UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

   
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended October 31, 2020
   
[  ] 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: 172,789,105 common shares as of December 14, 2020.

 

  1  

 


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, 2020 (unaudited) and July 31, 2020 (audited);
F-2 Condensed Consolidated Interim Statements of Operations for the three months ended October 31, 2020 (unaudited) and 2019 (unaudited);
F-3 Condensed Consolidated Interim Statements of Cash Flows for the three months ended October 31, 2020 (unaudited) and 2019 (unaudited); and
F-4 Notes to Condensed Consolidated Interim Financial Statements. (unaudited)

 

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, 2020 are not necessarily indicative of the results that can be expected for the full year.

 

  3  

 

CANNAGISTICS INC.,

GLOBAL3PL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

    October 31, 2020   July 31, 2020
    (Unaudited)   (Audited)
CURRENT ASSETS:                
Cash and cash equivalents   $ 3,299     $ 685  
Right-to-use asset     23,033       23,033  
Related party receivables, less allowance for doubtful accounts of $1,015,234     0       0  
TOTAL CURRENT ASSETS     26,332       23,718  
                 
OTHER ASSETS:                
Right-to-use asset, net of current portion     26,635       31,442  
Security deposits     3,634       3,634  
TOTAL OTHER ASSETS     30,269       35,076  
                 
TOTAL ASSETS   $ 56,601     $ 58,794  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT                
                 
CURRENT LIABILITIES:                
Accounts payable and accrued liabilities   $ 747,229     $ 607,961  
Lease liability, current portion     18,505       18,505  
Promissory notes     170,000       170,000  
Convertible notes payable, net of discount of $122,863 and $58,087                
October 31, 2020 and July 31, 2020, respectively     2,393,706       2,426,254  
Derivative liabilities     755,223       205,796  
Common stock payable     0       24,998  
Related party payables     386,404       388,094  
TOTAL CURRENT LIABILITIES     4,471,067       3,841,608  
                 
LONG-TERM LIABILITIES                
Lease liability, net of current portion     33,752       38,559  
TOTAL LONG-TERM LIABILITIES     33,752       38,559  
                 
LIABILITIES OF DISCONTINUED OPERATIONS     837,778       839,646  
                 
TOTAL LIABILITIES     5,342,597       4,719,813  
                 
                 
STOCKHOLDERS' DEFICIT:                
Preferred Stock; $0.001 par value; 20,000,000 shares authorized, 10,000,000 and 8,000,000 shares issued and outstanding as of October 31, 2020 and July 31, 2020, respectively     10,000       10,000  
Common stock; $0.001 par value; 250,000,000 shares authorized; 158,789,105 and 105,099,277 outstanding and issued as of October 31, 2020 and July 31, 2020, respectively     158,789       105,099  
Additional paid-in capital     9,098,230       8,490,720  
 Treasury stock     (45,000 )     (45,000 )
Accumulated deficit     (14,508,015 )     (13,221,838 )
TOTAL STOCKHOLDERS' DEFICIT     (5,285,995 )     (4,661,019 )
                 
TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT   $ 56,601     $ 58,794  

  

See accompanying notes to the consolidated financial statements 

 

  F- 1  

 

CANNAGISTICS INC.,

GLOBAL3PL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED OCTOBER 31, 2019 

 (UNAUDITED)  

 

    For the Three
    Months Ended
    October 31, 2020   October 31, 2019
         
Operating expenses                
 General and administrative expenses     37,575       (5,892 )
 Rent     7,486       10,676  
 Consulting     28,500       28,600  
 Professional fees     82,884       59,168  
Total operating expenses     156,445       92,552  
                 
Loss from operations     (156,445 )     (92,552 )
                 
Other income (expense)                
 Interest Income     21,759       21,759  
 Interest expense     (147,634 )     (98,901 )
 Settlement Fees     (25,000 )     —    
 Loss on derivative liabilities     (936,075 )     —    
 Change in fair value of derivative liabilities     (42,782 )     —    
 Total other expense     (1,129,732 )     (77,142 )
                 
Loss from continuing operations     (1,286,177 )     (169,694 )
                 

Discontinued operations, including loss on disposal

    —         (119,081 )
                 
Net loss     (1,286,177 )     (288,775 )
                 
Net loss per common share: basic and diluted   $ (0.01 )   $ (0.00 )
Basic and diluted weighted average common                
shares outstanding     102,834,619       93,117,423  

 

See accompanying notes to the consolidated financial statements

 

  F- 2  

 

CANNAGISTICS INC.

