.m., New York, New York time on such conversion date (the "Conversion Date"). The term "Conversion Amount" means, with respect to any Conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such Conversion. plus (2) accrued and unpaid interest, if any, to be converted in such Conversion at the interest rates provided in this Note to the Conversion Date, plus (3) at the Holder' s option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (I) and/or (2). plus (4) any Additional Principal for such Conversion, plus (5) at the Holder's option, any amounts owed to the Holder pursuant to Sections 1.2(c) and l .4(g) hereof.
1.2. | Conversion Price. |
a) Calculation of Conversion Price. The conversion price hereunder (the " Conversion Price" ) per share shall equal the lower of: (i) the lowest closing price of the Common Stock during the preceding eighteen (18) Trading Day period ending on the latest complete Trading Day prior to the Issue Date of this Note (the "Closing Price" ) or (ii) 55% of the lowest traded price for the Common Stock on the Principal Market during the eighteen (18) consecutive Trading Days on which at least 100 shares of Common Stock were traded including and immediately preceding the Conversion Date. If an Event of Default under Section 3.9 of the Note has occurred, Holder, in its sole discretion, may elect to use a Conversion Price equal to the lower of: (i) the closing price of the Common Stock on the Principal Market on the Trading Day immediately preceding the Issue Date or (ii) 55% of either the lowest traded price or the closing bid price, whichever is lower for the Common Stock on the Principal Market during any Trading Day in which the Event of Default has not been cured. If such Common Stock is not traded on the OTCQX, OTCQB, OTC Pink, NASDAQ or NYSE, then such sale price shall be the sale price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no sale price of such security is available in any of the foregoing manners, the average of the closing bid prices of any market makers for such security that are listed in the "pink sheets" by the National Quotation Bureau, Inc. If such sale price cannot be calculated for such security on such date in the manner provided above, such price shall be the fair market value as mutually determined by the Borrower and the Holder. If the Borrower's Common stock is chilled for deposit at OTC, becomes chilled at any point while this Note remains outstanding or deposit or other additional fees are payable due to a Yield Sign, Stop Sign or other trading restrictions, or if the closing price at any time falls below $0.023 (as appropriately and equitably adjusted for stock splits, stock dividends, stock contributions and similar events), then an additional 15% discount will be attributed to the Conversion Price for any and all Conversions submitted thereafter. Additionally, the Borrower acknowledges that it will take all reasonable steps necessary or appropriate, including providing a board of directors resolution authorizing the issuance of common stock to Holder. So long as the requested sale may be made pursuant to Rule 144, the Company agrees to accept an opinion of counsel to the Holder confirming the rights of the Holder to sell shares of Common Stock issuable or issued to Holder on conversion of this Note pursuant to Rule 144 as promulgated by the SEC (" Rule 144") (or if
3 |
applicable pursuant to Section 4(a)(l) of the Securities Act, as promulgated by the SEC), or at the Holder ' s option , Company shall immediately and without delay provide an opinion of counsel to the Holder confirming the rights of the Holder to sell shares of Common Stock pursuant to Rule 144, or Section 4(a)(l) of the Securities Act, if applicable, which opinion will be issued at the Company 's expense. In addition, the Holder shall be entitled to deduct $600.00 from the conversion amount in each Notice of Conversion to cover Holder' s legal fees associated with each Notice of Conversion. "Trading Day" shall mean any day on which the Common Stock is tradable for any period on the OTC Pink or on the principal securities exchange, market place, or other securities market on which the Common Stock is then being traded. Additionally, if the Company ceases to be a reporting company pursuant to the 1934 Act at any time after the Issue Date or if the Note cannot be converted into free trading shares after 181 days from the issuance date, an additional 15% discount will be attributed to the Conversion Price for any and all Conversions submitted thereafter.
b) If at any time the Conversion Price as determined hereunder for any Conversion would be less than the par value of the Common Stock, then the Conversion Price hereunder shall equal such par value for such Conversion and the Conversion Amount for such Conversion shall be increased to include Additional Principal, where "Additional Principal" means such additional amount to be added to the Conversion Amount to the extent necessary to cause the number of Conversion Shares issuable upon such Conversion to equal the same number of Conversion Shares as would have been issued had the Conversion Price not been subject to the minimum price set forth in this Section 1.2(b).
c) Without in any way limiting the Holder's right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the free trading shares of Common Stock issuable upon conversion of this Note is not delivered by the Deadline (as defined below) the Borrower shall pay to the Holder $250.00 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder , shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. The Borrower agrees that the right to convert this Note is a valuable right to the Holder. The damages resulting from a failure, attempt to frustrate, or interference with such conversion right are difficult if not impossible to quantify. Accordingly, the parties acknowledge that the liquidated damages provision contained in this Section are justified.
1.3. Authorized Shares. The Borrower covenants that the Borrower will at all times while this Note is outstanding reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion or adjustment of this Note. The Borrower is required at all times to have authorized and reserved five (5) times the number of shares that is actually issuable upon full conversion or adjustment of this Note (based on the Conversion Price of the Notes in effect from time to time) (the "Reserved Amount"). Initially, the Company will instruct the Transfer Agent to reserve 11,527,000 shares of common stock in the name of the Holder for issuance upon conversion hereof. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which this Note shall be convertible at the then current Conversion Price, the Borrower shall at the
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same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of this Note in full. So long as this Note is outstanding the Borrower shall instruct the Transfer Agent that upon Holder's request it shall furnish to the Holder the then current number of common shares issued and outstanding, the then current number of common shares authorized, the then current number of unrestricted shares, and the then current number of shares reserved for third parties. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note.
If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default under Section 3.2 of the Note.
1.4. | Method of Conversion. |
a) Mechanics of Conversion. Subject to Section 1.1, this Note may be converted by the Holder in whole or in part at any time and from time to time after the Issue Date, by submitting to the Borrower or Borrower's transfer agent a Notice of Conversion (by facsimile, e mail or other reasonable means of communication dispatched on the Conversion Date prior to 11:59 p.m., New York, New York time).
b) Book Entry upon Conversion. Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid balance of this Note is so converted. The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion. In the event of any dispute or discrepancy, such records of the Borrower shall, prima facie, be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Note. The Holder 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 represented by this Note may be less than the amount stated on the face hereof.
c) Payment of Taxes. The Borrower shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Note in a name other than that of the Holder (or in street name), and the Borrower shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be held for the Holder' s account) requesting
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the issuance thereof shall have paid to the Borrower the amount of any such tax or shall have established to the satisfaction of the Borrower that such tax has been paid.
d) Delivery of Common Stock upon Conversion. Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within one (1) business day after such receipt or such an event (the " Deadline") (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the terms hereof and the Purchase Agreement. The Holder shall be entitled to deduct $400.00 from the conversion amount in each Notice of Conversion to cover Holder' s deposit fees associated with each Notice of Conversion.
e) Obligation of Borrower to Deliver Common Stock. Upon receipt by the Borrower of a duly and properly executed Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion or adjustment, and, unless the Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Borrower' s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof , the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is sent by the Holder to the Borrower or Borrower's transfer agent before 11:59 p.m., New York, New York time, on such date.
f) Delivery of Common Stock by Electronic Transfer. In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided the Borrower is participating in the Depository Trust Company (" OTC") Fast Automated Securities Transfer ("FAST") program, upon request of the Holder and its compliance with the provisions contained in Section 1.1 and in this Section 1.4, the Borrower shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Holder by crediting the account of Holder's Prime Broker with OTC through its Deposit Withdrawal Agent Commission ("DWAC") system. In the event that the shares of the Borrower's Common Stock are not deliverable via OWAC following the conversion of any amount hereunder, an additional 10% discount will be attributed to the Conversion Price.
g) Failure to Deliver Common Stock Prior to Deadline. Without in any way limiting the Holder's right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion or
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adjustment of this Note is not delivered by the Deadline, the Borrower shall pay to the Holder
$250.00 per day in cash , for each day beyond the Deadline that the Borrower fails to deliver such Common Stock to the Holder. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder, shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. The Borrower agrees that the right to convert and/or receive shares in the event of an adjustment is a valuable right to the Holder. The damages resulting from a failure, attempt to frustrate, or interference with such conversion or adjustment right are difficult if not impossible to qualify. Accordingly, the parties acknowledge that the liquidated damages provision contained in this Section l .4(g) are justified.
h) The Borrower acknowledges that it will take all reasonable steps necessary or appropriate , including accepting an opinion of counsel to Holder confirming the rights of Holder to sell shares of Common Stock issued to Holder on conversion or adjustment of the Note pursuant to Rule 144 as promulgated by the SEC ("Rule 144"), as such Rule may be in effect from time to time. So long as the requested sale may be made pursuant to Rule 144 the Borrower agrees to accept an opinion of counsel to the Holder which opinion will be issued at the Borrower's expense.
i) Charges and Expenses. Issuance of Common Stock to Holder, or any of its assignees, upon the conversion of this Note shall be made without charge to the Holder for any issuance fee, transfer tax, legal opinion and related charges, postage/mailing charge or any other expense with respect to the issuance of such Common Stock. Company shall pay all Transfer Agent fees incurred from the reservation and issuance of the Common Stock to Holder, as well as any and all other fees and charges required by the Transfer Agent as a condition to effectuate such issuance. That notwithstanding, the Holder may in the interest of securing issuance and/or delivery of Common Stock before the Deadline, at any time from time to time, in its sole discretion elect to pay any such fees or charges upfront, and Company agrees that any such fees or charges as noted in this Section that are paid by the Holder (whether from the Company's delays, outright refusal to pay, Holder's interest in securing issuance and/or delivery of Common Stock before the Deadline, or otherwise), will be at Company' s expense, and the conversion amount will automatically be reduced by that dollar amount to cover the cost of the fees or charges as noted in this Section (for the avoidance of doubt, the aforementioned reduction in the conversion amount shall not cause a reduction in the share amount to be issued to the Holder pursuant to such conversion).
