UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September
30, 2019
or
☐ TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________
to __________
Commission File No.: 000-54624
CRUZANI, INC.
|
(Exact name of registrant as specified in its charter)
|
Nevada
|
|
26-4144571
|
(State or other jurisdiction
of incorporation)
|
|
(IRS Employer
Identification No.)
|
208 East 51st Street, #208, New York, NY 10022
|
(Address of principal executive offices)
|
|
(646) 893.1112
|
(Registrant’s telephone number, including area code)
|
|
|
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 to be filed by Section 13 and Section 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 files such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ☐ No ☒
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post
such files). Yes ☒ No ☐
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
|
|
|
|
☐
|
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 12-b2 of the Exchange Act). Yes ☐ No ☒
Securities registered pursuant to Section
12(b) of the Act:
Title of each class
|
|
Trading Symbol(s)
|
|
Name of each exchange on which registered
|
|
|
|
|
|
Indicate the number of shares outstanding
of each of the issuer’s classes of common stock, as of the latest practicable date. As of April 9, 2020, there were 297,041,945
shares of Common Stock, par value $0.00001 per shares outstanding.
Table of Contents
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
Cruzani, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
Cash
|
|
$
|
-
|
|
|
$
|
1,579
|
|
Other current assets
|
|
|
-
|
|
|
|
339,813
|
|
Deposits on acquisition
|
|
|
-
|
|
|
|
85,392
|
|
Total Current Assets
|
|
|
-
|
|
|
|
426,784
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
-
|
|
|
$
|
426,784
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
309,216
|
|
|
$
|
407,768
|
|
Accrued liabilities
|
|
|
708,266
|
|
|
|
780,031
|
|
Accrued officer compensation
|
|
|
142,000
|
|
|
|
68,000
|
|
Convertible Notes, net of discounts of $0 and $209,029, respectively
|
|
|
1,625,395
|
|
|
|
1,451,739
|
|
Derivative liabilities
|
|
|
350,785
|
|
|
|
433,924
|
|
Loans payable
|
|
|
254,500
|
|
|
|
224,400
|
|
Total Current Liabilities
|
|
|
3,390,162
|
|
|
|
3,365,862
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
3,390,162
|
|
|
|
3,365,862
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 9)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
MEZZANINE EQUITY
|
|
|
|
|
|
|
|
|
Series E Preferred stock, 500,000 shares authorized, par value $0.01; 34,985 and 53,000 shares issued and outstanding; respectively
|
|
|
34,985
|
|
|
|
53,000
|
|
Series E Preferred stock to be issued
|
|
|
166,331
|
|
|
|
140,831
|
|
Total mezzanine equity
|
|
|
201,316
|
|
|
|
193,831
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity (Deficit):
|
|
|
|
|
|
|
|
|
Series A Preferred stock, 3,500,000 shares authorized, par value $0.01; 3,381,520 shares issued and outstanding
|
|
|
33,815
|
|
|
|
33,815
|
|
Series B Preferred stock, 10,000 shares authorized, par value $0.01; 5,000 shares issued and outstanding
|
|
|
50
|
|
|
|
50
|
|
Series C Preferred stock, 10,000,000 shares authorized, par value $0.01; 5,000,000 shares issued and outstanding
|
|
|
50,000
|
|
|
|
50,000
|
|
Series D Preferred stock, 125,000 shares authorized, par value $0.0001; 125,000 shares issued and outstanding
|
|
|
12
|
|
|
|
12
|
|
Preferred Stock, 865,000, shares authorized, par value $0.01; no shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock 3,000,000,000 shares authorized, $0.00001 par value; 297,041,945 and 73,442,239 shares issued and outstanding, respectively
|
|
|
2,970
|
|
|
|
734
|
|
Treasury stock, at cost – 2,917 shares
|
|
|
(773,500
|
)
|
|
|
(773,500
|
)
|
Additional paid in capital
|
|
|
75,958,049
|
|
|
|
75,544,112
|
|
Accumulated deficit
|
|
|
(78,862,874
|
)
|
|
|
(77,988,132
|
)
|
Total Stockholders’ Deficit
|
|
|
(3,591,478
|
)
|
|
|
(3,132,909
|
)
|
Total Liabilities and Stockholders’ Deficit
|
|
$
|
-
|
|
|
$
|
426,784
|
|
The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements.
Cruzani, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
|
|
For the Three Months Ended
September 30,
|
|
|
For the Nine Months Ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
81,016
|
|
|
$
|
-
|
|
|
$
|
81,016
|
|
Cost of revenue
|
|
|
-
|
|
|
|
56,711
|
|
|
|
-
|
|
|
|
56,711
|
|
Gross margin
|
|
|
-
|
|
|
|
24,304
|
|
|
|
-
|
|
|
|
24,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense
|
|
|
30,000
|
|
|
|
159,126
|
|
|
|
90,000
|
|
|
|
176,126
|
|
General and administrative
|
|
|
4,742
|
|
|
|
332,154
|
|
|
|
62,118
|
|
|
|
383,399
|
|
Depreciation expense
|
|
|
-
|
|
|
|
159,181
|
|
|
|
-
|
|
|
|
159,181
|
|
Professional fees
|
|
|
8,135
|
|
|
|
80,812
|
|
|
|
97,883
|
|
|
|
180,412
|
|
Total operating expenses
|
|
|
42,877
|
|
|
|
731,273
|
|
|
|
250,001
|
|
|
|
899,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(42,877
|
)
|
|
|
(706,969
|
)
|
|
|
(250,001
|
)
|
|
|
(874,813
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(82,754
|
)
|
|
|
(232,998
|
)
|
|
|
(474,972
|
)
|
|
|
(326,193
|
)
|
Change in fair value of derivatives
|
|
|
214,939
|
|
|
|
(751,858
|
)
|
|
|
41,377
|
|
|
|
(238,204
|
)
|
Loss on convertible notes
|
|
|
-
|
|
|
|
(743,611
|
)
|
|
|
(46,250
|
)
|
|
|
(1,372,197
|
)
|
Loss on receivables
|
|
|
-
|
|
|
|
-
|
|
|
|
(442,365
|
)
|
|
|
-
|
|
Loss on issuance of convertible preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
(194,547
|
)
|
|
|
-
|
|
Gain on extinguishment of debt
|
|
|
-
|
|
|
|
-
|
|
|
|
492,016
|
|
|
|
-
|
|
Total other income (expense)
|
|
|
132,185
|
|
|
|
(1,728,467
|
)
|
|
|
(624,741
|
)
|
|
|
(1,936,594
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
89,308
|
|
|
|
(2,435,436
|
)
|
|
|
(874,742
|
)
|
|
|
(2,811,407
|
)
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
89,308
|
|
|
$
|
(2,435,436
|
)
|
|
$
|
(874,742
|
)
|
|
$
|
(2,811,407
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
73
|
|
|
|
-
|
|
|
|
73
|
|
Comprehensive income (loss)
|
|
$
|
89,308
|
|
|
$
|
(2,435,363
|
)
|
|
$
|
(874,742
|
)
|
|
$
|
(2,811,334
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share
|
|
$
|
0.00
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.10
|
)
|
Diluted income (loss) per share
|
|
$
|
0.00
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.10
|
)
|
Basic weighted average shares outstanding
|
|
|
258,091,869
|
|
|
|
39,978,941
|
|
|
|
161,353,969
|
|
|
|
28,480,242
|
|
Diluted weighted average shares outstanding
|
|
|
258,091,869
|
|
|
|
39,978,941
|
|
|
|
161,353,969
|
|
|
|
28,480,242
|
|
The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements.
