UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

   
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended October 31, 2019
   
[  ] Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from __________ to__________
   
Commission File Number: 000-55711

 

Cannagistics, Inc.

(Exact name of registrant as specified in its charter)

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

2480 Stanfield Road, Unit B

Mississauga, Ontario L4Y 1R6

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

 

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 

[ ] Yes [X] No

 

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

 

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

 

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

Emerging growth company [ ]

 

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

 

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

Yes [ ] No [X]

 

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

 

   

  

TABLE OF CONTENTS
    Page

  

PART I – FINANCIAL INFORMATION 

 

Item 1: Financial Statements 3
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations 4
Item 3: Quantitative and Qualitative Disclosures About Market Risk 8
Item 4: Controls and Procedures 8

 

PART II – OTHER INFORMATION

  

Item 1: Legal Proceedings 10
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 11
Item 3: Defaults Upon Senior Securities 11
Item 4: Mine Safety Disclosures 11
Item 5: Other Information 11
Item 6: Exhibits 11

 

  2  

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Our financial statements included in this Form 10-Q are as follows:

 

F-1 Consolidated Interim Balance Sheets as of October 31, 2019 (unaudited) and July 31, 2019;
F-2 Condensed Consolidated Interim Statements of Operations and Comprehensive Loss for the three months ended October 31, 2019 and 2018 (unaudited);
F-3 Condensed Consolidated Interim Statements of Cash Flows for the three months ended October 31, 2019 and 2018 (unaudited); and
F-4 Notes to Condensed Consolidated Interim Financial Statements.

 

These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended October 31, 2019 are not necessarily indicative of the results that can be expected for the full year.

 

  3  

 

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

GLOBAL3PL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

    October 31, 2019   July 31, 2019
    (Unaudited)   (Audited)
ASSETS          
CURRENT ASSETS:            
Cash and cash equivalents   $ 3,271     630
Accounts and other receivables     474,631     498,766
Prepaid expenses     21,782     16,515
Restricted cash     152,233     152,181
Related party receivables, less allowance for doubtful accounts of $1,045,368     1,900     1,900
             
TOTAL CURRENT ASSETS     653,817     669,992
             
EQUIPMENT AND IMPROVEMENTS     54,315     54,296
             
OTHER ASSETS:            
Security deposits     3,634     3,634
             
TOTAL OTHER ASSETS     3,634     3,634
             
TOTAL ASSETS   $ 711,766     727,922
             
LIABILITIES AND STOCKHOLDERS' (DEFICIT)  EQUITY          
             
CURRENT LIABILITIES:            
Accounts payable and accrued liabilities   $ 1,053,493     893,957
Note payable - line of credit     289,242     258,708
Promissory notes     165,000     165,000
Convertible notes payable     2,216,841     2,145,041
Related party payables     375,344     365,945
TOTAL CURRENT LIABILITIES     4,099,920     3,828,651
             
LONG-TERM LIABILITIES            
Promissory notes     0     0
TOTAL LONG-TERM LIABILITIES     0     0
             
TOTAL LIABILITIES     4,099,920     3,828,651
             
             
STOCKHOLDERS' (DEFICIT) EQUITY:            
Preferred Stock; $0.001 par value; 10,000,000 shares authorized, 8,000,000 shares issued and outstanding as of October 31, 2019 and July 31, 2019     8,000     8,000
Common stock; $0.001 par value; 250,000,000 shares authorized; 93,118,077 outstanding as of October 31, 2019 and  July 31, 2019     93,029     93,029
Additional paid-in capital     2,613,690     2,613,690
 Treasury stock     (45,000 )   (45,000)
Accumulated deficit     (6,057,873 )   (5,770,449)
TOTAL STOCKHOLDERS' (DEFICIT) EQUITY     (3,388,154 )   (3,100,729)
             
TOTAL LIABILITIES & STOCKHOLDERS' (DEFICIT)  EQUITY   $ 711,766     727,922

 

See accompanying notes to the consolidated financial statements 

  F-1  

 

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

GLOBAL3PL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED OCTOBER 31, 2019 

 (UNAUDITED)  

    October 31, 2019   October 31, 2018
         
Revenues   $ 295,312     $ 696,476
               
Cost of revenue     295,223       618,008
               
Gross profit     89       78,468
               
Operating expenses              
 General and administrative expenses     18,982       233,080
 Wages and benefits     69,319       —  
 Rent     27,413       —  
 Consulting     28,600       —  
 Professional fees     62,185       8,901
Total operating expenses     206,499       241,981
               