1.5. Restricted Securities. The shares of Common Stock issuable upon conversion or adjustment of this Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) (" Rule 144" ) or (iv) such shares are transferred to an "affiliate" (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined in the Purchase Agreement). Any legend set forth on any stock certificate evidencing any Conversion Shares shall be removed and the Borrower shall issue
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to the Holder a new certificate therefore free of any transfer legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be reasonably acceptable to the Company, or (ii) in the case of the Common Stock issued or issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold.
1.6. | Effect of Certain Events. |
a) Effect of Merger, Consolidation, Etc. At the option of the Holder, the sale, conveyance or disposition of all or substantially all of the assets of the Borrower, the effectuation by the Borrower of a transaction or series of related transactions in which more than 50% of the voting power of the Borrower is disposed of, or the consolidation, merger or other business combination of the Borrower with or into any other Person (as defined below) or Persons when the Borrower is not the survivor shall either: (i) be deemed to be an Event of Default (as defined in Article III) pursuant to which the Borrower shall be required to pay to the Holder upon the consummation of and as a condition to such transaction an amount equal to the Default Amount (as defined in Article Ill) or (ii) be treated pursuant to Section 1.6(b) hereof. " Person" shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization.
b) Adjustment Due to Merger, Consolidation, Etc. If, at any time when this Note is issued and outstanding and prior to conversion of all of the Notes, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities or assets which the Holder would have been entitled to receive in such transaction had this Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder of this Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof. The Borrower shall not affect any transaction described in this Section l.6(b) unless (a) it first gives, to the extent practicable, thirty (30) days prior written notice (but in any event at least fifteen (15) days prior written notice) of the record date of the special meeting of shareholders to approve, or if there is no such record date, the consummation of, such merger, consolidation, exchange of shares, recapitalization, reorganization or other similar event or sale of assets (during which time, for clarification, the Holder shall be entitled to convert this Note) and (b) the resulting successor or acquiring entity assumes by written instrument the obligations of this Section 1.6(b). The above
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provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges.
c) Adjustment Due to Distribution. If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower' s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a "Distribution",) then the Holder of this Note shall be entitled, upon any conversion of this Note as of or after (in the event of a stock dividend) the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution. Such assets shall be held in escrow by the Company pending any such conversion
d) Purchase Rights. If, at any time when any Notes are issued and outstanding, the Borrower issues any convertible securities or rights to purchase stock, warrants, securities or other property (the " Purchase Rights") pro rata to the record holders of any class of Common Stock, then the Holder of this Note will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on conversion contained herein) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.
e) Stock Dividends and Stock Splits. If the Company, at any time while this Note is outstanding: (A) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any securities convertible into or exercisable for Common Stock; (B) subdivides outstanding shares of Common Stock into a larger number of shares; (C) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares; or (D) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price (and each sale or bid price used in determining the Conversion Price) shall be subject to equitable adjustments for such events.
f) Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
g) Notice of Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price as a result of the events described in this Section 1.6, the Borrower, at its expense, shall promptly compute such adjustment or readjustment and prepare and furnish to the Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Borrower shall, upon the written request at any time of the Holder, furnish to such Holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number
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of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of the Note.
1.7. Revocation. If any Conversion Shares are not received by the Deadline, the Holder may revoke the applicable Conversion pursuant to which such Conversion Shares were issuable. This Note shall remain convertible after the Maturity Date hereof until this Note is repaid or converted in full.
1.8. Prepayment. Notwithstanding anything to the contrary contained in this Note, subject to the terms of this Section, at any time during the period beginning on the funding date of the respective tranche of this Note and ending on the date which is one hundred eighty (180) calendar days following the funding date of the respective tranche of this Note (" Prepayment Termination Date"), Borrower shall have the right, exercisable on not less than five (5) Trading Days prior written notice to the Holder of this Note, to prepay the outstanding balance of each respective tranche under this Note (principal and accrued interest) in full, in accordance with this Section. Any notice of prepayment hereunder (an “Optional Prepayment Notice" ) shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than fifteen (15) Trading Days from the date of the Optional Prepayment Notice; and (3) the amount (in dollars) that the Borrower is paying. Notwithstanding Holder' s receipt of the Optional Prepayment Notice the Holder may convert, or continue to convert the Note in whole or in part until the Optional Prepayment Amount (as defined herein) is paid to the Holder. On the date fixed for prepayment (the "Optional Prepayment Date"), the Borrower shall make payment of the Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the "Optional Prepayment Amount") equal to the Prepayment Factor (as defined below), multiplied by the sum of: (w) the then outstanding principal amount of the respective tranche of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of the respective tranche of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Optional Prepayment Amount due to the Holder of the Note within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section. After the Prepayment Termination Date, the Borrower shall have no right to prepay this Note. For purposes hereof, the "Prepayment Factor" shall equal the percentage set forth below with respect to each Optional Prepayment Date beside such Prepayment Factor:
The Prepayment Factor is: | If the Optional Prepayment Date occurs: |
125% | 1-60 calendar days after the funding date of the respective tranche |
135% | 61-120 calendar days after the funding date of the respective tranche |
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ARTICLE II. CERTAIN COVENANTS
2.1. Distributions on Capital Stock. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder's written consent (a) pay, declare or set apart for such payment, any dividend or other distribution (whether in cash, property or other securities) on shares of capital stock other than dividends on shares of Common Stock solely in the form of additional shares of Common Stock or (b) directly or indirectly or through any subsidiary make any other payment or distribution in respect of its capital stock except for distributions pursuant to any shareholders' rights plan which is approved by a majority of the Borrower's disinterested directors.
2.2. Restriction on Stock Repurchases. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder's written consent redeem, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) in any one transaction or series of related transactions any shares of capital stock of the Borrower or any warrants, rights or options to purchase or acquire any such shares.
2.3. Borrowings; Liens. Notwithstanding section 4(1) of the Purchase Agreement, so long as the Borrower shall have any obligation under this Note, the Borrower shall not (i) create, incur, assume guarantee, endorse, contingently agree to purchase or otherwise become liable upon the obligation of any person, firm, partnership, joint venture or corporation, except by the endorsement of negotiable instruments for deposit or collection, or suffer to exist any liability for borrowed money, except (a) borrowings in existence or committed on the date hereof and of which the Borrower has informed Holder in writing prior to the date hereof, or (b) indebtedness to trade creditors or financial institutions incurred in the ordinary course of business, or (ii) enter into, create or incur any liens, claims or encumbrances of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom, securing any indebtedness occurring after the date hereof.
2.4. Sale of Assets. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder' s written consent, sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business. Any consent to the disposition of any assets may be conditioned on a specified use of the proceeds of disposition.
2.5. Advances and Loans. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder's written consent, lend money, give credit or make advances to any person, firm, joint venture or corporation, including, without limitation, officers, directors, employees, subsidiaries and affiliates of the Borrower, except loans, credits or advances in existence or committed on the date hereof and which the Borrower has informed Holder in writing prior to the date hereof.
2.6. Charter. So long as the Borrower shall have any obligations under this Note, the Borrower shall not amend its charter documents, including without limitation its certificate of
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incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder.
2.7. Transfer Agent. The Borrower shall not change its transfer agent without the prior written consent of the Holder. Any replacement of the transfer agent by the Borrower, or resignation by the transfer agent without a replacement transfer agent consented to by the Holder prior to such replacement taking effect shall constitute an Event of Default hereunder.
2.8. Section 3(a)(9) or 3(a)(l0) Transaction. So long as this Note is outstanding, the Borrower shall not enter into any transaction or arrangement structured in accordance with, based upon, or related or pursuant to, in whole or in part, either Section 3(a)(9) of the Securities Act (a "3(a)(9)Transaction") or Section 3(a)(I0) of the Securities Act (a "3(a)(I0) Transaction"). In the event that the Borrower does enter into, or makes any issuance of Common Stock related to a 3(a)(9) Transaction or a 3(a)(10) Transaction while this Note is outstanding, a liquidated damages charge of 25% of the outstanding principal balance of this Note, but not less than Fifteen Thousand Dollars $15,000, will be assessed and will become immediately due and payable to the Holder at its election in the form of cash payment or addition to the balance of this Note.
2.9. Restrictions on Activities. Commencing on the Issue Date, and until the Note is extinguished in its entirety, the Company shall not, directly or indirectly , without the Holder's prior written consent, effect or enter into an agreement involving a Variable Rate Transaction (except with respect to this Note). "Variable Rate Transaction" means a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities or (8) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may issue securities at a future determined price.
ARTICLE III. EVENTS OF DEFAULT
Any one or more of the following events which shall occur and/or be continuing shall constitute an event of default (each, an " Event of Default"):
3.1. Failure to Pay Principal or Interest. The Borrower fails to pay the principal hereof or interest thereon when due on this Note, whether at maturity , upon acceleration or otherwise.
3.2. Conversion and the Shares. The Borrower fails to reserve the Reserved Amount under this Note at all times for the Holder, issue shares of Common Stock to the Holder (or announces or threatens in writing that it will not honor its obligation to do so at any time following the execution hereof or) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form) any certificate for shares of Common Stock issued to the
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Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, the Borrower directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring (or issuing) (electronically or in certificated form) any certificate for shares of Common Stock to be issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or makes any written announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any written announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for three (3) business days after the Holder shall have delivered a Notice of Conversion. It is an obligation of the Borrower to remain current in its obligations to its transfer agent. It shall be an event of default of this Note, if a conversion of this Note is delayed, hindered or frustrated due to a balance owed by the Borrower to its transfer agent. If at the option of the Holder, the Holder advances any funds to the Borrower's transfer agent in order to process a conversion, such advanced funds shall be paid by the Borrower to the Holder within forty eight (48) hours of a demand from the Holder.