Cruzani, Inc. and
Subsidiaries
Consolidated Statement of Changes in
Stockholders’ Deficit
For the Nine Months Ended September 30,
2018
(Unaudited)
|
|
Series
A
Preferred
|
|
|
Series
B
Preferred
|
|
|
Series
C
Preferred
|
|
|
Series
D
Preferred
|
|
|
Common Stock
|
|
|
Additional
Paid-In
|
|
|
Treasury
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stock
|
|
|
Deficit
|
|
|
Total
|
|
Balance, December 31, 2017
|
|
|
3,381,520
|
|
|
$
|
33,815
|
|
|
|
5,000
|
|
|
$
|
50
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
17,272,502
|
|
|
$
|
173
|
|
|
$
|
73,346,487
|
|
|
$
|
(773,500
|
)
|
|
$
|
(75,244,112
|
)
|
|
$
|
(2,637,087
|
)
|
Shares issued for convertible debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,797,090
|
|
|
|
28
|
|
|
|
9,670
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,698
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
56,264
|
|
|
|
56,264
|
|
Balance, March 31, 2018
|
|
|
3,381,520
|
|
|
|
33,815
|
|
|
|
5,000
|
|
|
|
50
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20,069,592
|
|
|
|
201
|
|
|
|
73,356,157
|
|
|
|
(773,500
|
)
|
|
|
(75,187,848
|
)
|
|
|
(2,571,125
|
)
|
Shares issued for convertible debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,722,353
|
|
|
|
57
|
|
|
|
374,632
|
|
|
|
-
|
|
|
|
-
|
|
|
|
374,689
|
|
Warrants issued
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
57,499
|
|
|
|
-
|
|
|
|
-
|
|
|
|
57,499
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(423,236
|
)
|
|
|
(423,236
|
)
|
Balance, June 30, 2018
|
|
|
3,381,520
|
|
|
|
33,815
|
|
|
|
5,000
|
|
|
|
50
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,791,945
|
|
|
|
258
|
|
|
|
73,788,288
|
|
|
|
(773,500
|
)
|
|
|
(75,620,084
|
)
|
|
|
(2,571,173
|
)
|
Shares issued for convertible debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
26,689,960
|
|
|
|
267
|
|
|
|
844,357
|
|
|
|
-
|
|
|
|
-
|
|
|
|
844,624
|
|
Shares issued for services – related party
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,000,000
|
|
|
|
120,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
120,000
|
|
Shares issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
125,000
|
|
|
|
18,750
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,750
|
|
Warrants issued
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
222,939
|
|
|
|
-
|
|
|
|
-
|
|
|
|
222,939
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,435,362
|
)
|
|
|
(2,435,362
|
)
|
Balance, September 30, 2018
|
|
|
3,381,520
|
|
|
$
|
33,815
|
|
|
|
5,000
|
|
|
$
|
50
|
|
|
|
5,000,000
|
|
|
$
|
120,000
|
|
|
|
125,000
|
|
|
$
|
18,750
|
|
|
|
52,481,905
|
|
|
$
|
525
|
|
|
$
|
74,855,584
|
|
|
$
|
(773,500
|
)
|
|
$
|
(78,055,446
|
)
|
|
$
|
(3,800,222
|
)
|
Cruzani, Inc. and
Subsidiaries
Consolidated Statement of Changes in
Stockholders’ Deficit
For the nine Months Ended September 30,
2019
(Unaudited)
|
|
Series
A
Preferred Stock
|
|
|
Series
B
Preferred Stock
|
|
|
Series
C
Preferred Stock
|
|
|
Series
D
Preferred Stock
|
|
|
Common Stock
|
|
|
Additional
Paid-In
|
|
|
Treasury
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stock
|
|
|
Deficit
|
|
|
Total
|
|
Balance, December 31, 2018
|
|
|
3,381,520
|
|
|
$
|
33,815
|
|
|
|
5,000
|
|
|
$
|
50
|
|
|
|
5,000,000
|
|
|
$
|
50,000
|
|
|
|
125,000
|
|
|
$
|
12
|
|
|
|
73,442,239
|
|
|
$
|
734
|
|
|
$
|
75,544,112
|
|
|
$
|
(773,500
|
)
|
|
$
|
(77,988,132
|
)
|
|
$
|
(3,132,909
|
)
|
Shares issued for convertible debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
29,160,864
|
|
|
|
292
|
|
|
|
154,840
|
|
|
|
-
|
|
|
|
-
|
|
|
|
155,132
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(131,631
|
)
|
|
|
(131,631
|
)
|
Balance, March 31, 2019
|
|
|
3,381,520
|
|
|
|
33,815
|
|
|
|
5,000
|
|
|
|
50
|
|
|
|
5,000,000
|
|
|
|
50,000
|
|
|
|
125,000
|
|
|
|
12
|
|
|
|
102,603,103
|
|
|
|
1,026
|
|
|
|
75,698,952
|
|
|
|
(773,500
|
)
|
|
|
(78,119,763
|
)
|
|
|
(3,109,408
|
)
|
Preferred shares converted to common
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
66,331,384
|
|
|
|
663
|
|
|
|
135,603
|
|
|
|
-
|
|
|
|
-
|
|
|
|
136,266
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(832,419
|
)
|
|
|
(832,419
|
)
|
Balance, June 30, 2019
|
|
|
3,381,520
|
|
|
|
33,815
|
|
|
|
5,000
|
|
|
|
50
|
|
|
|
5,000,000
|
|
|
|
50,000
|
|
|
|
125,000
|
|
|
|
12
|
|
|
|
168,934,487
|
|
|
|
1,689
|
|
|
|
75,834,555
|
|
|
|
(773,500
|
)
|
|
|
(78,952,182
|
)
|
|
|
(3,805,561
|
)
|
Preferred shares converted to common
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
128,107,458
|
|
|
|
1,281
|
|
|
|
123,494
|
|
|
|
-
|
|
|
|
-
|
|
|
|
124,775
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
89,308
|
|
|
|
89,308
|
|
Balance, September 30, 2019
|
|
|
3,381,520
|
|
|
$
|
33,815
|
|
|
|
5,000
|
|
|
$
|
50
|
|
|
|
5,000,000
|
|
|
$
|
50,000
|
|
|
|
125,000
|
|
|
$
|
12
|
|
|
|
297,041,945
|
|
|
$
|
2,970
|
|
|
$
|
75,958,049
|
|
|
$
|
(773,500
|
)
|
|
$
|
(78,862,874
|
)
|
|
$
|
(3,591,478
|
)
|
The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements.