GLOBAL3PL, INC. AND SUBSIDIARIES

STATEMENTS OF STOCKHOLDERS’ DEFICIT

(UNAUDITED)

 

    Common Stock   Preferred Stock C   Preferred Stock D          
    Shares   Amount   Shares   Amount   Shares   Amount   Additional Paid-in Capital   Treasury Stock   Noncontrolling Interest   Accumulated Deficit   Total Stockholders' Deficit
Balance, July 31, 2019     93,118,077     $ 93,030       —       $ —         8,000,000     $ 8,000     $ 7,382,579     $ (45,000 )   $ —       $ (10,539,338 )   $ (3,100,729 )
                                                                                         
Foreign currency translation adjustment     —         —         —         —         —         —         —         —         —         1,351       1,351  
Net loss     —         —         —         —         —         —         —         —         —         (288,775 )     (288,775 )
Balance,  October 31, 2019     93,118,077     $ 93,030       —       $ —         8,000,000     $ 8,000     $ 7,382,579     $ (45,000 )   $ —       $ (10,826,762 )   $ (3,388,153 )

 

 

  

 

    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, 2020     105,099,277     $ 105,099       —       $ —         10,000,000     $ 10,000     $ 8,490,720     $ (45,000 )   $ —       $ (13,221,838 )   $ (4,661,019 )
                                                                                         
Shares issued for conversion of convertible debt     51,190,000       51,190       —         —         —         —         585,012       —         —         —         636,202  
Shares issued for settlement of payables     2,499,828       2,500       —         —         —         —         22,498       —         —         —         24,998  
Net loss                                                                             (1,286,177 )     (1,286,177 )
Balance,  October 31, 2020     158,789,105     $ 158,789       —       $ —         10,000,000     $ 10,000     $ 9,098,230     $ (45,000 )   $ —       $ (14,508,015 )   $ (5,285,996 )

 

 

See accompanying notes to the consolidated financial statements

 

  F- 3  

 

CANNAGISTICS INC.

GLOBAL3PL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED OCTOBER 31, 2020

(UNAUDITED)

 

    For The Three Months Ended
    October 31, 2020   October 31, 2019
Cash Flows from Operating Activities                
Net loss   $ (1,286,177 )   $ (288,775 )
 Loss from discontinued operations     —         119,081  
                 
Adjustments to reconcile net loss to net cash provided by operating activities:                
Foreign currency adjustment     —         1,351  
Settlement Fees on conversion of stock     13,000          
Penalty on convertible note payable     25,000       —    
Loss on derivative liabilities     452,944       —    
Change in fair value of derivative liabilities     525,913       —    
Amortization of debt discount     40,224       —    
                 
Changes in assets and liabilities                
Accounts receivable and other receivables     —         24,135  
Prepaid expense     —         (5,267 )
Accounts payable and accrued expenses     139,278       159,536  
Net cash used in operating activities of continuing operations     (89,818 )     10,061  
Net cash used in operating activities discontinued operations     (1,868 )     (119,081 )
Net cash used in operating activities   $ (91,686 )   $ (109,020 )
                 
                 
Cash Flows from Investing Activities                
(Increase) decrease in restricted cash     —         (52 )
Net cash used in financing activities     —         (52 )
                 
Cash Flows from Financing Activities                
Proceeds from convertible notes, net of amortization of $9,000     96,000       —    
Proceeds from line of credit     —         276,037  
Proceeds from loans     —         71,800  
Proceeds from related parties     32,900       21,839  
Payments on loans     —         (12,176 )
Payments on line of credit     —         (245,787 )
Payments to related parties     (34,600 )     —    
Net cash provided by financing activities     94,300       111,713  
                 
Net increase in cash     2,614       2,641  
                 
Cash, beginning of period     685       630  
                 
Cash, end of period     3,299       3,271  
                 
Supplemental disclosure of cash flow information                
Cash paid for interest     —         5,227  
Cash paid for tax     —         —    
                 
Non-cash investing and financing transactions                
Original issuance discount on convertible notes payable   $ 9,000     $ 11,000  
Conversion of notes payable, fees, and derivative liabilities   $ 636,202     $ —    

 

See accompanying notes to the consolidated financial statements

 

  F- 4  

 

Cannagistics, Inc., and Subsidiaries

Notes to Financial Statements

October 31, 2020

 

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Organization and Description of Business

 

 

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

 

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

 

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

 

On October 24, 2012, the interim board authorized the sale of 55,000,000 (2,200,000 split adjusted) shares of common stock for $6,000 to NPNC Management, LLC, in a private placement transaction exempt from the Securities Act of 1933, as amended, pursuant to section 4(2) thereof and the rules and regulations promulgated there under.