3.3. Breach of Covenants. The Borrower breaches any material covenant or other material term or condition contained in this Note and any collateral documents including but not limited to the Purchase Agreement and such breach continues for a period of three (3) days after written notice (via email) thereof to the Borrower from the Holder.
3.4. Breach of Representations and Warranties. Any representation or warranty of the Borrower made herein or in any agreement, statement, certificate, or any other document given in writing pursuant hereto or in connection herewith (including, without limitation, the Purchase Agreement, and/or the due diligence questionnaire provided by the Borrower to the Holder on or around the Issue Date), shall be false or misleading in any material respect when made and/ or the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.
3.5. Receiver or Trustee. The Borrower or any subsidiary of the Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed.
3.6. Judgments. Any money judgment, writ or similar process shall be entered or filed against the Borrower or any subsidiary of the Borrower or any of its property or other assets for more than $50,000, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) days unless otherwise consented to by the Holder, which consent will not be unreasonably withheld.
3.7. Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower.
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3.8. Delisting of Common Stock. The Borrower shall fail to maintain the listing of the Common Stock on at least one of the OTCQX, OTCQB, OTC Pink or an equivalent replacement marketplace or exchange, NASDAQ, the NYSE or AMEX.
3.9. Failure to Comply with the Exchange Act. The Borrower shall fail to comply in any material respect with the reporting requirements of the Exchange Act; and/or the Borrower shall cease to be subject to the reporting requirements of the Exchange Act.
3.10. Liquidation. Any dissolution, liquidation , or winding up of Borrower or any substantial portion of its business.
3.11. Cessation of Operations. Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower's ability to continue as a "going concern" shall not be an admission that the Borrower cannot pay its debts as they become due.
3.12. Maintenance of Assets. The failure by Borrower, during the term of this Note, to maintain any material intellectual property rights, personal, real property or other assets which are necessary to conduct its business (whether now or in the future).
3.13. Financial Statement Restatement. The restatement of any financial statements filed by the Borrower with the SEC for any date or period from two years prior to the Issue Date of this Note and until this Note is no longer outstanding, if the result of such restatement would, by comparison to the unrestated financial statement, have constituted a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.
3.14. Reverse Splits. The Borrower effectuates a reverse split of its Common Stock without twenty (20) days prior written notice to the Holder.
3.15. Replacement of Transfer Agent. In the event that the Borrower proposes to replace its transfer agent, the Borrower fails to provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to the Purchase Agreement (including but not limited to the provision to irrevocably reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Borrower and the Borrower.
3.16. Cross-Default. Notwithstanding anything to the contrary contained in this Note or the other related or companion documents, a breach or default by the Borrower of any covenant or other term or condition contained in any of the Other Agreements, after the passage of all applicable notice and cure or grace periods, shall, at the option of the Holder, be considered a default under this Note and the Other Agreements, in which event the Holder shall be entitled (but in no event required) to apply all rights and remedies of the Holder under the terms of this Note and the Other Agreements by reason of a default under said Other Agreement or hereunder. "Other Agreements" means, collectively, all agreements and instruments between, among or by: (1) the Borrower, and, or for the benefit of, (2) the Holder and any affiliate of the Holder, including , without limitation, promissory notes; provided , however, the term " Other Agreements" shall not include the related or companion documents to this Note. Each of the loan transactions will be cross-defaulted with each other loan transaction and with all other existing and future debt of Borrower to the Holder.
3.17. Inside Information. The Borrower or its officers, directors, and/or affiliates attempt to transmi,t, convey , disclose, or any actual transmittal, conveyance, or disclosure by the Borrower or its officers, directors, and/or affiliates of, material non-public information concerning
14 |
the Borrower, to the Holder or its successors and assigns, which is not immediately cured by Borrower' s filing of a Form 8-K pursuant to Regulation FD on that same date.
3.18. Bid Price. The Borrower shall lose the " bid" price for its Common Stock ($0.0001 on the "Ask" with zero market makers on the " Bid" per Level 2) and/or a market (including the OTC Pink, OTCQB or an equivalent replacement exchange).
3.19. Delisting or Suspension of Trading of Common Stock. If, at any time on or after the Issue Date, the Borrower' s Common Stock (i) is suspended from trading, (ii) halted from trading, and/or (iii) fails to be quoted or listed (as applicable) on any level of the OTC Markets, any tier of the NASDAQ Stock Market, the New York Stock Exchange, or the NYSE MKT.
3.20. | Unavailability of Rule 144. If, at any time on or after the date which is six |
(6) months after the Issue Date, the Holder is unable to (i) obtain a standard "144 legal opinion letter" from an attorney reasonably acceptable to the Holder, the Holder' s brokerage firm (and respective clearing firm), and the Borrower's transfer agent in order to facilitate the Holder' s conversion of any portion of the Note into free trading shares of the Borrower' s Common Stock pursuant to Rule 144, and/or (ii) thereupon deposit such shares into the Holder's brokerage account.
3.21. Variable Rate Transactions. The Borrower effects or enters into an agreement involving a Variable Rate Transaction (except with respect to this Note).
Upon the occurrence of any Event of Default specified in Article III of the Note, the Note shall become immediately and automatically due and payable without demand, presentment or notice and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 200% times the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the "Mandatory Repayment Date") plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuant to Section and l .4(g) hereof (the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the " Default Sum") or (ii) the " parity value" of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the Mandatory Repayment Date as the "Conversion Date" for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date), multiplied by (b) the highest closing price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Repayment Date (the " Default Amount") and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation , legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity. If at any time while this Note is outstanding the Borrower's Common Stock trades below $0.01, the principal amount of the Note shall automatically and without further action increase by twenty-five thousand dollars ($25,000).
The Holder shall have the right at any time after the occurrence of an Event of Default, to require the Borrower, to immediately issue, in lieu of the Default Amount and/or Default Sum, the number of shares of Common Stock of the Borrower equal to the Default Amount and/or Default Sum
15 |
divided by the Conversion Price then in effect, subject to issuance in tranches due to the beneficial ownership limitations provided in this Note.
ARTICLE IV. MISCELLANEOUS
4.1. Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.
4.2. Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or
(iv) transmitted by hand delivery, telegram , email or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile or email, with accurate confirmation generated by the transmitting facsimile machine or computer, at the address, email or number designated in the Purchase Agreement (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur.
4.3. Amendments. This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Holder. The term "Note" and all reference thereto, as used throughout this instrument, shall mean this instrument (and the other Notes issued pursuant to the Purchase Agreement) as originally executed, or if later amended or supplemented, then as so amended or supplemented.
4.4. Assignability. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Each transferee of this Note must be an "accredited investor" (as defined in Rule 501(a) of the 1933 Act). Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.
4.5. Cost of Collection. If default is made in the payment of this Note, the Borrower shall pay the Holder hereof costs of collection, including reasonable attorneys' fees.
4.6. Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of Nevada without regard to conflicts of laws principles that would result in the application of the substantive laws of another jurisdiction. Any action brought by either party against the other concerning the transactions contemplated by this Agreement must be brought only in the civil or state courts located in the State and county of New York or in the federal courts located in the State and county of New York. Both parties and the individual signing this Agreement on behalf of the Borrower agree to submit to the jurisdiction of such courts. The prevailing party shall be entitled to recover from the other party its reasonable attorney' s fees and
16 |
costs. In the event that any provision of this Note is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or unenforceability of any other provision of this Note. Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Borrower in any other jurisdiction to collect on the Borrower's obligations to Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment or other decision in favor of the Holder. This Note shall be deemed an unconditional obligation of Borrower for the payment of money and, without limitation to any other remedies of Holder, may be enforced against Borrower by summary proceeding pursuant to New York Civil Procedure Law and Rules Section 3213 or any similar rule or statute in the jurisdiction where enforcement is sought. For purposes of such rule or statute, any other document or agreement to which Holder and Borrower are parties or which Borrower delivered to Holder, which may be convenient or necessary to determine Holder's rights hereunder or Borrower's obligations to Holder are deemed a part of this Note, whether or not such other document or agreement was delivered together herewith or was executed apart from this Note.
4.7. Certain Amounts. Whenever pursuant to this Note the Borrower is required to pay an amount in excess of the outstanding principal amount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest on such interest, the Borrower and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this Note may be difficult to determine and the amount to be so paid by the Borrower represents stipulated damages and not a penalty and is intended to compensate the Holder in part for loss of the opportunity to convert this Note and to earn a return from the sale of shares of Common Stock acquired upon conversion of this Note at a price in excess of the price paid for such shares pursuant to this Note. The Borrower and the Holder hereby agree that such amount of stipulated damages is not plainly disproportionate to the possible loss to the Holder from the receipt of a cash payment without the opportunity to convert this Note into shares of Common Stock.
4.8. Disclosure. Upon receipt or delivery by the Company of any notice in accordance with the terms of this Note, unless the Company has in good faith determined that the matters relating to such notice do not constitute material, non-public information relating to the Company or any of its Subsidiaries, the Company shall within one (I) Trading Day after any such receipt or delivery, publicly disclose such material, non-public information on a Current Report on Form 8-K or otherwise. In the event that the Company believes that a notice contains material, non public information relating to the Company or any of its Subsidiaries, the Company so shall indicate to such Holder contemporaneously with delivery of such notice, and in the absence of any such indication, the Holder shall be allowed to presume that all matters relating to such notice do not constitute material, non-public information relating to the Company or its Subsidiaries.