Cruzani, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
For the Nine Months Ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net income
|
|
$
|
(874,742
|
)
|
|
$
|
(2,811,407
|
)
|
Adjustments to reconcile net income to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
-
|
|
|
|
159,181
|
|
Change in fair value of derivatives
|
|
|
(41,377
|
)
|
|
|
238,204
|
|
Loss on receivables
|
|
|
442,365
|
|
|
|
-
|
|
Loss on convertible debt
|
|
|
46,250
|
|
|
|
1,372,197
|
|
Loss on issuance of convertible preferred stock
|
|
|
194,547
|
|
|
|
-
|
|
Debt discount amortization
|
|
|
231,805
|
|
|
|
240,550
|
|
Common stock issued for officer compensation
|
|
|
-
|
|
|
|
120,000
|
|
Common stock issued for services
|
|
|
-
|
|
|
|
18,750
|
|
Gain on extinguishment of debt
|
|
|
(492,016
|
)
|
|
|
-
|
|
Changes in Operating Assets and Liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
-
|
|
|
|
(29,128
|
)
|
Prepaids expenses and deposits
|
|
|
-
|
|
|
|
39,500
|
|
Other assets
|
|
|
(17,161
|
)
|
|
|
(54,002
|
)
|
Accounts payable and accrued liabilities
|
|
|
322,750
|
|
|
|
108,682
|
|
Accrued liabilities – related party
|
|
|
74,000
|
|
|
|
-
|
|
Net Cash Used in Operating Activities
|
|
|
(113,579
|
)
|
|
|
(597,473
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of intangible asset
|
|
|
-
|
|
|
|
(154,829
|
)
|
Net Cash Provided by Investing Activities
|
|
|
-
|
|
|
|
(154,829
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from convertible debt
|
|
|
-
|
|
|
|
621,830
|
|
Proceeds from loans
|
|
|
25,500
|
|
|
|
154,829
|
|
Payments on note payable
|
|
|
-
|
|
|
|
(19,353
|
)
|
Preferred stock sold for cash
|
|
|
86,500
|
|
|
|
-
|
|
Net Cash Provided by Financing Activities
|
|
|
112,000
|
|
|
|
757,306
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash
|
|
|
(1,579
|
)
|
|
|
5,004
|
|
Cash at Beginning of Period
|
|
|
1,579
|
|
|
|
3,066
|
|
Cash at End of Period
|
|
$
|
-
|
|
|
$
|
8,070
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
-
|
|
|
$
|
-
|
|
Income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash activity:
|
|
|
|
|
|
|
|
|
Common stock issued for conversion of debt
|
|
$
|
43,899
|
|
|
$
|
29,418
|
|
Warrants issued in conjunction with convertible debt
|
|
$
|
-
|
|
|
$
|
280,483
|
|
Promissory note issued for intangible assets
|
|
$
|
-
|
|
|
$
|
151,80
|
|
Liability incurred for asset purchase
|
|
$
|
-
|
|
|
$
|
6,367,227
|
|
The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements.
Cruzani, Inc. and Subsidiaries
Notes to Unaudited Consolidated Condensed
Financial Statements
September 30, 2019
NOTE 1 – SUMMARY OF BUSINESS AND
BASIS OF PRESENTATION
Organization and Business
Cruzani, Inc. (“Cruzani” or
the “Company”) is a franchise development company that builds and represents popular franchise concepts, and other
related businesses, throughout the United States as well as international markets. The Company was originally formed as a limited
liability company on February 5, 1999 under the name The Powerhouse, L.L.C. pursuant to the laws of the State of Oklahoma. On November
9, 2006, Powerhouse Productions, L.L.C. filed Articles of Conversion changing the entity from a limited liability company to a
corporation under the name Harcom Productions, Inc. On January 25, 2010, Articles of Merger were filed with the State of Oklahoma
merging U.S. Highland, Inc., an Oklahoma corporation into Harcom Productions, Inc. and the name of the corporation was changed
to US Highland, Inc. US Highland, Inc. was a recreational power sports Original Equipment Manufacturer (“OEM”), developing
motorcycles, quads, single cylinder engines, and v-twin engines under its own brand and for other OEMs. During 2017, the Company
exited the recreational power sports OEM and leisure activity vehicles markets.
On June 29, 2018, the Company filed Amended
and Restated Articles of Incorporation with the State of Nevada to change its name to Cruzani, Inc.
On June 30, 2018, Supreme Sweets
Acquisition Corp. (n/k/a Oventa, Inc.), a subsidiary of the Company, and the Company (collectively, the “Company”)
entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Supreme Sweets Inc. and 2498411 Ontario,
Inc., as sellers (collectively, the “Seller”), pursuant to which in exchange for CAD $200,000 and a twenty percent
(20%) interest in Oventa, Inc., the Company agreed to acquire the trade secret assets of Seller upon the terms and subject to the
conditions set forth in the Asset Purchase Agreement. A second closing occurred on July 31, 2018, pursuant to which the
Company acquired the furniture, fixtures and equipment of Seller in exchange for CAD $100,000. Seller is engaged in the business
of preparing delicious snacks, pastries and baked goods with high quality ingredients for exceptional taste, including low calorie
and gluten-free alternatives. The Asset Purchase Agreement included a provision, pursuant to which the Company could unwind the
transaction if certain milestones were not achieved. The milestones contemplated in the Asset Purchase Agreement were not met,
and accordingly, on February 7, 2019, effective as of December 31, 2018, the Company terminated
the Asset Purchase Agreement with Supreme Sweets Inc. and 2498411 Ontario, Inc, by written notice to the Seller, and the
Company unwound the transaction. The $339,813 of capital injected into Oventa, Inc. was written off as uncollectable as of September
30, 2019.
On September 27, 2018, the Company
entered into a stock purchase agreement (the “Stock Purchase Agreement”) with Sandrea Gibson, as seller (the “Seller”),
and Recipe Food Co., as the target (the “Target”), pursuant to which in exchange for up to CAD $237,000, the Company
agreed to acquire 80% of the issued and outstanding stock of the Target from the Seller upon the terms and subject to the conditions
set forth in the Stock Purchase Agreement. There were difficulties integrating the Target into the Company group, which forced
the Company to cease injecting additional capital into the Target and recognize a loss of $102,552 for amounts that had already
been loaned to the Target.
On
July 8, 2019, Mr. Dickson entered into a Securities Purchase Agreement (“Purchase Agreement”) with Conrad Huss to sell
5,000,000 shares of Series C Preferred and 5,000 shares of Series B preferred Stock held by Mr. Dickson. As a result, Mr. Huss
acquired the right to vote 99.06% of the voting control of the Company. The Series B Preferred Stock is also convertible into common
stock which, in the aggregate, would represent up to .01% of the outstanding common stock after the conversion. The Series C Preferred
Stock is also convertible into common stock which, in the aggregate, would represent up to 99.05% of the outstanding common stock
after the conversion.
On July 8, 2019, Everett Dickson, who had
been the sole officer of the Company, resigned as an officer of the Company, and Conrad Huss was appointed the Interim President
and Chief Executive Officer of the Company. Mr. Huss is the sole beneficial owner of 5,000,000 and 5,000 shares of Series B and
C Preferred Stocks, respectively. Mr. Dickson also resigned as a director of the Company, effective on July 8th, 2019. Mr. Dickson’s
resignation was not the result of any disagreement with the management of the Company.
Basis of Presentation
The accompanying unaudited interim consolidated
condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States
of America (“U.S. GAAP”). These unaudited consolidated condensed financial statements should be read in conjunction
with the audited financial statements and footnotes for the year ended December 31, 2018 included on the Company’s Form 10-K.