 

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

 

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

 

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

 

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

 

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

 

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

 

  F- 5  

 

 Cannagistics, Inc., and Subsidiaries

Notes to Financial Statements

October 31, 2020

 

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

 

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

 

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

 

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

 

Effective October 1, 2019, the Company suspended operations of its subsidiary Global3pl, Inc., formerly known as KRG Logistics, Inc., (an Ontario corporation), suspended future operations related to the operations in Mississauga, Ontario. It is in the process of collecting accounts receivables still due and working on a plan to pay its payables. It has entered into an agreement with 10451029 Canada Inc., d/b/a Reliable Logistics, for the assignment and of the assets of Global3pl, Inc., (an Ontario Corporation). The transaction was completed on November 6, 2019. The Company anticipates formally liquidating and dissolving the subsidiary in the next fiscal Quarter. This is a separate corporation from Global3pl, Inc. (A New York corporation).

 

Current Projects in Development

 

Malta Project

 

Cannagistics Lab Malta, is an emerging biotech lab with an intrinsic knowledge in the medicinal cannabis industry. With a solid team of a multidisciplinary professionals in the pharmaceutical industry, complex supply chain and logistics management, unique technology and intellectual property, Cannagistics Lab purpose is to add value and offer a progress proposal to Malta medicinal cannabis industry, based on its interest to support, educate, take advantage of and focus on the development of breakthrough medicinal cannabis products with different therapeutic uses in patients around the world to whom science and traditional medicine simply could not reach; our vision and knowledge allows us to focus on GMP biopharmaceutical cannabis based medicines, -with the highest standards starting from the raw material- for multiple applications in patients, using latest technology, ancestral knowledge, scientific studies, with an exceptional team of research and development following the strictest standards and good distribution practices for export and national use. 

   

Manufacturing areas description:

 

The factory will have the following areas for the production process, which will implement the safety protocols and the project will be developed.

 

Area of receipt: Area of the property that has been destined for the receipt of the raw material and supplies that arrives for the manufacturing process.

 

Raw material area: Warehouse equipped with the security measures required for the storage of the raw material.

 

  F- 6  

 

 Cannagistics, Inc., and Subsidiaries

Notes to Financial Statements

October 31, 2020

 

Production and manufacturing area: Sector where the manufacturing process will be carried out in which the transforming plant will be in order to obtain the final product.

Reagents and supplies area: Warehouse equipped with the security measures required for the storage of reagents and supplies.

 

Solid waste area: Sector destined for the storage of solid waste produced during the manufacturing process.

 

Finished product area: Warehouse equipped with the security measures required for the storage of the finished product.

 

Dispatch area: Sector from where the process of dispatch and delivery of the finished product to its final recipient will take place

 

Administrative area: Sector of the factory where administrative, accounting and security activities will be developed.

 

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, 2020.

 

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, 2020. 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.

 

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, 2020. In the opinion of management, these unaudited condensed consolidated interim financial statements reflect adjustments, necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative of the results for a full year or for any future period.

 

Use of Estimates

 

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

 

  F- 7  

  

Cannagistics, Inc., and Subsidiaries

Notes to Financial Statements

October 31, 2020

 

 

COVID-19 Pandemic Update

 

In March 2020, the World Health Organization declared a global health pandemic related to the outbreak of a novel coronavirus. The COVID-19 pandemic adversely affected the company's financial performance in the third and fourth quarters of fiscal year 2020 and could have an impact throughout fiscal year 2021. In response to the COVID-19 pandemic, government health officials have recommended and mandated precautions to mitigate the spread of the virus, including shelter-in-place orders, prohibitions on public gatherings and other similar measures. As a result, the company and certain of the company's customers and suppliers temporarily closed locations beginning late in the second quarter of fiscal year 2020, continuing into the third quarter of fiscal year 2020. There is uncertainty around the duration and breadth of the COVID-19 pandemic, as well as the impact it will have on the company's operations, supply chain and demand for its products. As a result, the ultimate impact on the company's business, financial condition or operating results cannot be reasonably estimated at this time. 

 

Income Taxes

 

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

 

Derivative Financial Instruments

 

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

 

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

 

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

immediate charge to income is recognized in order to initially record the derivative instrument liabilities at their fair value.

 

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

 

  F- 8  

 

Cannagistics, Inc., and Subsidiaries

Notes to Financial Statements

October 31, 2020

 

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.

 

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.

