Item 1. Financial Statements
Our financial statements included in
this Form 10-Q are as follows:
F-1
|
Condensed Consolidated Interim Balance Sheets as of October 31, 2017 (unaudited) and July 31, 2017;
|
F-2
|
Condensed Consolidated Interim Statements of Operations and Comprehensive Loss for the three months ended October 31, 2017 and 2016 (unaudited);
|
F-3
|
Condensed Consolidated Interim Statements of Cash Flows for the three months ended October 31, 2017 and 2016 (unaudited); and
|
F-4
|
Notes to Condensed Consolidated Interim Financial Statements.
|
These financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions
to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating
results for the interim period ended October 31, 2017 are not necessarily indicative of the results that can be expected for the
full year.
PRECIOUS
INVESTMENTS, INC.
CONSOLIDATED
BALANCE SHEETS
(Unaudited)
|
|
October 31, 2017
|
|
|
July 31, 2017
|
ASSETS
|
|
|
|
|
|
|
|
Cash
|
|
$
|
5,824
|
|
|
$
|
10,997
|
Inventory
|
|
|
—
|
|
|
|
203,000
|
Accounts and other receivable
|
|
|
20,000
|
|
|
|
24,407
|
Total current assets
|
|
|
25,824
|
|
|
|
238,404
|
Total assets
|
|
$
|
25,824
|
|
|
$
|
238,404
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
324,549
|
|
|
$
|
248,408
|
Promissory notes
|
|
|
16,450
|
|
|
|
16,450
|
Convertible notes payable
|
|
|
9,448
|
|
|
|
9,448
|
Related party payables
|
|
|
473,689
|
|
|
|
460,066
|
Total current liabilities
|
|
|
824,136
|
|
|
|
734,372
|
|
|
|
|
|
|
|
|
Promissory notes - related party
|
|
|
470,634
|
|
|
|
673,634
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,294,770
|
|
|
|
1,408,006
|
|
|
|
|
|
|
|
|
Contingencies and commitments
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
Stockholders' (deficit) equity
|
|
|
|
|
|
|
|
Common stock; $0.001 par value; 250,000,000 shares authorized;12,565,645 outstanding as of
October 31, 2017 and July 31,2017, respectively
|
|
|
12,566
|
|
|
|
12,566
|
Additional paid-in capital
|
|
|
78,391,183
|
|
|
|
78,391,183
|
Treasury stock
|
|
|
(45,000
|
)
|
|
|
(45,000)
|
Accumulated deficit
|
|
|
(79,600,723
|
)
|
|
|
(79,507,419
|
Noncontrolling interest
|
|
|
(26,972
|
)
|
|
|
(20,932)
|
Total stockholders' (deficit) equity
|
|
|
(1,268,946
|
)
|
|
|
(1,169,602)
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' (deficit) equity
|
|
$
|
25,824
|
|
|
$
|
238,404
|
The accompanying
notes are an integral part of these audited financial statements
PRECIOUS
INVESTMENTS, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
For The Quarters Ended
|
|
|
October 31, 2017
|
|
October 31, 2016
|
|
|
|
|
|
Revenues
|
|
$
|
203,000
|
|
|
$
|
668,566
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
203,000
|
|
|
|
668,566
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
Executive compensation
|
|
|
25,000
|
|
|
|
25,000
|
General and administrative expenses
|
|
|
27,645
|
|
|
|
53,687
|
Professional fees
|
|
|
38,798
|
|
|
|
80,288
|
Total operating expenses
|
|
|
91,443
|
|
|
|
158,975
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(91,443
|
)
|
|
|
(158,975)
|
|
|
|
|
|
|
|
|
Other expense
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(7,901
|
)
|
|
|
(16,090)
|
Loss on asset purchase
|
|
|
—
|
|
|
|
(1,500,000)
|
Loss on acquisiton of Flawless Fund
|
|
|
—
|
|
|
|
—
|
Loss on inventory valuation
|
|
|
|
|
|
|
(3,006,438)
|
Total other expense
|
|
|
(7,901
|
)
|
|
|
(4,522,528)
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(99,344
|
)
|
|
|
(4,681,503)
|
|
|
|
|
|
|
|
|
Net loss attributable to noncontrolling interest
|
|
|
(6,040
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
Net loss Attributable to Company
|
|
$
|
(93,304
|
)
|
|
$
|
(4,681,503)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share: basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.69)
|
Basic and diluted weighted average common shares outstanding
|
|
|
34,893,713
|
|
|
|
6,811,357
|
The accompanying
notes are an integral part of these audited financial statements
PRECIOUS
INVESTMENTS, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
For The Quarters Ended
|
|
|
October 31, 2017
|
|
October 31, 2016
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(93,304
|
)
|
|
$
|
(4,681,503)
|
Net loss attributable to noncontrolling interest
|
|
|
(6,040
|
)
|
|
|
—
|
Net loss attributable to the Company
|
|
|
(99,344
|
)
|
|
|
(4,681,503)
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
|
|
Amortization of debt discount
|
|
|
—
|
|
|
|
978
|
Loss on asset purchase
|
|
|
—
|
|
|
|
1,500,000
|
Changes in assets and liabilities
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
4,407
|
|
|
|
(94,500)
|
Accounts payable and accrued expenses
|
|
|
76,141