The results of the nine months ended September 30, 2019 are not necessarily indicative of the results to be expected for the
full year ending December 31, 2019.
In the opinion of management, all adjustments
necessary to present fairly the financial position as of September 30, 2019 and the results of operations and cash flows presented
herein have been included in the financial statements. All such adjustments are of a normal and recurring nature. Interim results
are not necessarily indicative of results of operations for the full year.
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 of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Concentrations of Credit Risk
We maintain our cash in bank deposit accounts,
the balances of which at times may exceed federally insured limits. We continually monitor our banking relationships and consequently
have not experienced any losses in our accounts. We believe we are not exposed to any significant credit risk on cash.
Reclassifications
Certain reclassifications have been made
to the prior year financial information to conform to the presentation used in the financial statements for the three and nine
months ended September 30, 2019. There is no effect on the accumulated deficit as the result of these reclassifications.
Principles of Consolidation
The accompanying unaudited interim consolidated
condensed financial statements include the accounts of the Company and for fiscal year 2018 only, its wholly owned subsidiaries,
Supreme Sweets Acquisition Corp. and TruFood Provisions Co. All financial information
has been prepared in conformity with accounting principles generally accepted in the United States of America. All significant
intercompany transactions and balances have been eliminated.
Receivables
The Company had other current assets of
$339,813 as a result of it’s now terminated purchase agreement with Supreme Sweets Acquisition Corp, and deposits on acquisition
of $102,552 from its stock purchase agreement with Recipe Food Co. (see above). The Company has evaluated the collectability of
both assets and concluded that it was highly unlikely that either receivable was collectible; therefore, as of September 30, 2019,
both receivables have fully been written off
Fair value of financial instruments
The Company follows paragraph 825-10-50-10
of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37
of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial
instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted
in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and
comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which
prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy
gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority
to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
Level 1: Quoted market prices available
in active markets for identical assets or liabilities as of the reporting date.
Level 2:
Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable
as of the reporting date.
Level 3: Pricing inputs that are generally
unobservable inputs and not corroborated by market data.
The carrying amount of the Company’s
financial assets and liabilities, such as cash, prepaid expenses and accrued expenses approximate their fair value because of the
short maturity of those instruments. The Company’s notes payable approximates the fair value of such instruments based upon
management’s best estimate of interest rates that would be available to the Company for similar financial arrangements at
September 30, 2019 and December 31, 2018.
Recently issued accounting pronouncements
The Company has implemented all new accounting
pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise
disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might
have a material impact on its financial position or results of operations.
NOTE 2 – GOING CONCERN
The accompanying unaudited interim consolidated
condensed financial statements have been prepared in conformity with generally accepted accounting principles which contemplate
continuation of the Company on a going-concern basis. The going concern basis assumes that assets are realized, and liabilities
are extinguished in the ordinary course of business at amounts disclosed in the consolidated financial statements. The Company
has incurred recurring losses from operations and has an accumulated deficit of $78,862,874. The Company’s ability to continue
as a going concern depends upon its ability to obtain adequate funding to support its operations through continuing investments
of debt and/or equity by qualified investors/creditors, internally generated working capital and monetization of intellectual property
assets. These factors raise substantial doubt about the Company’s ability to continue as a going concern. These consolidated
financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Management is currently pursuing a business strategy which includes raising the necessary funds to finance the Company’s
development and marketing efforts.
NOTE 3 – LOANS PAYABLE
The loan payable balances are as follows:
|
|
Rate
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
Loan 1
|
|
1%
|
|
$
|
27,000
|
|
|
$
|
27,000
|
|
Loan 2
|
|
1%
|
|
|
3,000
|
|
|
|
3,000
|
|
Loan 3
|
|
8%
|
|
|
64,000
|
|
|
|
39,000
|
|
Loan 4
|
|
8%
|
|
|
160,500
|
|
|
|
155,400
|
|
Total
|
|
|
|
$
|
254,500
|
|
|
$
|
224,400
|
|
Above notes are past due
as of the issuance of these financial statements.
NOTE 4 – CONVERTIBLE NOTES
On
January 18, 2019, the Company executed a promissory note with Travel Data Solutions LLC for $35,000, of which it has received $25,000.
The note bears interest at 10% and matures on January 31, 2020. The specific terms of conversion are still being negotiated. Commencing
on January 31, 2019 and on the last day of each month thereafter, the Company shall pay to the Holder Three Thousand Two Hundred
Eight dollars and Thirty-Three cents ($3,208.33) of which Two Thousand Nine Hundred Sixteen Dollars and Sixty-Six cents ($2,916.66)
represents payment towards the outstanding Principal Amount and Two Hundred Nineteen Dollars and Sixty-Six cents ($219.66) represents
accrued interest thereon.
The following table summarizes the convertible
notes as of September 30, 2019:
Note Holder
|
|
Date
|
|
Maturity
Date
|
|
Interest
|
|
Balance
December 31,
2018
|
|
|
Additions
|
|
|
Conversions /
Transfers
|
|
|
Balance
September 30, 2019
|
|
Third party individual
|
|
7/25/13
|
|
12/31/16
|
|
12%
|
|
$
|
500,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
500,000
|
|
Adar Bays, LLC
|
|
2/11/16
|
|
2/11/17
|
|
24%
|
|
|
68,004
|
|
|
|
-
|
|
|
|
-
|
|
|
|
68,004
|
|
GW Holdings Group, LLC
|
|
5/17/16
|
|
5/17/17
|
|
24%
|
|
|
24,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24,000
|
|
Travel Data Solutions
|
|
11/18/17
|
|
11/30/19
|
|
10%
|
|
|
150,000
|
|
|
|
-
|
|
|
|
(50,000
|
)
|
|
|
100,000
|
|
GW Holdings Group, LLC
|
|
3/16/18
|
|
3/15/19
|
|
24%
|
|
|
36,750
|
|
|
|
-
|
|
|
|
-
|
|
|
|
36,750
|
|
Travel Data Solutions
|
|
1/18/2019
|
|
1/31/20
|
|
10%
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
25,000
|
|
Oasis Capital, LLC
|
|
various
|
|
various
|
|
24%
|
|
|
882,014
|
|
|
|
22,776
|
|
|
|
(33,149
|
)
|
|
|
871,641
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,660,768
|
|
|
$
|
47,776
|
|
|
$
|
(83,149
|
)
|
|
$
|
1,625,395
|
|
|
|
|
|
Less debt discount
|
|
|
(209,029
|
)
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
$
|
1,451,739
|
|
|
|
|
|
|
|
|
|
|
$
|
1,625,395
|
|
NOTE 5 – DERIVATIVE LIABILITIES
The embedded conversion options of the
Company’s convertible debentures summarized in Note 4, and its convertible preferred Series E stock. contain conversion features
that qualify for embedded derivative classification. The fair value of these liabilities are re-measured at the end of every reporting
period and the change in fair value is reported in the statement of operations as a gain or loss on derivative financial instruments.