 

Fair value is defined under FASB ASC Topic 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or the most advantageous market for an asset or liability in an orderly transaction between participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on the levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value. The levels are as follows:

 

  · Level 1 - Quoted prices in active markets for identical assets or liabilities

 

  · Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or corroborated by observable market data for substantially the full term of the assets or liabilities

 

  · Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the value of the assets or liabilities

 

The following is a listing of the Company’s liabilities required to be measured at fair value on a recurring basis and where they are classified within the fair value hierarchy as of October 31, 2020 and July 31, 2020:

 

    October 31, 2020
    Level 1   Level 2   Level 3   Total
Derivative liabilities   $ —       $ —       $ 755,223     $ 755,223  

 

    July 31, 2020
    Level 1   Level 2   Level 3   Total
Derivative liabilities   $ —       $ —       $ 205,796     $ 205,796  

 

  F- 9  

 

Cannagistics, Inc., and Subsidiaries

Notes to Financial Statements

October 31, 2020

 

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, 2020, and 2019 the allowance for doubtful accounts was $0 and $0, respectively.

 

Revenue Recognition

The Company recognizes revenue related to transaction from its third-party logistics sales by performing the following five steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company applies the five-step model to arrangements that meet the definition of a contract under Topic 606, including when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company evaluates the goods or services promised within each contract related performance obligation and assesses whether each promised good or service is distinct. The Company recognizes as revenue, the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Amounts invoiced or collected in advance of product delivery or providing services are recorded as unearned revenue or customer deposits. The company accrues for sales returns, bad debts, and other allowances based on its historical experience.

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.

 

Foreign Currency

 

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.

 

Stock-Based Compensation

 

The Company measures expenses associated with all employee stock-based compensation awards using a fair-value method and record such expense in our consolidated financial statements on a straight-line basis over the requisite service period.

 

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.

 

Recent Accounting Pronouncements

 

 In June 2016, the FASB issued ASU 2016-13, Financial Instruments (Topic 326): Measurement of Credit Losses on Financial Instruments, which modifies the measurement of expected credit losses of certain financial instruments, including trade receivables, contract assets, and lease receivables. This standard will be effective for the Company beginning August 1, 2020. The Company does not believe that this standard will have a material impact on its’ consolidated financial statements.

 

  F- 10  

 

Cannagistics, Inc., and Subsidiaries

Notes to Financial Statements

October 31, 2020

 

NOTE 3 – GOING CONCERN

 

Management does not expect existing cash as of October 31, 2020 to be sufficient to fund the Company’s operations for at least twelve months from the issuance date of these October 31, 2020 financial statements. These financial statements have been prepared on a going concern basis which assumes the Company will continue to realize its assets and discharge its liabilities in the normal course of business. As of October 31, 2020, the Company has an accumulated deficit of $14,508,015, and has not yet generated material revenue from operations, and will require additional funds to maintain its operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern within one year after the consolidated financial statements are issued. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become due. The Company intends to finance operating costs over the next twelve months through its existing financial resources and we may also raise additional capital through equity offerings, debt financings, collaborations and/or licensing arrangements. If adequate funds are not available on acceptable terms, we may be required to delay, reduce the scope of, or curtail, our operations. The accompanying consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

NOTE 4 – DISCONTINUED OPERATIONS

 
On November 6, 2019, the Company discontinued its operations of subsidiary Global3pl, Inc., formerly known as KRG Logistics, Inc., (an Ontario corporation) and sold the assets of $54,296 for $10 dollars. As such, the assets of KRG Logistics, Inc. were removed from the accounts, and all remaining liabilities were classified as Discontinued Operations in the accompanying Balance Sheets. As of October 31, 2020, and July 31, 2020, the summaries of liabilities pertaining to discontinued operations were as follows:

 

    October 31,   July 31,
    2020   2020
Accounts payable   $ 460,262     $ 462,130  
Royal Bank line of credit     289,242       289,242  
Unearned revenue     14,833       14,833  
Accrued liabilities     64,663       64,663  
Custom duties & GST payable     6,019         6,01 9  
HST     2,759       2,759  
Liabilities of discontinued operations   $ 837,778     $ 839,646  

 

  F- 11  

 

Cannagistics, Inc., and Subsidiaries

Notes to Financial Statements

October 31, 2020

 

NOTE 5 – PROMISSORY NOTES

 

Promissory notes payable as of October 31, 2020 and July 31, 2020 consisted of the following:

 

Description   October 31, 2020   July 31, 2020
Note payable dated March 8, 2018, matured March 8, 2019, bearing interest at 10% per annum.   $ 30,000     $ 30,000  
Note payable dated July 18, 2018, matured July 18, 2019, bearing interest at 8% per annum.   $ 135,000     $ 135,000  
Note payable dated February 4, 2020, matured February 4, 2021, bearing interest at 18% per annum.   $ 5,000     $ 5,000  
Total   $ 170,000     $ 170,000  
Less current portion of long-term debt   $ 170,000     $ 170,000  
Total long-term debt     —         —    

 

Interest expense for the three months ended October 31, 2020 and 2019 was $3,705 and $4,285, respectively.