Loss from operations     (206,410 )     (163,513)
               
Other income (expense)              
 Interest Income     21,759       21,475
 Interest expense     (104,124 )     (30,173)
 Settlement expense     —         (20,000)
 Total other expense     (82,365 )     (28,698)
               
Net loss     (288,775 )     (192,211)
               
Net loss Attributable to Company     (288,775 )     (192,211)
               
               
Net loss per common share: basic and diluted   $ (0.00 )   $ (0.01)
             
Basic and diluted weighted average common shares outstanding     93,117,423       14,355,645

  

See accompanying notes to the consolidated financial statements 

  F-2  

 

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

GLOBAL3PL, INC. AND SUBSIDIARIES

STATEMENTS OF STOCKHOLDERS’ DEFICIT

FOR THE THREE MONTHS ENDED OCTOBER 31, 2019 

(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, 2019     93,118,077     $ 93,029       —       $ —         8,000,000     $ 8,000     $ 2,613,690     $ (45,000 )   $ —       $ (5,770,449 )   $ (3,100,729)
                                                                                       
Foreign Currency Adjustment                                                                             1,351       1,351
Net loss                                                                             (288,775 )     (288,775)
Balance,  October 31, 2019     93,118,077     $ 93,029       —       $ —         8,000,000     $ 8,000     $ 2,613,690     $ (45,000 )   $ —       $ (6,057,873 )   $ (3,388,154)

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 CASH FLOWS

FOR THE THREE MONTHS ENDED OCTOBER 31, 2019 

(UNAUDITED)

 

    For The Three Months Ended
    October 31, 2019   October 31, 2018
Cash Flows from Operating Activities              
Net loss   (288,775 )     (192,211)
               
Adjustments to reconcile net loss to net cash provided by operating activities:              
Foreign currency adjustment     1,351       4,576
Depreciation expense     —         3,951
               
Changes in assets and liabilities              
Accounts receivable     24,135       (31,476)
Prepaid expense     (5,267 )     —  
Accounts payable and accrued expenses     159,536       (121,448)
Net cash used in operating activities     (109,020 )     (336,608)
               
               
Cash Flows from Investing Activities              
Purchase of equipment     —         (1,286)
Increase in restricted cash     (52 )     —  
(Increase) decrease in security deposits     —         17,180
Net cash used in investing activities     (52 )     15,894
               
Cash Flows from Financing Activities              
Proceeds from promissory notes     —         125,000
Proceeds from line of credit     276,037       —  
Proceeds from loans     71,800        
Payments on loans     (12,176 )      
Payments on line of credit     (245,787 )     (32,911)
Advances to/from  related parties     21,839       221,383
Net cash provided by (used in) financing activities     111,713       313,472
               
Net increase in cash     2,641     (7,242)
               
Cash, beginning of period     630       14,238
               
Cash, end of period     3,271       6,996
               
Supplemental disclosure of cash flow information              
Cash paid for interest     5,227       4,324
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-4  

 

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

GLOBAL3PL INC and Subsidiaries

Notes to Financial Statements

October 31, 2019

 

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 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-5  

 

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

GLOBAL3PL INC and Subsidiaries

Notes to Financial Statements

October 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-6  

 

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

GLOBAL3PL INC and Subsidiaries

Notes to Financial Statements

October 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., 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).

 

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 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.

 

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 October 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-7  

 

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

GLOBAL3PL INC and Subsidiaries

Notes to Financial Statements

October 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

 

  F-8  

 

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

GLOBAL3PL INC and Subsidiaries

Notes to Financial Statements

October 31, 2019

 

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.

 

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 October 31, 2019 to be sufficient to fund the Company’s operations for at least twelve months from the issuance date of these October 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 October 31, 2019, the Company has incurred losses totaling $6,057,873 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:

    October 31, 2019   October 31, 2018
Furniture and fixtures   $ 76,956     $ 76,930
Machinery and equipment     205,970       205,900
Transportation equipment     11,185       11,185
Building improvements     4,413       4,413
      298,524       283,075
             
 Less accumulated depreciation and amortization     247,209       244,132
    $ 54,315     $ 54,296
Depreciation and amortization expense:              
      19     $ 8,806

 

  F-9  

 

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

GLOBAL3PL INC and Subsidiaries

Notes to Financial Statements

October 31, 2019

 

NOTE 5 – PROMISSORY NOTES

 

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

 

Description   October 30, 2019     July 31, 2019

Note payable dated March 8, 2018, matures March 8, 2019, currently in default, bearing interest at 10% per annum.   $ 30,000     $ 30,000
Note payable dated July 20, 2018 matures October 1, 2019, bearing interest at 0% per annum. This Note is still outstanding     135,000       135,000
             
Total   $ 165,000     $ 165,000
Less current portion of long-term debt     165,000       165,000
Total long-term debt   $ 0     $ 0

 

Interest expense for the three months ended October 31, 2019 and 2018 was $4,285 and $498 respectively.