The table below sets forth a summary of
changes in the fair value of the Company’s Level 3 financial liabilities:
Balance at December 31, 2017
|
|
$
|
409,948
|
|
Addition of new derivative liabilities
|
|
|
1,127,281
|
|
Change in fair value of embedded conversion option
|
|
|
(708,663
|
)
|
Derecognition of derivatives upon settlement of convertible notes
|
|
|
(394,642
|
)
|
Balance at December 31, 2018
|
|
|
433,924
|
|
Addition of new derivative liabilities
|
|
|
194,547
|
|
Change in fair value of embedded conversion option
|
|
|
21,001
|
|
Derecognition of derivatives upon settlement of convertible preferred stock
|
|
|
(218,904
|
)
|
Derecognition of derivatives upon settlement of convertible notes
|
|
|
(79,783
|
)
|
Balance at September 30, 2019
|
|
$
|
350,785
|
|
The Company uses Level 3 inputs for its
valuation methodology for its conversion option liabilities as their fair values were determined by using the Binomial option pricing
model based on various assumptions. The model incorporates the price of a share of the Company’s common stock (as quoted
on the Over the Counter Bulletin Board), volatility, risk free rate, dividend rate and estimated life. Significant changes in any
of these inputs in isolation would result in a significant change in the fair value measurement. As, required, these are classified
based on the lowest level of input that is significant to the fair value measurement.
The following table shows the assumptions
used in the calculations of its derivatives:
|
|
Expected Volatility
|
|
Risk-free
Interest Rate
|
|
Expected
Dividend Yield
|
|
Expected Life
(in years)
|
At December 31, 2018
|
|
335.58%
|
|
2.45%
|
|
0%
|
|
0.25 – 0.45
|
At September 30, 2019
|
|
269.87% - 330.14%
|
|
1.88% - 2.46%
|
|
0%
|
|
0.25 – 0.50
|
NOTE 6 – WARRANTS
In connection with the issuance of the
convertible note (the “Note”) with L2 Capital, LLC (“L2”) and funding of the initial tranche of $50,000
on the Note, the Company also issued a common stock purchase warrant to purchase up to 381,905 shares of the Company’s common
stock pursuant to the terms therein as a commitment fee. At the time that each subsequent tranche under the Note is funded by L2
in cash, then on such funding date, the warrant shares shall immediately and automatically be increased by the quotient of 100%
of the face value of the respective tranche and 110% of the VWAP of the common stock on the Trading Day (as defined in the Note)
immediately prior to the funding date of the respective tranche. As of December 31, 2018, the Company had received multiple tranches
for which it issued warrants to purchase shares of the Company’s common stock.
These warrants have a variable exercise
price per the above and expire in five years. The aggregate fair value of the warrants, which was allocated against the debt
proceeds totaled $280,438 based on the Black Scholes Merton pricing model using the following estimates: exercise price ranging
from $0.001 – 0.0071, 2.80% – 2.94% risk free rate, 252.42 – 258.24% volatility and expected life of the warrants
of 5 years. The fair value was credited to additional paid in capital and debited to debt discount to be amortized over the term
of the loan.
Range of Exercise Prices
|
|
|
Number Outstanding 9/30/2019
|
|
Weighted Average Remaining Contractual Life
|
|
Weighted Average
Exercise Price
|
|
$
|
0.001 – 0.0071
|
|
|
22,669,092
|
|
3.94 years
|
|
$
|
0.0011
|
|
NOTE 7 – COMMON STOCK
In
November 20, 2018, the Company and its stockholders approved a 1 for 20 reverse stock split. The reverse stock split was deemed
effective by the Financial Industry Regulatory Authority (“FINRA”) on January 10, 2019. All shares throughout these
financial statements have been retroactively adjusted to reflect the reverse stock split.
During the nine months ended September
30, 2019, L2 Capital, LLC converted $33,149 of principal into 16,660,864 shares of common stock.
During the nine months ended September
30, 2019, Device Corp. converted $9,700 and $1,050 of principal and interest, respectively, into 12,500,000 shares of common stock.
The loans from Device Corp. have no specific terms of conversion and have therefore not been classified as convertible. The shares
were valued on the date of conversion at the closing stock price, for a loss on conversion of debt of $46,250.
During the nine months ended September
30, 2019, Geneva Roth Remark Holdings converted 104,515 Series E preferred shares into 194,438,842 shares of common stock.
During the nine months ended September
30, 2019, Geneva Roth Remark Holdings purchased 33,500 shares of Series E preferred stock for total cash proceeds of $33,500.
NOTE 8 – PREFERRED STOCK
Series A Convertible Preferred Stock,
has a par value of $0.01, may be converted at the holder’s election into shares of common stock at the conversion rate of
ten shares of common stock for one share of Series A Preferred Stock. Each share is entitled to 10 votes, voting with the
common stock as a single class, has liquidation rights of $2.00 per share and is not entitled to receive dividends. As of September
30, 2019 and December 31, 2018, there are 3,381,520 and 3,381,520 shares of Series A preferred stock outstanding, respectively.
Series B Convertible Preferred Stock,
has a par value of $0.01, may be converted at the holder’s election into shares of common stock at the conversion rate of
4,000 shares of common stock for one share of Series B Preferred Stock. Each share is entitled to 4,000 votes, voting with
the common stock as a single class, has liquidation rights of $0.01 per share and is not entitled to receive dividends. As of September
30, 2019 and December 31, 2018, there are 5,000 and 5,000 shares of Series B preferred stock outstanding, respectively.
Series C Convertible Preferred Stock,
has a par value of $0.01, may be converted at the holder’s election into shares of common stock at the conversion rate of
400 shares of common stock for one share of Series C Preferred Stock. Each share is entitled to 400 votes, voting with the
common stock as a single class, has liquidation rights of $0.01 per share and is entitled to receive four hundred times the dividends
declared and paid with respect to each share of Common Stock. As of September 30, 2019 and December 31, 2018, there are 5,000,000
and 5,000,000 shares of Series C preferred stock outstanding, respectively.
Series D Convertible Preferred Stock,
has a par value of $0.0001, may be converted at a ratio of the Stated Value plus dividends accrued but unpaid divided by the fixed
conversion price of $0.0015, which conversion price is subject to adjustment. Series D is non-voting, has liquidation rights to
be paid in cash, before any payment to common or junior stock, 140% of the Stated Value ($2.00) per share plus any dividends accrued
but unpaid thereon and is entitled to 8% cumulative dividends. As of September 30, 2019 and December 31, 2018, there are 125,000
and 125,000 shares of Series D preferred stock outstanding, respectively.
Series E Convertible Preferred Stock,
has a par value of $0.001, and a stated value of $1.00 per share, subject to adjustment. The shares of Series E Convertible Preferred
Stock can convert at a conversion price that is equal to the amount that is 61% of the lowest trading price of the Company’s
common stock during the 20 trading days immediately preceding such conversion. The shares of Series E Convertible Preferred Stock
are subject to redemption by the Company at its option from the date of issuance until the date that is 180 days therefrom, subject
to premium that ranges from 120% to 145%, increasing by 5% during each 30-day period following issuance. Series E carries a 12%
cumulative dividend, which will increase to 22% upon an event of default, is non-voting, and has liquidation rights to be paid
in cash, before any payment to common or junior stock. The Series E are mandatorily redeemable after twelve months, and therefore
have been classified as mezzanine equity.