 

NOTE 6 - CONVERTIBLE DEBT

 

Convertible debt as of October 31, 2020 and July 31, 2020 consisted of the following:

Description   October 31, 2020   July 31, 2020
         
Convertible note agreement dated November 1, 2013 in the amount of $30,000 payable and due on demand bearing interest at 12% per annum. Principal and accrued interest is convertible at $.002250 per share.   $ 11,041     $ 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     $ 31,500  
Convertible note agreement dated August 19, 2019 in the amount of $3,800 payable and due on August 19, 2020 bearing interest at 24% per annum.   $ 3,800     $ 3,800  
Convertible note agreement dated September 4, 2019 in the amount of $36,500 payable and due on September 4, 2020 bearing interest at 20% per annum.   $ 36,500     $ 36,500  
Convertible note agreement dated December 4, 2019 in the amount of $95,000 payable and due on December 4, 2020 bearing interest at 12% per annum.   $ 95,000     $ 95,000  
Convertible note agreement dated February 10, 2020 in the amount of $15,000 payable at February 10, 2021 bearing interest at 12% per annum..   $ 15,000     $ 15,000  
Convertible note agreement dated February 21, 2020 in the amount of $47,500 payable at February 21, 2021 bearing interest at 12% per annum.   $ 47,500     $ 47,500  
Convertible note agreement dated February 28, 2020 in the amount of $67.500 payable at February 28, 2021 bearing interest at 12% per annum.   $ 21,341     $ 67,500  
Convertible note agreement dated April 15, 2020 in the amount of $31,500 payable at April 15, 2021 bearing interest at 10% per annum, net of discount.   $ 15,887     $ 31,500  
Convertible note agreement dated September 29, 2020 in the amount of $34.000 payable and due on September 29, 2021 bearing interest at 12% per annum.   $ 34,000     $ —    
Convertible note agreement dated October 9, 2020 in the amount of $33,000 payable and due on October 9, 2021 bearing interest at 12% per annum.   $ 33,000     $ —    
Convertible note agreement dated October 19, 2020 in the amount of $38.000 payable and due on October 19, 2020 bearing interest at 12% per annum.   $ 38,000     $ —    
Convertible notes, net of discount   $ 2,516.569     $ 2,475,341  

 

  F- 12  

 

Cannagistics, Inc., and Subsidiaries

Notes to Financial Statements

October 31, 2020

 

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, 2020 and 2019 was $100,457 and $92,016.

Derivative liabilities

Certain of the Company’s convertible notes are convertible into a variable number of shares of common stock for which there is not a floor to the number of common stock shares the Company might be required to issue. Based on the requirements of ASC 815 Derivatives and Hedging, the conversion feature represented an embedded derivative that is required to be bifurcated and accounted for as a separate derivative liability. The derivative liability is originally recorded at its estimated fair value and is required to be revalued at each conversion event and reporting period. Changes in the derivative liability fair value are reported in operating results each reporting period. The Company uses the Black-Scholes option pricing model for the valuation of its derivative liabilities as further discussed below.

There are no material differences between using the Black-Scholes option pricing model for these estimates as compared to the Binomial Lattice model.

During the three months ended October 31, 2020, three new notes with a variable-rate conversion feature were issued. The Company valued the conversion features on the date of issuance resulting in initial liabilities totaling $548,944. Since the fair value of the derivative was in excess of the proceeds received, a full discount to the convertible notes payable and a day one loss on derivative liabilities of $452,944 was recorded during the three months ended October 31, 2020. The Company valued the conversion feature using the Black-Scholes option pricing model with the following assumptions: conversion prices ranging from $0.0029 to $0.0058, the closing stock price of the Company's common stock on the dates of valuation ranging from $0.008 to $0.034, an expected dividend yield of 0%, expected volatilities ranging from 219%-251%, risk-free interest rate ranging from 0.12% to 0.15%, and expected terms of one year. 