4.9. Notice of Corporate Events. Except as otherwise provided below, the Holder of this Note shall have no rights as a Holder of Common Stock unless and only to the extent that it converts this Note into Common Stock. The Borrower shall provide the Holder with prior notification of any meeting of the Borrower's shareholders (and copies of proxy materials and other information sent to shareholders). In the event of any taking by the Borrower of a record of its shareholders for the purpose of determining shareholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including
17 |
by way of merger, consolidation, reclassification or recapitalization) any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any proposed sale, lease or conveyance of all or substantially all of the assets of the Borrower or any proposed liquidation, dissolution or winding up of the Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20) days prior to the record date specified therein (or thirty (30) days prior to the consummation of the transaction or event, whichever is earlier), of the date on which any such record is to be taken for the purpose of such dividend, distribution, right or other event, and a brief statement regarding the amount and character of such dividend, distribution, right or other event to the extent known at such time. The Borrower shall make a public announcement of any event requiring notification to the Holder hereunder substantially simultaneously with the notification to the Holder in accordance with the terms of this Section 4.9.
4.10. Remedies. The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.
4.11. Usury. This Note shall be subject to the anti-usury limitations contained in the Purchase Agreement.
(Remainder of Page intentionally left blank)
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IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer as of the Issue Date first set forth above.
CANNAGISTICS, INC.
By: /s/ James Zimbler
James Zimbler
Chief Executive Officer
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EXHIBIT A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the 8% convertible note of Cannagistics, Inc. , a Nevada corporation (the Company"), into shares of common stock (the "Common Stock"), of the Company 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 Company 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 1.1 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 pursuant to any prospectus.
Conversion calculations:
Issue Date of Note: ___________________________
Date to Effect Conversion: _____________________
Conversion Price: ____________________________
Principal Amount of Note to be Converted: _________
Less applicable fees under the Note: ______________
Amount of Note to be Converted: ________________
Interest Amount to be Converted: ________________
Less applicable fees under the Note: ______________
Amount of Note to be Converted: ________________
Additional Principal on Account of Conversion
Pursuant to Section 1.2(b) of the Note: ____________
Number of shares of Common Stock to be issued: _____
Remaining Principal Balance of Note: ______________
Signature: __________________________________
Name: ____________________________________
Address for Delivery of Common Stock Certificates: _____
_____________________________________________
_____________________________________________
Or
DWAC Instructions:
DTC No: _____________
Account No: __________
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NEITHER THE ISSUANCE NOR SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE 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 HOLDER), 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 OR OTHER APPLICABLE EXEMPTION. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
Principal Amount: $105,000.00 Purchase Price: $94,500.00 Original Issue Discount: $10,500.00
Issue Date: April 15, 2020
CONVERTIBLE PROMISSORY NOTE
FOR VALUE RECEIVED, CANNAGISTICS, INC., a Nevada corporation (hereinafter called the "Borrower") (Trading Symbol: CNGT), hereby promises to pay to the order of CROWN BRIDGE PARTNERS, LLC, a New York limited liability company, or registered assigns (the "Holder") the principal sum of up to $105,000.00 (the "Principal Amount"), together with interest at the rate of ten percent (10%) per annum (with the understanding that the first twelve months of interest of each tranche shall be guaranteed), at maturity or upon acceleration or otherwise , as set forth herein (the "Note"). The consideration to the Borrower for this Note is up to $94,500.00 (the "Consideration"). The Holder shall pay $31,500.00 of the Consideration (the " First Tranche") within a reasonable amount of time of the full execution of the transactional documents related to this Note. At the closing of the First Tranche, the outstanding principal amount under this Note shall be $35,000.00, consisting of the First Tranche plus the prorated portion of the 010 (as defined herein). The Holder may pay, in its sole discretion, such additional amounts of the Consideration and at such dates as the Holder may choose in its sole discretion. THE PRINCIPAL SUM DUE TO THE HOLDER SHALL BE PRORATED BASED ON THE CONSIDERATION ACTUALLY PAID BY THE HOLDER, THE APPLICABLE PORTION OF THE OID, AS WELL AS THE APPLICABLE FEES AND INTEREST. The maturity date for each tranche funded shall be twelve (12) months from the effective date of each payment (each a " Maturity Date"), and is the date upon which the principal sum of each respective tranche, as well as any accrued and unpaid interest and other fees relating to that respective tranche, shall be due and payable. This Note may not be prepaid in whole or in part except as otherwise explicitly set forth herein. Any amount of principal or interest on this Note, which is not paid by the Maturity Date, shall bear interest at the rate of the lesser of (i) fifteen
percent (15%) per annum or (ii) the maximum amount permitted by law from the due date thereof until the same is paid ("Default Interest"). Interest shall commence accruing on the date that the Note is fully paid and shall be computed on the basis of a 365-day year and the actual number of days elapsed. All payments due hereunder (to the extent not converted into the Borrower's common stock (the "Common Stock") in accordance with the terms hereof) shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. As used in this Note, the term " business day" shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed.
This Note carries a prorated original issue discount of up to $10,500.00 (the "OID"), to cover the Holder's accounting fees, due diligence fees, monitoring , and/or other transactional costs incurred in connection with the purchase and sale of the Note, which is included in the principal balance of this Note. Thus, the purchase price of this Note shall be up to $94,500.00, computed as follows: the Principal Amount minus the OID.
This Note is free from all taxes, liens , claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive right s or other similar rights of shareholders of the Borrower and will not impose personal liability upon the holder thereof.
The following additional terms shall apply to this Note:
ARTICLE I. CONVERSION RIGHTS
1.1 Conversion Right. The Holder shall have the right at any time to convert all or any part of the outstanding and unpaid principal amount and accrued and unpaid interest of this Note into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price (the "Conversion Price" ) determined as provided herein (a "Conversion "); provided, however , that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number
2 |
of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein ) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934 , as amended (the " Exchange Act"), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso. The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the " Notice of Conversion "), delivered to the Borrower or Borrower's transfer agent by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower or Borrower's transfer agent before 11:59 p.m., New York, New York time on such conversion date (the "Conversion Date"). The term "Conversion Amount" means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion (2) at the Holder' s option, accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date, plus (3) at the Holder's option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) (4) at the Holder's option, any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.
12 | Conversion Price. |
(a) Calculation of Conversion Price. The Conversion Price shall be the lesser of (i) 55% multiplied by the lowest Trading Price (as defined below) (representing a discount rate of 45%) during the previous twenty-five (25) Trading Day period ending on the latest complete Trading Day prior to the date of this Note or (ii) the Variable Conversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower's securities or the securities of any subsidiary of the Borrower, combinations, recapitalization , reclassifications, extraordinary distributions and similar events) (also subject to adjustment as further described herein). The "Variable Conversion Price" shall mean 55% multiplied by the Market Price (as defined herein) (representing a discount rate of 45%). "Market Price" means the lowest one (1) Trading Price (as defined below) for the Common Stock during the twenty-five (25) Trading Day period ending on the last complete Trading Day prior to the Conversion Date. "Trading Price" means, for any security as of any date, the lesser of the (i) lo west traded price and (ii) lowest closing bid price on the Over-the-Counter Pink Marketplace, OTCQB, or applicable trading market (the " Principal Market") as reported by a reliable reporting service ("Reporting Service" ) designated by the Holder (i.e. Bloomberg) or, if the Principal Market is not the principal trading market for such security, on the principal securities exchange or trading market where such security is listed or traded or, if the lowest intraday trading price of such security is not available in any of the
3 |
foregoing manners, the lowest intraday price of any market makers for such security that are quoted on the OTC Markets. If the Trading Price cannot be calculated for such security on such date in the manner provided above, the Trading Price shall be the fair market value as mutually determined by the Borrower and the holders of a majority in interest of the Notes being converted for which the calculation of the Trading Price is required in order to determine the Conversion Price of such Notes. " Trading Day" shall mean any day on which the Common Stock is tradable for any period on the Principal Market, or on the principal securities exchange or other securities market on which the Common Stock is then being traded. In the event that shares of the Borrower's Common Stock are not deliverable via DWAC following the conversion of any amount hereunder, an additional ten percent (I 0%) discount shall be factored into the Variable Conversion Price until this Note is no longer outstanding (resulting in a discount rate of 55% assuming no other adjustments are triggered hereunder). Additionally, if the Borrower fails to comply with the reporting requirements of the Exchange Act (including but not limited to becoming late or delinquent in its filings, even if the Borrower subsequently cures such delinquency) at any time while after the Issue Date, and/or the Borrower shall cease to be subject to the reporting requirements of the Exchange Act, an additional fifteen percent (15%) discount shall be factored into the Variable Conversion Price until this Note is no longer outstanding (resulting in a discount rate of 60% assuming no other adjustments are triggered hereunder).
Each time, while this Note is outstanding, the Borrower enters into a Section 3(a)(9) transaction (including but not limited to the issuance of new promissory notes or of a replacement promissory note), or Section 3(a)(l 0) transaction, in which any 3rd party has the right to convert monies owed to that 3rd party (or receive shares pursuant to a settlement or otherwise) at a discount to market greater than the Variable Conversion Price in effect at that time (prior to all other applicable adjustments in the Note), then the Variable Conversion Price shall be automatically adjusted to such greater discount percentage (prior to all applicable adjustments in this Note) until this Note is no longer outstanding. Each time, while this Note is outstanding , the Borrower enters into a Section 3(a)(9) transaction (including but not limited to the issuance of new promissory notes or of a replacement promissory note) , or Section 3(a)( I 0) transaction, in which any 3rd party has a look back period greater than the look back period in effect under the Note at that time, then the Holder's look back period shall automatically be adjusted to such greater number of days until this Note is no longer outstanding. The Borrower shall give written notice to the Holder, with the adjusted Variable Conversion Price and/or adjusted look back period (each adjustment that is applicable due to the triggering event), within one (I) business day of an event that requires any adjustment described in the two immediately preceding sentences. Holder shall be entitled to deduct $1,500.00 from the conversion amount in each Notice of Conversion to cover Holder's deposit fees associated with each Notice of Conversion.