 

NOTE 6 - CONVERTIBLE DEBT

 

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

Description   October 31, 2019   July 31, 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     $ 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.   $ 300,000     $ 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     $ 0
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     $ 0
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     $ 0
Convertible notes, net of discount   $ 2,216,841     $ 2,145,041

 

The Company recognized $0 of debt discount accretion expense on the above notes. Interest expense related to these notes for the three months ended October 31, 2019 and 2018 was $92,016 and $25,352, respectively.

  F-10  

 

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

GLOBAL3PL INC and Subsidiaries

Notes to Financial Statements

October 31, 2019

 

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 October 31, 2019, and October 31, 2018, $267,037 and $232,024 were drawn on the line of credit, respectively. Interest expense for the three months ended October 31, 2019 and 2018 was $5,227 and $4,324 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 $19,490 and $0 during the three months ended October 31, 2019 and 2018. As of the October 31, 2019 and October 31, 2018, there were $375,344 and $365,945 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 October 31, 2019 and 2018 consulting fees paid were $28,600 and $88,465 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 $26,062 and $21,475 for the three months ended October 31, 2019 and 2018, 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 October 31, 2019 and July 31, 2019, there were 93,118,077 shares, of common stock outstanding. There were, also, 8,000,000 shares of Series D Preferred stock outstanding as of October 31, 2019 and 1,000,000 shares of Series C Preferred stock outstanding as of October 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 October 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 October 31, 2019, there were 8,000,000 shares of Preferred D shares issued and outstanding.

 

  F-11  

 

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

GLOBAL3PL INC and Subsidiaries

Notes to Financial Statements

October 31, 2019

 

NOTE 10 – 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     $ 22,075
2020-2021     $ 22,737
2021-2022     $ 23,415
2022-2023     $ 24,122
2023-2024     $ 14,314

  

NOTE 11 – 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 $35,777.24. There is no terms or written note.

 

The transaction regarding the transfer of the assets of Global3pl, Inc. (Ontario formerly known as KRG Logistics, Inc., was executed on November 6, 2019. The Company anticipates formally liquidating and dissolving the subsidiary in the next fiscal Quarter.

 

  F-12  

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Statements

 

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

 

Overview

 

Until 2017, we had been in the business of purchasing and selling colored diamonds and other valuables. We planned to manage a portfolio of rare colored diamonds that were selected for price potential.

Since the initiation of our plan of operations, however, we have experienced losses and have been unable to obtain significant additional finances to further our colored diamond business. In order to pursue our business plan, we would need to obtain additional funding in the form of equity financing from the sale of our common stock or loans.

 

Unfortunately, we have not been able to identify sources of equity financing and do not have any arrangements in place for any future financing.

 

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

 

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

 

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

 

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

 

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

 

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

 

Spin-Out of Assets

 

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

 

  4  

 

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

 

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

 

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

 

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

 

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

 

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

 

Our Business

 

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

 

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

 

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

 

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

 

  5  

 

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).

 

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

 

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

 

Our Industry

 

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

 

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

 

Competition

 

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

 

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

 

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

 

  6  

 

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

 

We are also positioning out operations to become a supplier of logistics to the Cannabis, Hemp and CDB industries.

 

Results of Operation for Three Months Ended October 31, 2019 and 2018

 

Revenues

 

We generated revenue of $295,312 for the three months ended October 31, 2019, as compared revenues of $696,476 for same period ended October 31, 2018. All of our revenues were generated from our freight logistics business.

 

Our cost of revenues was $295,223 for the three months ended October 31, 2019, as compared with cost of revenue of $618,008 for the same period ended October 31, 2018.

 

Operating Expenses

 

Total operating expenses decreased to $206,499 for the three months ended October 31, 2019 down from $241,981 for the three months ended October 31, 2018. Our operating expenses for the three months ended October 31, 2019 consisted mainly of professional fees of $62,185 and general and administrative expenses of $18,982, Wages and Benefits of $69,319, consulting fees of $28,600 and rent of $27,413. Our operating expenses for the three months ended October 31, 2018 consisted of professional fees of $8,901 and general and administrative expenses of $233,080.