On July 1, 2018, the Company entered into
a Stock Purchase Agreement with Device Corp. (“Device”) whereby Device will purchase up to $250,000 Series E preferred
stock for $1 per share. As of September 30, 2019, the Company has received $166,331 for the purchase of the Series E. The shares
have not yet been issued and are classified as Series E preferred to be issued as mezzanine equity.
On September 19, 2018, the Company entered
into a Stock Purchase Agreement with Geneva Roth Remark Holdings, Inc. (“Geneva”) whereby Geneva purchased 53,000 shares
of Series E preferred stock for $53,000.
On January 15, 2019, the Company entered
into another Stock Purchase Agreement with Geneva whereby they purchased 53,000 shares of Series E preferred stock for $53,000.
Geneva purchased another 33,500 shares of the Series E preferred stock on May 2, 2019.
During
the nine months ended September 30, 2019, Geneva Roth Remark Holdings converted 104,515 Series
E preferred shares into 194,438,842 shares of common stock.
As of September 30, 2019, and December
31, 2018, there are 34,985 and 53,000 shares of Series E preferred stock outstanding, respectively. As of September 30, 2019, the
Company fair valued its Series E preferred stock derivative liability at $40,000.
NOTE 9 – RELATED PARTY TRANSACTIONS
During the nine months ended September
30, 2018, the Company issued 5,000,000 shares of its Series C Preferred stock to Everett Dickson, the Company’s CEO for services
rendered. The stock was valued based on the services performed for total non-cash expense of $120,000.
Per
the terms of Mr. Dickson’s employment agreement, he is to be compensated $120,000 per year. For the year ended December 31,
2018, he was paid $52,000, and $68,000 has been credited to accrued compensation. Mr. Dickson’s employment was terminated
effective June 30, 2019 due to the change of control. For the six months ended June 30, 2019, he was paid $16,000. As of September
30, 2019, $112,000 has been credited to accrued compensation.
On
July 8, 2019, the Company executed an employment agreement with Conrad Huss, the new CEO. The agreement is effective for three
months with a salary of $10,000 per month. As of September 30, 2019, $30,000 has been
credited to accrued compensation.
NOTE 10 – COMMITMENTS AND CONTINGENCIES
During the normal course of business, the
Company may be exposed to litigation. When the Company becomes aware of potential litigation, it evaluates the merits of the case
in accordance with FASB ASC 450-20-50, Contingencies. The Company evaluates its exposure to the matter, possible legal or settlement
strategies and the likelihood of an unfavorable outcome. If the Company determines that an unfavorable outcome is probable and
can be reasonably estimated, it establishes the necessary accruals.
On September 21, 2018, Pro Drive Outboards,
LLC (“Pro-Drive”) filed a lawsuit against the Company, in which Pro-Drive alleges that the Company breached a contract
that Pro-Drive entered into with the Company. Pro-Drive is seeking damages in excess of $500,000. The Company has filed an answer,
including the defenses of defective service of process and statute of limitations and a motion to dismiss. The judge granted a
motion to dismiss, and the plaintiff’s deadline to appeal has passed, thus concluding
the matter.
contingent liabilities that should be reflected
in the financial statements.
On February 13, 2017, Baum Glass &
Jayne PLLC (“Plaintiff”) obtained a default judgment against the Company in the amount of $27,083.74. Plaintiff has
not attempted enforced collection. The amount was included in accounts payable as of September 30,
2019 and December 31, 2018.
On June 20, 2018, GW Holdings Group, Inc.
(“GW”) filed a lawsuit against the Company, in which GW alleges that the Company breached two Stock Purchase Agreements
that GW entered into with the Company. On July 11, 2018, the Company filed a motion to dismiss which was granted by the court on
March 13, 2019. A notice of appeal filed by GW is pending. As of September 30, 2019,
the Company has a note payable balance of $60,750 due to GW. Since GW’s original complaint has been dismissed and no further
action has been taken by the court, no additional liability has been accrued.
NOTE 11 – SUBSEQUENT EVENTS
Management
has evaluated subsequent events pursuant to the requirements of ASC Topic 855, from the balance sheet date through the date the
financial statements were issued and has determined that no material subsequent events exist other than the following.
Changes in the Registrant’s Certifying
Accountant.
Dismissal of Auditor
On February 14, 2020, Cruzani, Inc. dismissed
Fruci & Associates II, PLLC (“Fruci & Associates II, PLLC”) as Independent Registered Public Accountants. On
February 14, 2020, the Board of Directors of the Company authorized the dismissal.
During the fiscal year ended December 31,
2018 and through Fruci & Associates II, PLLC’s dismissal on February 14, 2020, there were (1) no disagreements with Fruci
& Associates II, PLLC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope
or procedures, which disagreements, if not resolved to the satisfaction of Fruci & Associates II, PLLC would have caused Fruci
& Associates II, PLLC to make reference to the subject matter of the disagreements in connection with its reports, and (2)
no events of the type listed in paragraphs (A) through (D) of Item 304(a)(1)(v) of Regulation S-K.
We furnished Fruci & Associates II,
PLLC with a copy of this disclosure on February 14, 2020, providing Fruci & Associates II, PLLC with the opportunity to furnish
the Company with a letter addressed to the SEC stating whether it agrees with the statements made by us herein in response to Item
304(a) of Regulation S-K and, if not, stating the respect in which it does not agree. A copy of Fruci & Associates II, PLLC’s
letter to the SEC is filed as Exhibit 16.1 to this Report.
Engagement of Auditor
On February 13, 2020, the Company engaged
BF Borgers CPA PC as its new independent registered public accounting firm beginning with the period ended June 30, 2019. The change
in the Company’s independent registered public accounting firm was approved by the board of directors. During the most recent fiscal
year and through the date of this Current Report, neither the Company nor anyone on its behalf consulted with BF Borgers CPA PC
regarding any of the following:
|
(i)
|
The application of accounting principles to a specific
transaction, either completed or proposed;
|
|
(ii)
|
The type of audit opinion that might be rendered on
the Company’s financial statements, and none of the following was provided to the Company:
|
|
(a)
|
a written report; or (b) oral advice that BF Borgers
CPA PC concluded was an important factor considered by the Company in reaching a decision as to an accounting, auditing or financial
reporting issue; or
|
|
(iii)
|
Any matter that was subject of a disagreement, as
that term is defined in Item 304(a)(1)(iv) of Regulation S-K, or a reportable event, as described in Item 304(a)(1)(v) of Regulation
S-K.
|
Subsequent to September 30, 2019, Oasis
Capital, LLC loaned the Company $13,200, to cover general operating costs.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
Forward Looking Statements
This Quarterly Report on Form 10-Q contains
forward-looking statements. For this purpose, any statements contained in this Report that are not statements of historical fact
may be deemed to be forward-looking statements. Forward-looking information includes statements relating to future actions, prospective
products, future performance or results of current or anticipated products, sales and marketing efforts, costs and expenses, interest
rates, outcome of contingencies, financial condition, results of operations, liquidity, business strategies, cost savings, objectives
of management, and other matters. You can identify forward-looking statements by those that are not historical in nature, particularly
those that use terminology such as “may,” “will,” “should,” “expects,” “anticipates,”
“contemplates,” “estimates,” “believes,” “plans,” “projected,” “predicts,”
“potential,” or “continue” and similar expressions or the negative of these similar terms. The Private
Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking information to encourage companies
to provide prospective information about themselves without fear of litigation so long as that information is identified as forward-looking
and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ
materially from those projected in the information.