If at any time the Conversion Price as determined hereunder for any conversion would be less than the par value of the Common Stock, then at the sole discretion of the Holder, the Conversion Price hereunder may equal such par value for such conversion and the Conversion Amount for such conversion may be increased to include Additional Principal , where " Additional Principal" means such additional amount to be added to the Conversion Amount to the extent necessary to cause the number of conversion shares issuable upon such conversion to equal the same number of conversion shares as would have been issued had the Conversion Price not been adjusted by the Holder to the par value price.
4 |
(b) Authorized Shares. The Borrower covenants that during the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note. The Borrower is required at all times to have authorized and reserved twelve times the number of shares that is actually issuable upon full conversion of the Note (based on the Conversion Price of the Notes in effect from time to time)(the "Reserved Amount "). The Reserved Amount shall be increased from time to time in accordance with the Borrower's obligations hereunder. The Borrower represents that upon issuance , such shares will be duly and validly issued, fully paid and non-assessable. In addition , if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Notes shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Notes. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note.
If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default under Section 3.2 of the Note.
13 | Method of Conversion. |
(a) Mechanics of Conversion. Subject to Section 1.1, this Note may be converted by the Holder in whole or in part at any time from time to time after the Issue Date , by (A) submitting to the Borrower or Borrower' s transfer agent a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 11:59 p.m., New York, New York time) and (B) subject to Section 1.4(b), surrendering this Note at the principal office of the Borrower.
(b) Surrender of Note Upon Conversion. Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted. The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method , reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion. In the event of any dispute or discrepancy, such records of the Borrower shall, prima Jacie, be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Note. The Holder 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
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represented by this Note may be less than the amount stated on the face hereof.
(c) Payment of Taxes. The Borrower shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Note in a name other than that of the Holder (or in street name), and the Borrower shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be held for the Holder's account) requesting the issuance thereof shall have paid to the Borrower the amount of any such tax or shall have established to the satisfaction of the Borrower that such tax has been paid.
(d) Delivery of Common Stock Upon Conversion. Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within two (2) business days after such receipt (the " Deadline") (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the terms hereof.
(e) Obligation of Borrower to Deliver Common Stock. Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion , and, unless the Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Borrower's obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim , recoupment , limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is sent to the Borrower or Borrower's transfer agent before 11:59 p.m., New York, New York time, on such date.
(t) Delivery of Common Stock by Electronic Transfer. In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided the Borrower is participating in the Depository Trust Company ("OTC") Fast Automated Securities Transfer (" FAST ") program, upon request of the Holder and its compliance with the provisions contained in Section 1.1 and in this Section 1.4, the Borrower shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Holder by crediting the account of Holder's Prime Broker with OTC through its De posit Withdrawal Agent Commission (" DWAC") system.
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(g) Failure to Deliver Common Stock Prior to Deadline. Without in any way limiting the Holder's right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered by the Deadline (other than a failure due to the circumstances described in Section 1.3 above, which failure shall be governed by such Section) the Borrower shall pay to the Holder $2,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. The Borrower agrees that the right to convert is a valuable right to the Holder. The damages resulting from a failure, attempt to frustrate, interference with such conversion right are difficult if not impossible to qualify. Accordingly the parties acknowledge that the liquidated damages provision contained in this Section l .4(g) are justified.
(h) OTC; Market Loss. If the Borrower fails to maintain its stat us as "OTC Eligible "for any reason, or, if at any time while this Note is outstanding the Conversion Price is equal to or lower than $0.01, then an additional twenty percent (20%) discount shall be factored into the Variable Conversion Price until this Note is no longer outstanding (resulting in a discount rate of 65%, assuming no other adjustments are triggered hereunder).
1.4 Concerning the Shares. The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) (" Rule 144") or other applicable exemption or (iv) such shares are transferred to an "affiliate" (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor. Except as otherwise provided (and subject to the removal provisions set forth below), until such time as the shares of Common Stock issuable upon conversion of this Note have been registered under the Act or otherwise may be sold pursuant to Rule 144 or other applicable exemption without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for shares of Common Stock issuable upon conversion of this Note that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:
"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
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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 HOLDER), 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 OR OTHER APPLICABLE EXEMPTION. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES."
The legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions , to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be accepted by the Borrower so that the sale or transfer is effected or (ii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold. In the event that the Borrower does not accept the opinion of counsel provided by the Holder with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S or other applicable exemption, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.
15 Effect of Certain Events .
(a) Effect of Merger, Consolidation, Etc. At the option of the Holder, the sale, conveyance or disposition of all or substantially all of the assets of the Borrower, the effectuation by the Borrower of a transaction or series of related transactions in which more than 50% of the voting power of the Borrower is disposed of, or the consolidation , merger or other business combination of the Borrower with or into any other Person (as defined below) or Persons when the Borrower is not the survivor shall either: (i) be deemed to be an Event of Default (as defined in this Note) pursuant to which the Borrower shall be required to pay to the Holder upon the consummation of and as a condition to such transaction an amount equal to the Default Amount (as defined in this Note) or (ii) be treated pursuant to Section 1.5(b) hereof. "Person" shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization.
(b) Adjustment Due to Merger, Consolidation, Etc. If, at any time when this Note is issued and outstanding and prior to conversion of all of the Notes, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon the basis and upon the terms and conditions specified herein and in lieu of the
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shares of Common Stock immediately theretofore issuable upon conversion , such stock, securities or assets which the Holder would have been entitled to receive in such transaction had this Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder of this Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof. The Borrower shall not affect any transaction described in this Section 1.5(b) unless (a) it first gives, to the extent practicable, thirty (30) days prior written notice (but in any event at least fifteen ( 15) days prior written notice) of the record date of the special meeting of shareholders to approve, or if there is no such record date, the consummation of, such merger, consolidation, exchange of shares, recapitalization, reorganization or other similar event or sale of assets (during which time the Holder shall be entitled to convert this Note) and (b) the resulting successor or acquiring entity (if not the Borrower) assumes by written instrument the obligations of this Section 1.5(b). The above provisions shall similarly apply to successive consolidations, mergers , sales, transfers or share exchanges.
(c) Adjustment Due to Distribution. If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower's shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a "Distribution "), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution.
(d) Adjustment Due to Dilutive Issuance. If, at any time when any Notes are issue d and outstanding, the Borrower issues or sells, or in accordance with this Section l .5(d) hereof is deemed to have issued or sold, except for shares of Common Stock issued directly to vendors or suppliers of the Borrower in satisfaction of amounts owed to such vendors or suppliers (provided, however, that such vendors or suppliers shall not have an arrangement to transfer, sell or assign such shares of Common Stock prior to the issuance of such shares), any shares of Common Stock for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith) less than the Conversion Price in effect on the date of such issuance (or deemed issuance) of such shares of Common Stock (a " Dilutive Issuance") , then immediately upon the Dilutive Issuance, the Conversion Price will, at the sole discretion of the Holder, be reduced to the amount of the consideration per share received by the Borrower in such Dilutive Issuance.
The Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or grants any warrants, rights or options (not including employee stock option plans), whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities convertible into or exchangeable for Common Stock ("Convertible Securities") (such warrants, rights and options to purchase Common Stock or
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Convertible Securities are hereinafter referred to as "Options") and the price per share for which Common Stock is issuable upon the exercise of such Options is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share. For purposes of the preceding sentence , the "price per share for which Common Stock is issuable upon the exercise of such Options" is determined by dividing (i) the total a mount, if any, received or receivable by the Borrower as consideration for the issuance or granting of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the exercise of all such Options, plus, in the case of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional consideration payable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion of Convertible Securities, if applicable). No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon exercise of such Options.
Additionally, the Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or sells any Convertible Securities , whether or not immediately convertible, and the price per share for which Common Stock is issuable upon such conversion or exchange at any time under such Convertible Securities is less than the Conversion Price then in effect, then the Conversion Price may in the sole discretion of the Holder be equal to such price per share.
(e) Purchase Rights. If, at any time when any Notes are issued and outstanding, the Borrower issues any convertible securities or rights to purchase stock, warrants, securities or other property (the " Purchase Rights") pro rata to the record holders of any class of Common Stock, then the Holder of this Note will be entitle d to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on conversion contained herein) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Right s.
(t) Notice of Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price as a result of the events described in this Section 1.5, the Borrower, at the Borrower's expense and at the option of the Holder, shall promptly compute such adjustment or readjustment and prepare and furnish to the Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Borrower shall, upon the written request at any time of the Holder, furnish to such Holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of the Note.
1.6 Status as Shareholder. Upon submission of a Notice of Conversion by a Holder, (i) the shares covered thereby (other than the shares, if any, which
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cannot be issued because their issuance would exceed such Holder's allocated portion of the Reserved Amount or Maximum Share Amount) shall be deemed converted into shares of Common Stock and (ii) the Holder's rights as a Holder of such converted portion of this Note shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Borrower to comply with the terms of this Note. Notwithstanding the foregoing, if a Holder has not received certificates for all shares of Common Stock prior to the tenth (10th) business day after the expiration of the Deadline with respect to a conversion of any portion of this Note for any reason, then (unless the Holder otherwise elects to retain its status as a holder of Common Stock by so notifying the Borrower) the Holder shall regain the rights of a Holder of this Note with respect to such unconverted portions of this Note and the Borrower shall, as soon as practicable, return such unconverted Note to the Holder or, if the Note has not been surrendered , adjust its records to reflect that such portion of this Note has not been converted. In all cases, the Holder shall retain all of its rights and remedies (including, without limitation, (i) the right to receive Conversion Default Payments pursuant to Section 1.3 to the extent required thereby for such Conversion Default and any subsequent Conversion Default and (ii) the right to have the Conversion Price with respect to subsequent conversions determined in accordance with Section 1.3) for the Borrower's failure to convert this Note.