 

Other Expenses

 

We had other expenses of $(82,365) for the three months ended October 31, 2019, compared with other expenses of $(28,698) for the three months ended October 31, 2018. Other expenses for the three months ended October 31, 2019 consisted mainly of Interest expenses of $(104,124). Other expenses for the three months ended October 31, 2018 consisted of interest expense of ($30,173), interest income of $21,475 and Settlement expenses of ($20,000).

 

Net Loss

 

Net loss for the three months ended October 31, 2019 was $(288,775) compared to net loss of $(192,211) for the three months ended October 31, 2018.

 

Liquidity and Capital Resources

 

As of October 31, 2019, we had current assets of $653,817, consisting of Cash and cash equivalents of $3,271, Accounts and other receivables of $474,631, prepaid expenses of $21,783 and Related Part Receivables of $1,900, after allowance for doubtful accounts of $1,045,368. Our total current liabilities as of October 31, 2019 were $4,099,920. We therefore had working capital of $(3,446,103) as of October 31, 2018.

 

Financing activities provided $(109,020) for the three months ended October 31, 2019, as compared with cash used of $336,608 for the same period ended 2018. Our positive financing cash flow for the three months ended October 31, 2019 was mainly the result of proceeds from promissory notes and advances to/from related parties. Our negative financing cash flow for the three months ended October 31, 2018 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.

 

  7  

 

Off Balance Sheet Arrangements

 

As of February 6, 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 included in our Annual Report on Form 10-K for the year ended July 31, 2018, 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 October 31, 2019, we had an accumulated deficit of $(3,439,906). 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

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

 

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

Item 4.  Controls and Procedures

 

Disclosure Controls and Procedures

 

We conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of January31, 2018, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of January31, 2018, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses identified and described below.

 

Our principal executive officers do not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and our principal executive officers have determined that our disclosure controls and procedures are effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

 

  8  

 

These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

Remediation Plan to Address the Material Weaknesses in Internal Control over Financial Reporting

 

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Management identified the following three material weaknesses that have caused management to conclude that, as of January31, 2018, our disclosure controls and procedures, and our internal control over financial reporting, were not effective at the reasonable assurance level:

 

1.       We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act as of the period ending January31, 2018. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

 

2.       We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

 

3.       Effective controls over the control environment were not maintained. Specifically, a formally adopted written code of business conduct and ethics that governs our employees, officers, and directors was not in place. Additionally, management has not developed and effectively communicated to employees its accounting policies and procedures. This has resulted in inconsistent practices. Further, our Board of Directors does not currently have any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness.

 

To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

 

To remediate the material weakness in our documentation, evaluation and testing of internal controls we plan to engage a third-party firm to assist us in remedying this material weakness once resources become available.

 

We intend to remedy our material weakness with regard to insufficient segregation of duties by hiring additional employees in order to segregate duties in a manner that establishes effective internal controls once resources become available.

 

Changes in Internal Control over Financial Reporting

 

No change in our system of internal control over financial reporting occurred during the period covered by this report, the period ended October 31, 2018, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

  9  

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

 

I.

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

 

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

 

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

 

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

 

II.

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

 

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

 

  10  

 

III.

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

 

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

 

The Human Rights Tribunal has found in favor of Mr. Horgan and awarded him monetary damages. Inasmuch as Global3pl. Inc. (Ontario) is a subsidiary, said award does not materially affect the Company, especially since it is the intentin of the Company to wind up the operations of Global3pl, Inc. (Ontario).

 

We do not believe that the Company has any liability or that any outcome will be adverse to the Company.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

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

 

The company has not engaged in the original issue of any shares of its common stock in the Quarter ended October 31, 2019.

 

Item 3. Defaults upon Senior Securities

 

None

 

Item 4. Mine Safety Disclosures

 

N/A

 

Item 5. Other Information

 

None

 

 

Item 6. Exhibits

   
Exhibit Number

Description of Exhibit

 

31.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101** The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended October 31, 2018 formatted in Extensible Business Reporting Language (XBRL).
 

 

**Provided herewith

 

  11  

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

   
 

Cannagistics Inc.

 

Date:

February 18, 2020

 

By: /s/ James Zimbler
  James Zimbler
Title: President, Chief Executive Officer, and Director

 

  12  

 


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