As of July 31, 2020, the Company had existing derivative liabilities of $205,796 related to two convertible notes. During the three months ended October 31, 2020, $97,772 in principle of these convertible notes along with fees of $13,000 were converted into 51,190,000 shares of common stock. At each conversion date, the Company recalculated the value of the derivative liability associated with the convertible note recording a gain (loss) in connection with the change in fair market value. In addition, the pro-rata portion of the derivative liability as compared to the portion of the convertible note converted was reclassed to additional paid-in capital. During the three months ended October 31, 2020, the Company recorded $525,430 to additional paid-in capital for the relief of the derivative liabilities. The derivative liabilities were revalued using the Black-Scholes option pricing model with the following assumptions: conversion prices ranging from $0.0018 to $0.007, the closing stock price of the Company's common stock on the dates of valuation ranging from $0.006 to $0.034, an expected dividend yield of 0%, expected volatility ranging from 215% to 262%, risk-free interest rates ranging from 0.12% to 0.15%, and expected terms ranging from 0.09 to 0.48 years.

 

On October 31, 2020, the derivative liabilities on these convertible notes were revalued at $755,223 resulting in a loss of $525,913 for the three months ended October 31, 2020 related to the change in fair value of the derivative liabilities. The derivative liabilities were revalued using the Black-Scholes option pricing model with the following assumptions:

conversion prices ranging from $0.0020 to $0.0029, the closing stock price of the Company's common stock on the date of valuation of $0.015, an expected dividend yield of 0%, expected volatility of 269%, risk-free interest rate of 0.13%, and an expected term ranging from 0.08 to 0.97 years.

The Company amortizes the discounts over the term of the convertible promissory notes using the straight-line method which is similar to the effective interest method. During the three months ended October 31, 2020, the Company amortized $40,224 to interest expense. As of October 31, 2020, discounts of $122,363 remained for which will be amortized through October 2021.

  F- 13  

 

Cannagistics, Inc., and Subsidiaries

Notes to Financial Statements

October 31, 2020

 

NOTE 7 – 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 $0 and $19,490 during the three months ended October 31, 2020 and 2019, respectively. As of October 31, 2020, and 2019, there were $386,404 and $375,344 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, 2020 and 2019 consulting fees paid were $48,484 and $44,769 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 $21,759 and $26,062 for the three months ended October 31, 2020 and 2019, respectively, has been recorded in the financial statements.

 

NOTE 8 – STOCKHOLDERS’ EQUITY (DEFICIT)

 

The Company is authorized to issue 500,000,000 shares of its $0.001 par value common stock and 10,000,000 shares of Preferred stock. As of October 31, 2020, and July 31, 2020, there were 93,118,077 shares, of common stock outstanding. There were 10,000,000 shares of Series D Preferred stock outstanding as of October 31, 2020 and 8,000,000 shares of Series D Preferred Stock outstanding as of July 31, 2020.

 

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 January 31, 2018, there were 1,000,000 shares of

Preferred C shares issued and outstanding. On May 15, 2019, the 1,000,000 shares were converted to 72,500,000 shares of common stock.

 

On April 29, 2019, the Company designated 10,000,000 shares of Preferred Stock as Series D Preferred stock, par value $0.001 per share (the “Series D Preferred Stock”). Each share of Series D Preferred Stock is convertible into 72.5 common shares and has voting rights based on this ratio. There were 10,000,000 shares of Series D Preferred stock outstanding as of October 31, 2020 and 8,000,000 shares of Series D Preferred Stock outstanding as of July 31, 2019.

 

On May 6, 2020, the Company filed an Offering Statement under Regulation A on form 1-A for a Tier II Offering of 43,000,000 shares .

 

NOTE 9 – WARRANT

 

On April 15, 2020, the Company issued a five-year Common Stock Purchase Warrant in connection with a $31,500 convertible promissory note. The warrant is convertible into 437,500 shares of the Company’s common stock at $.12 per share.

 

On April 23, 2020, the Company issued a three-year Common Stock Purchase Warrant in connection with a $75,000 investment in the Company’s common stock. The warrant has a conversion price of $.15 per share of the Company’s common stock.

 

  F- 14  

 

Cannagistics, Inc., and Subsidiaries

Notes to Financial Statements

October 31, 2020

 

 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     $ 3,363  
  2020-2021     $ 22,737  
  2021-2022     $ 23,415  
  2022-2023     $ 24,122  
  2023-2024     $ 14,314  

  

  F- 15  

 

Cannagistics, Inc., and Subsidiaries

Notes to Financial Statements

October 31, 2020

 

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:

 

On November 16, 2020, the Company issued 6,000,000 shares of its common stock at $0.0011 for the conversion of notes payable.

 

On November 23, 2020, the Company issued 8,000,000 shares of its common stock at $0.0018 for the conversion of notes payable.

 

On December 2, 2020 the Company established NOVI Biosciences, Inc. (a New York corporation as a new wholly owned subsidiary.