ARTICLE II. CERTAIN COVENANTS
2.1 Distributions on Capital Stock. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder' s written consent
(a) | pay, declare or set apart for such payment, any dividend or other distribution (whether in cash, property or other securities) on shares of capital stock other than dividends on shares of Common Stock solely in the form of additional shares of Common Stock or (b) directly or indirectly or through any subsidiary make any other payment or distribution in respect of its capital stock except for distributions pursuant to any shareholders' rights plan which is approved by a majority of the Borrower's disinterested directors. |
2.2 Restriction on Stock Repurchases. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder ' s written consent redeem, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) in any one transaction or series of related transactions any shares of capital stock of the Borrower or any warrants, rights or options to purchase or acquire any such shares.
ARTICLE Ill. EVENTS OF DEFAULT
If any of the following events of default (each, an " Event of Default") shall occur:
3.1 Failure to Pay Principal or Interest. The Borrower fails to pay the principal hereof or interest thereon when due on this Note, whether at maturity, upon acceleration or otherwise, and such breach continues for a period of five (5) days.
3.2 Conversion and the Shares. The Borrower fails to reserve a sufficient amount of shares of common stock as required under the terms of this Note (including Section 1.3 of this Note) and such breach continues for a period of five (5) days, fails to issue
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shares of Common Stock to the Holder (or announces or threatens in writing that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form) shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, the Borrower directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring (or issuing) (electronically or in certificated form) shares of Common Stock to be issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing ) any restrictive legend (or to withdraw any stop transfer instruction s in respect thereof) on any shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this note as and when required by this Note (or makes any written announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any written announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for two (2) business days after the Holder shall have delivered a Notice of Conversion. It is an obligation of the Borrower to remain current in its obligations to its transfer agent. It shall be an event of default of this Note, if a conversion of this Note is delayed, hindered or frustrated due to a balance owed by the Borrower to its transfer agent. If at the option of the Holder, the Holder advances any funds to the Borrower's transfer agent in order to process a conversion, such advanced funds shall be paid by the Borrower to the Holder within five (5) business days of a demand from the Holder, either in cash or as an addition to the balance of the Note, and such choice of payment method is at the discretion of the Borrower.
3.3 Breach of Covenants. The Borrower breaches any material covenant or other material term or condition contained in this Note and any collateral documents and such breach continues for a period of ten (10) days after written not ice thereof to the Borrower from the Holder.
3.4 Breach of Representations and Warranties. Any representation or warranty of the Borrower made herein or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith, shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this No te.
3.5 Receiver or Trustee. The Borrower or any subsidiary of the Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed.
3.6 Judgments. Any money judgment, writ or similar process shall be entered or filed against the Borrower or any subsidiary of the Borrower or any of its property or other assets for more than $50,000, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) days unless otherwise consented to by the Holder, which consent will not be unreasonably withheld.
3.7 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any
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bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower.
3.8 Delisting of Common Stock. The Borrower shall fail to maintain the listing or quotation of the Common Stock on the Principal Market or an equivalent replacement exchange , the Nasdaq Global Market, the Nasdaq Capital Market, the New York Stock Exchange, or the NYSE MKT.
3.9 Failure to Comply with the Exchange Act. The Borrower shall fail to comply with the reporting requirements of the Exchange Act (including but not limited to becoming late or delinquent in its filings at any time while this Note is outstanding, even if the Borrower subsequently cures such delinquency), and/or the Borrower shall cease to be subject to the reporting requirements of the Exchange Act.
3.10 Liquidation. Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.
3.11 Cessation of Operations. Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower's ability to continue as a "going concern" shall not be an admission that the Borrower cannot pay its debts as they become due, or any disposition or conveyance of any material asset of the Borrower.
3.12 Financial Statement Restatement. The Borrower replaces its auditor, or any restatement of any financial statements filed by the Borrower with the SEC for any date or period from two years prior to the Issue Date of this Note and until this Note is no longer outstanding, if the result of such restatement would, by comparison to the unrestated financial statement, have constituted a material adverse effect on the rights of the Holder with respect to this Note.
3.13 Replacement of Transfer Agent. In the event that the Borrower replaces its transfer agent, and the Borrower fails to provide prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions (including but not limited to the provision to irrevocably reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Borrower and the Borrower.
3.14 Cross-Default. Notwithstanding anything to the contrary contained in this Note or the other related or companion documents, a breach or default by the Borrower of any covenant or other term or condition contained in any of the other financial instrument, including but not limited to all convertible promissory notes, currently issued, or hereafter issued, by the Borrower, to the Holder or any other 3rd party (the "Other Agreements"), after the passage of all applicable notice and cure or grace periods, shall, at the option of the Holder, be considered a default under this Note, in which event the Holder shall be entitled to apply all rights and remedies of the Holder under the terms of this Note by reason of a default under said Other Agreement or hereunder.
3.15 Inside Information. Any attempt by the Borrower or its officers, directors, and/or affiliates to transmit, convey, disclose , or any actual transmittal ,
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conveyance, or disclosure by the Borrower or its officers, directors, and/or affiliates of, material non-public information concerning the Borrower, to the Holder or its successors and assigns, which is not immediately cured by Borrower's filing of a Form 8-K pursuant to Regulation FD on that same date.
3.16 No bid. At any time while this Note is outstanding, the lowest Trading Price on the Principal Market or other applicable principal trading market for the Common Stock is equal to or less than $0.0001.
3.17 Delisting or Suspension of Trading of Common Stock. If , at any time on or after the Issue Date , the Borrower ' s Common Stock (i) is suspended from trading , (ii) halted from trading, and/or (iii) fails to be quoted or listed (as applicable) on any level of the OTC Markets, any tier of the NASDAQ Stock Market, the New York Stock Exchange, or the NYSE MKT.
3.18 Unavailability of Rule 144. If, at any time on or after the date which is six (6) months after the Issue Date, the Holder is unable to (i) obtain a standard " 144 legal opinion letter" from an attorney reasonably acceptable to the Holder, the Holder's brokerage firm (and respective clearing firm), and the Borrower's transfer agent in order to facilitate the Holder's conversion of any portion of the Note into free trading shares of the Borrower's Common Stock pursuant to Rule 144, and/or (ii) thereupon deposit such shares into the Holder's brokerage account.
Upon the occurrence and during the continuation of any Event of Default specified in Sections 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 3.7, 3.8, 3.9, 3.10, 3.11, 3.12 , 3.13 , 3.14, 3.15, 3.16, 3.17, and/or 3.18 exercisable through the delivery of written notice to the Borrower by such Holders (the "Default Notice"), and upon the occurrence of an Event of Default specified the remaining sections of Articles III, the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to 175% multiplied by the then outstanding entire balance of the Note (including principal and accrued and unpaid interest) plus Default Interest, if any. plus any amounts owed to the Holder pursuant to Sections l .4(g) hereof (collectively , in the aggregate of all of the above, the " Default Amount "), and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection , and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity. The Holder shall have the right at any time , to require the Borrower, upon written not ice, to immediately issue, in lieu of the Default Amount, the number of shares of Common Stock of the Borrower equal to the Default Amount divided by the Conversion Price then in effect , subject to issuance in tranches due to the beneficial ownership limitations contained in this Note.
ARTICLE IV. MISCELLANEOUS
4.1 Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights
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and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.
42 Notices. All notices , demands, requests , consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified here in, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, facsimile, or electronic mail addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery, upon electronic mail delivery , or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:
If to the Borrower, to:
CANNAGISTICS, INC.
1200 Veterans Highway, Suite 310
Hauppaige, NY 11788
e-mail: jzimbler@global3pl.io
If to the Holder:
CROWN BRIDGE PARTNERS, LLC
1173a 2nd Avenue, Suite 126 New York, NY 10065
e-mail: Info@CrownBridgeCapital.com
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43 Amendments. This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Holder. The term ''Note" and all reference thereto, as used throughout this instrument , shall mean this instrument as originally executed, or if later amended or supplemented , then as so amended or supplemented.
4.4 Assignability. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Notwithstanding anything to the contrary herein, the rights, interests or obligations of the Borrower hereunder may not be assigned, by operation of law or otherwise , in whole or in part, by the Borrower without the prior signed written con sent of the Holder, which consent may be withheld at the sole discretion of the Holder (any such assignment or transfer shall be null and void if the Borrower does not obtain the prior signed written consent of the Holder). This Note or any of the severable rights and obligations inuring to the benefit of or to be performed by Holder hereunder may be assigned by Holder to a third party, in whole or in part, without the need to obtain the Company's consent thereto. Each transferee of this Note must be an "accredited investor" (as defined in Rule 501(a) of the 1933 Act). Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.
4.5 Cost of Collection. If default is made in the payment of this Note, the Borrower shall pay the Holder hereof costs of collection, including reasonable attorneys' fees.
4.6 Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of Nevada without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Note shall be brought only in the state of New York City, NY and/or federal courts of New York City, NY. The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. The Borrower and Holder waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Note or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for not ices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
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4.7 Certain Amounts. Whenever pursuant to this Note the Borrower is required to pay an amount in excess of the outstanding principal amount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest on such interest, the Borrower and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this Note may be difficult to determine and the amount to be so paid by the Borrower represents stipulated damages and not a penalty and is intended to compensate the Holder in part for loss of the opportunity to convert this Note and to earn a return from the sale of shares of Common Stock acquired upon conversion of this Note at a price in excess of the price paid for such shares pursuant to this Note. The Borrower and the Holder hereby agree that such amount of stipulated damages is not plainly disproportionate to the possible loss to the Holder from the receipt of a cash payment without the opportunity to convert this Note into shares of Common Stock.
4.8 Remedies. The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining , preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.