These forward-looking statements are not
guarantees of future performance and involve risks, uncertainties and assumptions that we cannot predict. In evaluating these forward-looking
statements, you should consider various factors, including the following: (a) those risks and uncertainties related to general
economic conditions, (b) whether we are able to manage our planned growth efficiently and operate profitable operations, (c) whether
we are able to generate sufficient revenues or obtain financing to sustain and grow our operations, (d) whether we are able to
successfully fulfill our primary requirements for cash, which are explained below under “Liquidity and Capital Resources”.
We assume no obligation to update forward-looking statements, except as otherwise required under the applicable federal securities
laws. Unless stated otherwise, terms such as the “Company,” “Cruzani,” “we,” “us,”
“our,” and similar terms shall refer to Cruzani, Inc., a Nevada corporation, and its subsidiaries.
Results of Operations
Three Months Ended September 30,
2019 Compared to the Three Months Ended September 30, 2018
Revenue
Revenue for the three months ended September
30, 2019 was $0 compared to $81,016 for the three months ended September 30, 2018. Revenue in the prior period is from the Company’s
previous subsidiary Oventa, Inc. We also had cost of revenue for the three months ended September 30, 2019 of $0 compared to $56,711
for the three months ended September 30, 2018.
Compensation Expense
Compensation expense for the three months
ended September 30, 2019 was $30,000 compared to $159,126 for the three months ended September 30, 2018. Compensation expense in
the current period is due to the employment agreement executed with the new CEO for $10,000 a month. In the prior period our former
CEO received $20,000 and preferred stock for total non-cash expense of $120,000 (Note 9). In addition, Oventa incurred $19,126
of compensation expense.
General and Administrative Expense
General and administrative expense for
the three months ended September 30, 2019 was $4,742 compared to $332,154 for the three months ended September 30, 2018, a decrease
of $327,412, or 98.6%. General and administrative expenses have decreased as the Company
looks for new business opportunities.
Professional Fees
Professional fees for the three months
ended September 30, 2019 were $8,135 compared to $80,812 for the three months ended September 30, 2018, a decrease of $72,677 or
89.9%. Professional fees consist mostly of legal, investor relations, accounting and audit fees. The decrease is primarily due
to a decrease in investor relations and legal expense.
Other Expense
Total
other income of $132,185 for the three months ended September 30, 2019 consists of
interest expense of $82,754, and a gain on change in fair value of derivatives of $214,939. Total other expense of $1,728,467 for
the three months ended September 30, 2018 consisted of interest expense of $232,998,
a loss on change in fair value of derivatives of $751,858 and a loss on convertible notes of $743,611.
Net Loss
The Company had net income of $89,308 for
the three months ended September 30, 2019, as compared to a net loss of $2,435,436 for the three months ended September 30, 2018.
Nine Months Ended September 30, 2019
Compared to the Nine Months Ended September 30, 2018
Revenue
Revenue for the nine months ended September
30, 2019 was $0 compared to $81,016 for the nine months ended September 30, 2018. Revenue in the prior period is from the Company’s
previous subsidiary Oventa, Inc. We also had cost of revenue for the nine months ended September 30, 2019 of $0 compared to $56,711
for the nine months ended September 30, 2018.
Compensation Expense
Compensation expense for the nine months
ended September 30, 2019 was $90,000 compared to $176,126 for the nine months ended September 30, 2018. Compensation expense it
the current period is due to the employment agreement executed with the new CEO for $10,000 month. In the prior period our former
CEO received $37,000 and preferred stock for total non-cash expense of $120,000 (Note 9). In addition, Oventa incurred $19,126
of compensation expense.
General and Administrative Expense
General and administrative expense for
the nine months ended September 30, 2019 was $62,118 compared to $383,399 for the nine months ended September 30, 2018, a decrease
of $321,281, or 48.9%. General and administrative expenses have decreased as the Company
looks for new business opportunities.
Professional Fees
Professional fees for the nine months ended
September 30, 2019 were $97,883 compared to $180,412 for the nine months ended September 30, 2018, a decrease of $82,529 or 72.2%.
Professional fees consist mostly of legal, investor relations, accounting and audit fees. The decrease is primarily due to a decrease
in investor relations and legal expense.
Other Expense
Total
other expense of $624,741 for the nine months ended September 30, 2019 consists of
interest expense of $474,972, which includes $209,029 of debt discount amortization, a gain on change in fair value of derivatives
of $41,377, a loss on convertible notes of $46,250, a loss on the issuance of Series E preferred stock of $194,547, a gain on the
extinguishment of debt of $492,016 and loss on receivables of $442,365. Total expense of $1,936,594 for the nine months
ended September 30, 2018 consisted of interest expense of $326,193, a loss on change in fair
value of derivatives of $238,204 and a loss on convertible notes of $1,372,197.
Net Income
The Company had a net loss of $624,741
for the nine months ended September 30, 2019, as compared to a net loss of $2,811,407 for the nine months ended September 30, 2018.
Liquidity and Capital Resources
For the for
the nine months ended September 30, 2019, we used $113,579 in operating activities and had net proceeds from financing activities
of $112,000. To date a majority of our funding has come from the issuance of convertible notes.
The
Company currently owes $254,500 of notes payable, all of which are in default, and $1,625,395 for outstanding convertible notes.
Approximately $912,000 of the convertible notes are in default.
Quarterly Developments
Change of Control.
On
July 8, 2019, Mr. Dickson entered into a Securities Purchase Agreement (“Purchase Agreement”) with Conrad Huss to sell
5,000,000 shares of Series C Preferred and 5,000 shares of Series B preferred Stock held by Mr. Dickson. As a result, Mr. Huss
acquired the right to vote 99.06 % of the voting control of the Company. The Series B Preferred Stock is also convertible into
common stock which, in the aggregate, would represent up to .01% of the outstanding common stock after the conversion. The Series
C Preferred Stock is also convertible into common stock which, in the aggregate, would represent up to 99.05% of the outstanding
common stock after the conversion.
Resignation and Appointment of Officer
On July 8, 2019, Everett Dickson, who had
been the sole officer of the Company, resigned as an officer of the Company, and Conrad Huss was appointed the Interim President
and Chief Executive Officer of the Company. Mr. Huss is the sole beneficial owner of 5,000,000 and 5,000 shares of Series B and
C Preferred Stocks, respectively. Mr. Dickson also resigned as a director of the Company, effective on July 8th, 2019. Mr. Dickson’s
resignation was not the result of any disagreement with the management of the Company.
Going Concern
The accompanying unaudited interim consolidated
condensed financial statements have been prepared in conformity with generally accepted accounting principles which contemplate
continuation of the Company on a going-concern basis. The going concern basis assumes that assets are realized, and liabilities
are extinguished in the ordinary course of business at amounts disclosed in the consolidated financial statements. The Company
has incurred recurring losses from operations and has an accumulated deficit of $78,862,874. The Company’s ability to continue
as a going concern depends upon its ability to obtain adequate funding to support its operations through continuing investments
of debt and/or equity by qualified investors/creditors, internally generated working capital and monetization of intellectual property
assets. These factors raise substantial doubt about the Company’s ability to continue as a going concern. These consolidated
financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Management is currently pursuing a business strategy which includes raising the necessary funds to finance the Company’s
development and marketing efforts.