 

On December 4, 2020, the Company issued 5,307,100 shares of its common stock at $0.0022 for the conversion of notes payable.

 

  F- 16  

 

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

 

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.

  

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).

 

  4  

 

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

 

On February 24, 2020, and in light of our expansion of our global supply chain efforts, the Company has determined that in accordance with this continued direction of supply chain management, we have determined not to pursue any “plant touching” assets in the United States at this time, until regulations have changed, and have determined not to pursue any transaction with Unified Cannabis as previously announced.

 

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

 

Our Industry

 

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

 

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

 

Competition

 

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

 

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

 

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

 

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

 

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

 

  5  

 

Current Projects in Development

 

Malta Project

 

Cannagistics Lab Malta, is an emerging biotech lab with an intrinsic knowledge in the medicinal cannabis industry. With a solid team of a multidisciplinary professionals in the pharmaceutical industry, complex supply chain and logistics management, unique technology and intellectual property, Cannagistics Lab purpose is to add value and offer a progress proposal to Malta medicinal cannabis industry, based on its interest to support, educate, take advantage of and focus on the development of breakthrough medicinal cannabis products with different therapeutic uses in patients around the world to whom science and traditional medicine simply could not reach; our vision and knowledge allows us to focus on GMP biopharmaceutical cannabis based medicines, -with the highest standards starting from the raw material- for multiple applications in patients, using latest technology, ancestral knowledge, scientific studies, with an exceptional team of research and development following the strictest standards and good distribution practices for export and national use.

 

Manufacturing areas description:

 

The factory will have the following areas for the production process, which will implement the safety protocols and the project will be developed.

 

Area of receipt: Area of the property that has been destined for the receipt of the raw material and supplies that arrives for the manufacturing process.

 

Raw material area: Warehouse equipped with the security measures required for the storage of the raw material.

 

Production and manufacturing area: Sector where the manufacturing process will be carried out in which the transforming plant will be in order to obtain the final product.

Reagents and supplies area: Warehouse equipped with the security measures required for the storage of reagents and supplies.

 

Solid waste area: Sector destined for the storage of solid waste produced during the manufacturing process.

 

 

Finished product area: Warehouse equipped with the security measures required for the storage of the finished product.

 

Dispatch area: Sector from where the process of dispatch and delivery of the finished product to its final recipient will take place

 

Administrative area: Sector of the factory where administrative, accounting and security activities will be developed.

 

Global3pl, Inc (New York Corporation)

 

Global 3PL, Inc. (NY) is a logistics subsidiary with a seasoned industry team focused on the development of a SaaS platform serving the just-in-time warehouse inventory & distribution industry, as well as general and special commodities segment of the North American freight industry. It intends to operate three integrated brands: AFX, G3PL, and Urban X.

 

Results of Operation for Three Months Ended October 31, 2020 and 2019

 

Revenues

 

No revenue was generated for the three months ended October 31, 2020 and October 31, 2019.

 

Our cost of revenues was $0 for the three months ended October 31, 2020, as compared with cost of revenue of $0 for the same period ended October 31, 2019.

 

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Operating Expenses

 

Total operating expenses increased $63,893 for the three months ended October 31, 2020 from $92,552 at October 31, 2019 to $156,445 at October 31, 2020. This increase was mainly due mainly to an increase in General and administration expenses.

 

Operating expenses for the three months ended October 31, 2020 consisted of general and administrative expenses of $37,575, professional fees of $82,884, rent of $7,486, and consulting fees of $28,500. Our operating expenses for the three months ended October 31, 2019 consisted of general and administrative expenses of $(5,892), professional fees of $59,168, rent of $10,676, and consulting fees of $28,600.

 

Other Income and Expenses

 

We had interest income of $21,759 for the three months ended October 31, 2020, and for the three months ended October 31, 2019. We had interest expense of $147,634 for the three months ended October 31, 2020 as compared to $98,901 for the three months ended October 31, 2019. We had Settlement Fees of $25,000 for the three months ended October 31, 2020 as compared to $0.0 for the three months ended October 31, 2019. We had a Loss on derivative liabilities of $936,075 for the three months ended October 31, 2020 as compared to $0.0 for the three months ended October 31, 2019. We had a Change in fair value of derivative labilities of $42,782 for the three months ended October 31, 2020 as compared to $0.0 for the three months ended October 31, 2019.

 

Loss from Discontinued Operations

 

Net loss from discontinued operations for the three months ended October 31, 2020 was $0.0 compared $119,081 for the three months ended October 31, 2019.