49 Prepayment. Notwithstanding anything to the contrary contained in this Note, the Borrower may prepay any amount outstanding under each tranche of this Note, during the initial 60 calendar day period after the issuance of the respective tranche of this Note, by making a payment to the Holder of an amount in cash equal to 120% multiplied the amount that the Borrower is prepaying , subject to the Holder's prior written acceptance in Holder's sole discretion . Notwithstanding anything to the contrary contained in this Note, the Borrower may prepay any amount outstanding under each tranche of this Note, during the 61st through 120 calendar day period after the issuance of the respective tranche of this Note, by making a payment to the Holder of an amount in cash equal to 140% multiplied the amount that the Borrower is prepaying, subject to the Holder's prior written acceptance in Holder's sole discretion. Notwithstanding anything to the contrary contained in this Note, the Borrower may prepay any amount outstanding under each tranche of this Note, during the 121st through I 80 calendar day period after the issuance of the respective tranche of this Note, by making a payment to the Holder of an amount in cash equal to I 45% multiplied the amount that the Borrower is prepaying, subject to the Holder's prior written acceptance in Holder' s sole discretion. The Borrower may not prepay any amount outstanding under each tranche of this Note after the 180th calendar day after the issuance of the respective tranche of this Note.
4.10 Usury. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable provision shall automatically be revised to equal the maximum rate of interest or other amount deemed interest permitted under applicable law. The Borrower covenants (to the extent that it may lawfully do so) that it shall not seek to claim or take advantage of any law that would prohibit or forgive the Borrower from paying all or a portion of the principal or interest on this
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Note.
4.11 Section 3(a)(l 0) Transact ions. If at any time while this Note is outstanding, the Borrower enters into a transaction structured in accordance with, based upon, or related or pursuant to, in whole or in part, Section 3(a)(l 0) of the Securities Act (a "3(a)(10) Transaction"), then a liquidated damages charge of 25% of the outstanding principal balance of this Note at that time, will be assessed and will become immediately due and payable to the Holder, either in the form of cash payment or as an addition to the balance of the Note, as determined by mutual agreement of the Borrower and Holder.
4.12 Reverse Split Penalty. If at any time while this Note is outstanding, the Borrower effectuates a reverse split with respect to the Common Stock, then a liquidated damages charge of 15% of the outstanding principal balance of this Note at that time, will be assessed and will become immediately due and payable to the Holder, either in the form of cash payment or as an addition to the balance of the Note, as determined by mutual agreement of the Borrower and Holder.
4.13 Right of First Refusal. If at any time while this Note is outstanding, the Borrower has a bona fide offer of capital or financing from any 3rd party, that the Borrower intends to act upon, then the Borrower must first offer such opportunity to the Holder to provide such capital or financing to the Borrower on the same terms as each respective 3rd party's terms. Should the Holder be unwilling or unable to provide such capital or financing to the Borrower within 10 trading days from Holder' s receipt of written notice of the offer (the "Offer Notice ") from the Borrower, then the Borrower may obtain such capital or financing from that respective 3rd party upon the exact same terms and conditions offered by the Borrower to the Holder, which transaction must be completed within 30 days after the date of the Offer Notice. If the Borrower does not receive the capital or financing from the respective 3rd party within 30 days after the date of the respective Offer Notice, then the Borrower must again offer the capital or financing opportunity to the Holder as described above, and the process detailed above shall be repeated. The Offer Notice must be sent via electronic mail to Info@CrownBridge Capital.com.
4.14 Terms of Future Financings. So long as this Note is outstanding, upon any issuance by the Borrower or any of its subsidiaries of any security, or amendment to a security that was originally issued before the Issue Date, with any term that the Holder reasonably believes is more favorable to the holder of such security or with a term in favor of the holder of such security that the Holder reasonably believes was not similarly provided to the Holder in this Note, then (i) the Borrower shall notify the Holder of such additional or more favorable term within one (1) business day of the issuance and/or amendment (as applicable) of the respective security, and (ii) such term, at Holder's option, shall become a part of the transaction documents with the Holder (regardless of whether the Borrower complied with the notification provision of this Section 4.14). The types of terms contained in another security that may be more favorable to the holder of such security include, but are not limited to, terms addressing conversion discounts, prepayment rate, conversion lookback periods, interest rates, and original issue discounts. If Holder elects to have the term become a part of the transaction documents with the Holder, then the Borrower shall immediately deliver acknowledgment of such adjustment in form and substance reasonably satisfactory to the Holder (the " Acknowledgment" ) within one (1) business days of Borrower's receipt of request from
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Holder (the "Adjustment Deadline"), provided that Borrower' s failure to timely provide the Acknowledgement shall not affect the automatic amendments contemplated hereby. If the Acknowledgement is not delivered by the Adjustment Deadline, then $1,000.00 per day shall be added to the balance of the Note for each day beyond the Adjustment Deadline that the Borrower fails to deliver such Acknowledgement.
[signature page to follow]
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IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this April 15, 2020.
CANNAGISTICS, INC.
By: /s/ James Zimbler
James Zimbler
President and Chief Executive Officer
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EXHIBIT A -- NOTICE OF CONVERSION
The undersigned hereby elects to convert $_________________ principal amount of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note ("Common Stock") as set forth below, of CANNAGISTICS, INC., a Nevada corporation (the " Borrower") according to the conditions of the convertible note of the Borrower dated as of April 15, 2020 (the " Note"), as of the date written below. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.
Box Checked as to applicable instructions:
[ ] The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with OTC through its Deposit Withdrawal Agent Commission system (" DW AC Transfer").
Name of OTC Prime Broker:
Account Number:
[ ] The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder's calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary , on an attachment hereto:
CROWN BRIDGE PARTNERS, LLC
1 173a 2nd Avenue, Suite 126 New York, NY 10065
e-mail: Info@CrownBridgeCapital.com
Date of conversion: | |||
Applicable Conversion Price: | $ | ||
Number of shares of common stock to be issued | |||
pursuant to conversion of the Notes: | |||
Amount of Principal Balance due remaining | |||
under the Note after this conversion |
CROWN BRIDGE PARTNERS, LLC
By: ___________________________
Name: __________________________
Title: ___________________________
Date: ___________________________
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EMPLOYMENT AGREEMENT
AGREEMENT, dated as of the 1st day of October 2018, between Precious Investments , Inc. a Nevada corporation, and its wholly-owned subsidiary Global3pl, Inc., f/k/a KRG Logistics, Inc., an Ontario Corporation, with principal offices at 170 Traders Blvd. East , Mississauga , ON L4Z IW7 , (hereinafter referred to as the "Company") and James W. Zimbler through his Consulting Company, Emerging Growth Advisors, Inc., doing business at 3505 Veterans Highway, Suite Q, Ronkonkoma , NY 11779 (herein referred to as the "Employee").
WITNESSETH:
WHERE AS, the Company desires to formalize its relationship with the Employee and the Employee wishes to formalize his relationship with the Company; and
WHERE AS, the Employee has the requisite experience , background and skills, and is willing to formalize his relationship with the Company on the terms and subject to the conditions contained herein.
NOW, THEREFORE, the parties have agreed to the following:
1. Employment. The Company hereby employs Employee, and Employee hereby agrees to enter into the agreement, through Emerging Growth Advisors, Inc., with the Company, as the President and CEO of Precious Investments , Inc., ("President" or "Employee") of the Company reporting directly to the Board of Directors , effective immediately .
2. No Breach of Obligations. Employee represents and warrants to the Company that he has the requisite skills and experience, and has proven his values and abilities to the Company, and is ready, willing and able to perform those duties attendant to the position for which he is hired and that his entry into this Agreement with the Company does not constitute a breach of any agreement with any other person, firm or corporation, nor does any prior agreement between Employee and any person, firm or corporation contain any restriction or impediment to the ability of Employee to perform those duties for which he was hired, or which may be assigned to, or reasonably expected of him.
3. Services. During the full term of this Agreement, the President shall perform to the best of his abilities the following services and duties, in such manner and at such times as the Company may direct, the following being included by way of example and not by way of limitations:
a) | The President will be responsible for the operations of the Business and be available to discuss all company matters that are presented to him, within a reasonable time; |
b) The President shall aid and assist in guiding the Company' s national Marketing Program in cooperation with the Board of Directors and other Officers of the Company;
c) The President shall, in cooperation with the Company' s financial relations, public relations and investor relations firms(s), keep the Company ' s share holders , and the brokerage community updated from time to time as to the Company' s progress;
d) The President shall consult with and advise the officers of the Company, either orally or at the request of the Company, in writing, to such matters as he, the President, shall deem necessary to discuss relating to the management and operations of the Company; and
e) | The President shall be responsible for such other duties and responsibilities as necessary to fulfill his duties. |
4. Exclusivity. The President agrees that during the term of this Agreement he will impart and devote the necessary time, energy, skill and attention to the performance of his duties hereunder to the exclusion of all other employment or other services.
5. Place of Performance. The Employee agrees to perform his duties hereunder and agrees to the extent that it has been determined necessary and advisable, in the discretion of the Employee and Chief Executive Officer and Board of Directors, to travel to any place in the United States, Canada, or to a foreign country, where his presence is or may reasonably be required for the performance of his duties hereunder.