Critical Accounting Estimates and Policies
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities
of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Note 1 to
the Financial Statements describes the significant accounting policies and methods used in the preparation of the Financial Statements.
Estimates are used for, but not limited to, contingencies and taxes. Actual results could differ materially from those estimates.
The following critical accounting policies are impacted significantly by judgments, assumptions, and estimates used in the preparation
of the Financial Statements.
We are subject to various loss contingencies
arising in the ordinary course of business. We consider the likelihood of loss or impairment of an asset or the incurrence of a
liability, as well as our ability to reasonably estimate the amount of loss in determining loss contingencies. An estimated loss
contingency is accrued when management concludes that it is probable that an asset has been impaired or a liability has been incurred
and the amount of the loss can be reasonably estimated. We regularly evaluate current information available to us to determine
whether such accruals should be adjusted.
We recognize deferred tax assets (future
tax benefits) and liabilities for the expected future tax consequences of temporary differences between the book carrying amounts
and the tax basis of assets and liabilities. The deferred tax assets and liabilities represent the expected future tax return consequences
of those differences, which are expected to be either deductible or taxable when the assets and liabilities are recovered or settled.
Future tax benefits have been fully offset by a 100% valuation allowance as management is unable to determine that it is more likely
than not that this deferred tax asset will be realized.
Recent Accounting Pronouncements
The Company has implemented all new accounting
pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise
disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might
have a material impact on its financial position or results of operations.
Off Balance Sheet Arrangements
We have not entered into any off-balance
sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would
be considered material to investors.
Item 3. Quantitative and Qualitative
Disclosures about Market Risk.
Not applicable to smaller reporting companies.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and
Procedures
We maintain disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)
that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under
the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission (the “SEC”), and that such information is accumulated and communicated to our management
to allow timely decisions regarding required disclosure. Our Chief Executive Officer and Chief Financial Officer evaluated the
effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation,
they concluded that our disclosure controls and procedures were not effective for the quarterly period ended September 30, 2019.
The following aspects of the Company were
noted as potential material weaknesses:
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1.
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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 which is applicable
to us for the period ended September 30, 2019. 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.
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2.
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We do not have sufficient resources in our accounting function, which restricts the Company’s
ability to gather, analyze and properly review information related to financial reporting in a timely manner. As a result, as of
the date of filing, we have not completed our ASC 606 implementation process and, thus, cannot disclose the quantitative impact
of adoption on our financial statements. In addition, 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.
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3.
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We have inadequate controls to ensure that information necessary to properly record transactions
is adequately communicated on a timely basis from non-financial personnel to those responsible for financial reporting. Management
evaluated the impact of the lack of timely communication between non–financial personnel and financial personnel on our assessment
of our reporting controls and procedures and has concluded that the control deficiency represented a material weakness.
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4.
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Certain control procedures were unable to be verified due to performance not being sufficiently
documented. As an example, some procedures requiring review of certain reports could not be verified due to there being no written
documentation of such review. Management evaluated the impact of its failure to maintain proper documentation of the review process
on its assessment of its reporting controls and procedures and has concluded deficiencies represented a material weakness.
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In designing and evaluating disclosure
controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can
provide only reasonable, not absolute assurance of achieving the desired objectives. Also, 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.
Changes in Internal Controls
Based on that evaluation, our Chief Executive
Officer and our Chief Financial Officer concluded that no change occurred in the Company’s internal controls over financial reporting
during the quarter ended September 30, 2019, that has materially affected, or is reasonably likely to materially affect, the Company’s
internal controls over financial reporting.
PART II – OTHER INFORMATION
Item. 1. Legal Proceedings.
From time to time, we may become involved
in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties,
and an adverse result in these or other matters may arise from time to time that may harm our business.
On February 13, 2017, Baum Glass &
Jayne PLLC (“Plaintiff”) obtained a default judgment against the Company in the amount of $27,083.74. Plaintiff has
not attempted enforced collection. The amount was included in accounts payable as of September 30, 2019 and December 31, 2018.
The management is having discussions with respect to the timing and structure of the settlement.
On June 20, 2018, GW Holdings Group, Inc.
(“GW”) filed a lawsuit against the Company, in which GW alleges that the Company breached two Stock Purchase Agreements
that GW entered into with the Company. On July 11, 2018, the Company filed a motion to dismiss which was granted by the court on
March 13, 2019. A notice of appeal filed by GW is pending. As of September 30, 2019, the Company has a note payable balance of
$60,750 due to GW. Since GW’s original complaint has been dismissed and no further action has been taken by the court, no
additional liability has been accrued. Managements view is that the amount to settle this will not materially exceed the balance
due and even be slightly less.
On September 21, 2018, Pro Drive Outboards,
LLC (“Pro-Drive”) filed a lawsuit against the Company, in which Pro-Drive alleges that the Company breached a contract
that Pro-Drive entered into with the Company. Pro-Drive is seeking damages in excess of $500,000. The Company has filed an answer,
including the defenses of defective service of process and statute of limitations and a motion to dismiss. The judge granted a
motion to dismiss, and the plaintiff’s deadline to appeal has passed, thus concluding
the matter.
Item 1A. Risk Factors.
We are a smaller reporting company as defined
by Rule 12b-2 of the Securities Exchange Act of 1934 and, as such, are not required to provide the information under this Item.
Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds.
During the nine months ended September
30, 2019, L2 Capital, LLC converted $33,149 of principal into 16,660,864 shares of common stock.
During the nine months ended September
30, 2019, Device Corp. converted $9,700 and $1,050 of principal and interest, respectively, into 12,500,000 shares of common stock.
The loans from Device Corp have no specific terms of conversion and have therefore not been classified as convertible. The shares
were valued on the date of conversion at the closing stock price, for a loss on conversion of debt of $46,250.
During the nine months ended September
30, 2019, Geneva Roth Remark Holdings converted 104,515 Series E preferred shares into 194,438,842 shares of common stock.
During the nine months ended September
30, 2019, Geneva Roth Remark Holdings purchased 33,500 shares of Series E preferred stock for total cash proceeds of $33,500.
The above securities were issued in reliance
on the exemption under Section 4(a)(2) of the Securities Act. These securities qualified for exemption under Section 4(a)(2) since
the issuance by us did not involve a public offering. The offerings were not “public offerings” as defined in 4(a)(2)
due to the insubstantial number of persons involved in the transactions, manner of the issuance and number of securities issued.
We did not undertake an offering in which we sold a high number of securities to a high number of investors. In addition, the investors
had the necessary investment intent as required by Section 4(a)(2) since they agreed to and received securities bearing a legend
stating that such securities are restricted pursuant to Rule 144 of the Act. This restriction ensures that these securities would
not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis
of the above factors, we have met the requirements to qualify for exemption under Section 4(a)(2) of the Securities Act for these
transactions.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits
SIGNATURES
In accordance with 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 hereunto
duly authorized.
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CRUZANI, INC.
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Date: April 28, 2020
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By:
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/s/ Conrad
Huss
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Name:
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Conrad Huss
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Title:
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Chief Executive Officer and
Interim Chief Financial Officer
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(Principal Executive Officer)
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(Principal Financial and Accounting Officer)
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19
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