 

Net Loss

 

Net loss for the three months ended October 31, 2020 was $1,286,177 compared to net loss of $288,775 for the three months ended October 31, 2019.

 

Liquidity and Capital Resources

 

As of October 31, 2020, we had total current assets of $26,332 and total current liabilities of $4,471,067 as of October 31, 2019. We had a negative working capital of $4,444,735 as of October 31, 2020.

  

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

 

Off Balance Sheet Arrangements

 

As of October 31, 2020, there were no off-balance sheet arrangements.

 

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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, 2020, we had an accumulated deficit of $14,478,014. 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 October 31, 2020, 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.

 

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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 October 31, 2020, 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, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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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.

 

There has been no action on this matter in over a year. Furthermore, COVID-19 has caused most, if not all Courts to postpone matters indefinitely. The Company’s position with respect to the Plaintiff’s claims has not changed.

 

II.

KRG Logistics, Inc., now known as Global3pl, Inc., (an Ontario corporation), a now discontinued operational subsidiary of the Company, was named as the defendant in an action in the Ontario Superior Court of Justice by Ron Alvares, one of the original shareholders of KRG Logistics, Inc., when it was purchased by the Company in 2017. The action is for breach of contract for monies due as a result of the Purchase Agreement and for an amount due from a shareholder loan claimed by Mr. Alvares to KRG Logistics on September 30, 2014. The Company intended to defend against the breach of contract claim as the amount claimed to be due is incorrect, based on payments already made. It intended to also file counterclaims based on intentional interference of contracts by Mr. Alvares and his son for stealing clients of the Company and industrial sabotage of the Company’s software systems. With respect to the claim of an outstanding shareholder loan it is the position of the Company that said shareholder loan was never disclosed to the Company at the time of the purchase and based on information available, any such shareholder loan was paid off with the down payment provided by the Company for the purchase of KRG Logistics, Inc.

 

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

 

There has been no action on this matter in over a year. In the interim, the subsidiary of the Company has ceased operations. As a result, there would be no material effect on the Company.

 

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III.

On February 4, 2020, Jeffrey Gates commenced an action in the Supreme Court of the State of New York, County of Suffolk against the Company and Mr. Zimbler for the non-payment of a Promissory Note, of which the balance of $135,000, plus interest. The Company has retained Counsel to appear and defend the action.

 

Due to current conditions related to COVID-19, the New York State Supreme Court has administratively adjourned substantially all matters indefinitely.

 

The Company continues to have every intention of resolving this matter prior to the Court rendering a decision.

 

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.

 

On October 23, 2019, the Company issued 4,500,000 shares of its common stock for the settlement of debt.

 

On March 25, 2020, the Company issued 3,000,000 shares of its common stock in a private placement for $75,000.

 

On August 4, 2020, the Company issued 2,499,828 shares of its common stock at $0.001 for settlement of a claim.

 

On September 11, 2020, the Company issued 600,000 shares of its common stock at $0.0066 for the conversion of notes payable.

 

On September 17, 2020, the Company issued 750,000 shares of its common stock at $0.0048 for the conversion of notes payable.

 

On September 28, 2020, the Company issued 1,200,000 shares of its common stock at $0.0034 for the conversion of notes payable.

 

On October 5, 2020, the Company issued 2,000,000 shares of its common stock at $0.00248 for the conversion of notes payable.

 

On October 9, 2020, the Company issued 3,000,000 shares of its common stock at $0.00212 for the conversion of notes payable.

 

On October 13, 2020, the Company issued 5,000,000 shares of its common stock at $0.00212 for the conversion of notes payable.

 

On October 19, 2020, the Company issued 5,990,000 shares of its common stock at $0.00208 for the conversion of notes payable.

 

On October 20, 2020, the Company issued 5,990,000 shares of its common stock at $0.00182 for the conversion of notes payable.

 

On October 20, 2020, the Company issued 6,200,000 shares of its common stock at $0.00208 for the conversion of notes payable.

 

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On October 22, 2020, the Company issued 6,800,000 shares of its common stock at $0.00208 for the conversion of notes payable.

 

On October 23, 2020, the Company issued 6,250,000 shares of its common stock at $0.00182 for the conversion of notes payable.

 

On October 26, 2020, the Company issued 7,500,000 shares of its common stock at $0.00208 for the conversion of notes payable.

 

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, 2020 formatted in Extensible Business Reporting Language (XBRL).
 

 

**Provided herewith

 

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SIGNATURES

 

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

 

   
 

Cannagistics Inc.

 

Date:

December 15, 2020

 

By: /s/ Rob Gietl
  Rob Gietl
Title: President, Chief Executive Officer, and Director

 

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