6. Compensation. The Company hereby agrees to compensate, and the Employee, hereby accepts for the performance of the services of President, as indicated below:
a) | Compensation. The Company shall pay to the President an amount of $195,000 per annum, during the term of this Agreement, such amount shall increase 3.5% each year for the term, and any renewal, on the anniversary date of this Agreement. Such fees shall be payable in accordance with the regular payroll practices of the Company; | |
b) | Vacation. The President shall be entitled to three (3) weeks' vacation per calendar year; | |
c) | Car Allowance. Employee shall be entitled to a monthly car allowance of $1,000, payable on the first business day of each month, or the first payroll payment of the month ; |
d) | Insurance and Medical Benefits. The Company shall maintain insurance and medical benefits for The Chairman equal to those available to its executives; |
e) | Expenses. Employee shall be promptly reimbursed for all reasonable out-of-pocket expenses for travel, ente rtainment, etc . incurred by it in its performance under this Agreement , upon submission of documentation supporting such expense(s), on a monthly basis. Any reimbursable expenses in excess of $2,000.00 shall be approved in advance by the Company; |
f) | Other Incentives. Employee shall be entitled to all the same benefits and incenti ves offered to all other senior management of the Company, including and ESOP (Employee Stock Option Plan), Management Incentive Pool, Bonus Plan and/or other Stock Incentive Plan established by the Board of Directors; and | |
g) | Other. The President will participate in various Joint-Venture operations, including, AFX Networks, Cannagistics and UrbanX, with additional compensation to be negotiated and determined. |
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7. | Representation and Warranties of Employee. By virtue of his execution hereof, and in order to induce the Company to enter into this Agreement, the Employee hereby represents and warrants, as follows : |
a) The President is not presently actively engaged in any business, employment or venture, which is, or may be, in direct conflict with the business of the Company;
b) The President as full power and authority to enter this Agreement with the Company and to perform in the time and manner contemplated;
c) | The President's compliance with the terms and conditions of this Agreement, in the time and the manner contemplated herein, will not conflict with any instrument or agreement pertaining to the transaction contemplated herein, and will not conflict in, result in a breach or, or constitute a default under any instrument to which he is a party; and |
d) | The President represents that he shall devote his best efforts to the success of the Company. |
8. | Representation and Warranties of the Company. By virtue of the execution of this Agreement, the Company hereby represents and warrants to the President as follows : |
a) The Company and the President agree that the President shall receive reimbursement for all reasonable expenses incurred by the President in connection with the performance of his duties hereunder subject to compliance with the Company's procedures; and the Company shall pay to the President directly, or reimburse the President for all other reasonable necessary and proven expenses and disbursements incurred by the President for and on behalf of the Company in the performance of the President's duties during the term of this Agreement; and
b) | This Agreement may be assigned and assumed only by Global3 pl, Inc., upon a spin-out of Global3pl, Inc . from the parent company. |
9. | Proprietary Rights . The President shall at no time before or after the termination of his emplo yment hereunder use or divulge or make known to anyone without the express written consent of the Board of Directors of the Company (except to those duly authorized by the Co mpan y to have access thereto), any marketing systems, programs or methods , customer or client lists, computer programs configurations, syste ms or proced ures , idea s, formulae, inventions, disco veries, imp rovements, secrets , processes or technical, or other information of the Co mpany, or any accounts , customer or client lists, transactions or business affairs of the Company. All ideas , marketing systems, computer programs, configuratio ns, system or procedures, program or methods , formulae, inve ntions, discoveries, im provements, secrets or processes, whether or not patentable or copyrig htable, made or developed by the President during the term of this Agreement, or within three (3) years after its expiration or termination, and relating to the business of the Company, shall be the exclusive right of the Compa ny, whether or not any claim of the President to compensation under Paragraph 6 hereof has been, or will be satisfied, and the President agrees to provide the Compa ny at its request and expense such instruments and evidence as it may reasonably request to perfect, enforce and maintain the Company' s right to such property. At the conclusion of his employ me nt by the Co mpany, the President shall forthwith surrender to the Company all letters, brochures, agreements and documents of every character relating to the business affairs and properties o f the Company then in his possessi on and shall not, without the Compan y' s prior written consent retain or disclose any copies thereof. |
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10. Competition. a) During the term of this Agreement, or upon the termination of his employment, whichever event shall occur earlier, and for a period of twelve (12) consecutive months thereafter, the President shall not, without the prior written consent of the Company engage, either as a Consultant, Agent, Proprietor, Officer, Director, Partner or majority stockholder in the business directly related to that of the Company.
b) The President further covenants that during the stated term of this agreement, and for the twelve (12) month period thereafter, whichever shall occur earlier , he will not solicit any clients or customers known by him to be clients or customers of the Company for competitive business. The foregoing restrictions shall not apply to a termination of the President and Chairman ' s employment by the Company without Cause, or a termination of the employment by the President because of a breach of the Agreement by the Company.
11. | Term and Termination. This Agreement shall be deemed to be effective as of the date indicated above and shall continue in full force and effect for a period of five (5) years, unless sooner terminated as hereunder set forth. This Agreement shall automatically be renewed for an additional period of three (3) years, unless the Board of Directors determines not to renew this Agreement, or the President notifies the Board of Directors of his desire not to renew the Agreement no less than thirty (30) days prior to the expiration of the initial term of this Agreement. Any notification must be in writing. |
a) | Termination by the Company for Cause. |
1) The Company may terminate the President employment for Cause. Upon such termination the Company shall have no further obligations to the President, except for compensation, or other benefits due, but not yet paid.
2) " Cause" shall mean: (i) the President's willful and continued failure substantially to perform his duties with the Company (other than as a result of the President's incapacity due to illness or injury), if the President is not then acting in the best interests of the Company, as determined by the Board of Directors, or (ii) the President's willful engagement in misconduct which is materially injurious to the Company, monetary or otherwise.
3) | Termination for Cause shall be effectuated only if: (i) the |
Company has delivered to the President a copy of " Notice of Termination" , which give s the President at least thirty (30) business days prior notice, therefore, affording the President the opportunity , together with the President's counsel to be heard before the Board of Directors: and (ii) the Board of Directors (after such Notice and opportunity to be heard) adopts a resolution concurred in by not less than two-thirds of all directors of the Company then in office, that in the good faith opinion of the Board of Directors, the President was guilty of conduct set forth and specifying the particulars thereof in detail.
b) | Termination by The President for Good Reason. |
1) The President may terminate his employment for "Good Reason" by giving the Company a "Notice of Termination" . Upon such termination, The President shall have the rights described.
2) "Good Reason" shall mean, (i) The President being removed as described hereof, except in connection with termination of the
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President's employment by the Company for Cause or Disability, or by the President without Good Reason; the assignment to the President, without his express written consent of any duties other than those permitted , the failure of the Company to obtain the assumption and agreement to perform this agreement by any successor as contemplated, repudiation by the Company of any obligations of the Company, the delivery of a "Notice of Termination" by the Company, except that the delivery of such notice shall be retroactively deemed not to constitute Good Reason if within sixty (60) days after the Board of Directors shall make the determination (after the opportunity to be heard provided for therein) and such determination is not thereafter reversed by a arbitration decision or final judgment of a Court of competent jurisdiction.
12. | Notice of Termination. Any purported termination of the President's employment shall be communicated by written "Notice of Termination" from one party to the other party hereto. For the purposes of this Agreement a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the President's employment, under the provision so indicated. No purported termination by the Company of the President ' s employment shall be effective if it is not effected pursuant to a "Notice of Termination" satisfying the requirements of this Paragraph. |
13. Date of Termination. "Date of Termination" shall mean the date on which a "notice of Termination" is given.
14. | Successors: Binding Agreement. |
a) The Company shall require any purchaser of all the business of the Company, by agreement or form and substance satisfactory to the President, to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform, if no such purchase had taken place. As used in this Agreement, " Compa ny" shall mean the Company as hereinafter defined, and any successor to its business , or assets, which executes becomes bound by all the terms and provisions of this Agreement by operation of law.
b) This Agreement shall inure to the benefit of and to be enforceable by the President's personal or legal representative, executors, administrators, successors, heirs, distributees, devisees and legates. If the President should die while any amount would still be payable to him hereunder if the President had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement with the terms of this Agreement to the President's devisee, legatee or other designee, or if there be no designee, to his estate.
16. |
Laws of the State of New York. This Agreement is being delivered in the State of New York and shall be construed and enforced in accordance with the Laws of the State of New York, irrespective of the state of Incorporation of the Company and the place or domicile of the President
|
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17. Remedies on Breach. Any remedies on breach of this Agreement are to be determined exclusively through arbitration as discussed in the Agreement.
18. Prohibition Against Assignment. Except as herein above otherwise expressly provided, the President agrees on behalf of himself and of his executors and administrators, heirs, legates, distributees, and any other person, or persons claiming benefits under him by virtue of this Agreement and the rights, interests and benefits hereunder, shall not be assigned, transferred, pledged or hypothecated in any way by the President or any executor, administrator, heir, legatee , distrubutee or other persons claiming under the President by virtue of the Agreement and shall not be subject to execution, attachment or similar process. Any attempted assignment , transfer, pledge or hypothecation, or other dispositions of this Agreement of such rights, interests and benefits contrary to the foregoing provisions, or the levy of any attachment or similar process thereupon shall be null and void and without effect.
This Agreement has been approved by the Company and the Board of Directors , as indicated by their respective signatures. This Agreement has been approved by the President, as indicated by his signature.
In Witness Whereof, the parties have executed this Agreement as of the date first indicated above and Agreed to by:
Precious Investments, Inc.
By: /s/ James W. Zimbler
James W. Zimbler, Chief Executive Officer
Employee:
/s/ James W. Zimbler
James W. Zimbler
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BMKR, LLP Certified Public Accountants
1200 Veterans Memorial Highway, Suite 350, Hauppage, New York 11788 |
T 631 293-5000 F 631 234-4272
|
Thomas G. Kober, CPA | Charles W. Blanchfield, CPA (Retired) |
Alfred M. Rizzo, CPA | Bruce A. Meyer, CPA (Retired) |
Joseph Mortimer, CPA |
Consent of Independent Registered Accounting Firm
We consent to the incorporation by reference in the registration statement on Form 1A of Cannagistics, Inc. of our report dated January 15, 2020, relating to the financial statements of Cannagistics, Inc. which report expresses an unqualified opinion on the financial statements for the year ended July 31, 2019 and includes an explanatory paragraph relating to the substantial doubt about the Company’s ability to continue as a going concern as described in note 3 to the financial statements appearing in the annual report on form 10-K of Cannagistics, Inc. for the year ended July 31, 2019.
BMKR, LLP
BMKR, LLP
Hauppauge, NY
May 6, 2020
Member American Institute of Certified Public Accountants
Member Public Company Accounting Oversight Board