|
|
|
|
40,112
|
Inventory
|
|
|
203,000
|
|
|
|
3,675,003
|
Net cash from operating activities
|
|
|
184,204
|
|
|
|
440,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
Payments on Loans Payable
|
|
|
—
|
|
|
|
(553,900)
|
Payments on convertible notes payable
|
|
|
(203,000
|
)
|
|
|
113,810
|
Advances from related parties
|
|
|
13,623
|
|
|
|
—
|
Net cash from financing activities
|
|
|
(189,377
|
)
|
|
|
(440,090)
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
(5,173
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
Cash, beginning of period
|
|
|
10,997
|
|
|
|
—
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
5,824
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
Non-Cash investing and financing transactions
|
|
|
|
|
|
|
|
Issuance of note payables for inventory
|
|
$
|
—
|
|
|
$
|
1,500,000
|
Issuance of common stock for inventory
|
|
$
|
—
|
|
|
$
|
3,411,368
|
Shares issued to settle convertible debt
|
|
$
|
—
|
|
|
$
|
3,476
|
The accompanying
notes are an integral part of these audited financial statements
Precious Investments, Inc.
Notes to Condensed Interim Financial
Statements (unaudited)
October 31, 2017
NOTE 1 – ORGANIZATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Description of Business
Precious Investments, Inc. (Formerly
FIGO Ventures, Inc.) (‘The Company’) was incorporated under the laws of the State of Nevada on May 26, 2004. The Company
was an Exploration Stage Company with the principle business being the acquisition and exploration of resource properties.
The Company had allowed its charter
with the state of Nevada to be revoked by the Secretary of State for failure to file the required annual lists and pay the required
annual fees. Its last known officers and directors reflected in the records of the Secretary of State were unresponsive or stated
they were no longer involved with the Company. The purported replacement officers and directors were unresponsive.
On September 14, 2012, NPNC Management,
LLC filed a petition in the Eighth Judicial District Court in Clark County, Nevada and was appointed custodian of the Company on
October 15, 2012.
In order to obtain basic operating capital
to pay for the reinstatement of the Company’s good standing with the Nevada Secretary of State, to bring the Company’s
account current with creditors essential for the reorganization of the Company, such as the transfer agent, and for basic general
corporate purposes, on October 24, 2012, the interim board authorized the sale of 55,000,000 (2,200,000 split adjusted) shares
of common stock for $6,000 to NPNC Management, LLC, in a private placement transaction exempt from the Securities Act of 1933,
as amended, pursuant to section 4(2) thereof and the rules and regulations promulgated there under.
On October 24, 2012, NPNC Management,
LLC appointed Bryan Clark as director of the Company, to hold office until such time as the shareholders elected a board. The interim
board, consisting of Mr. Clark, further acted to appoint Mr. Clark as president, treasurer, and secretary of the Company, to act
on behalf of the Company, and to hold such offices until removed by any subsequent board elected by the shareholders.
On November 13, 2013, Bryan Clark tendered
his resignation from all positions as an Officer and Director of the Company and the Board appointed Anna Wlodarkiewicz as a Director,
President, Secretary and Treasurer of the Company.
On October 9, 2014, Ania Wlodarkiewicz
tendered her resignation from all positions as an Officer and Director of the Company and the Board appointed Nataliya Hearn as
a Director, President, Secretary and Treasurer of the Company.
On March 28, 2016, Nataliya Hearn resigned
as the Company’s Chief Executive Officer and Director. Mr. Kashif Khan is the Company’s sole officer and director.
The Company has completed an asset purchase
agreement dated August 10, 2015 where the Company acquired from Kashif Khan, its sole officer and director, colored diamonds with
a wholesale value of US$4 Million, which he was in control of, in exchange for issuing three secured demand convertible promissory
notes totaling US$4 Million.
The Company is in the business of purchasing
and selling colored diamonds.
On March 1, 2017, the Company 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.
Precious Investments, Inc.
Notes to Condensed Interim Financial
Statements (unaudited)
October 31, 2017
Basis of Presentation and Principles
of Consolidation
The
accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles
generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read
in conjunction with the audited financial statements and notes thereto contained in the Company’s most recent Annual Financial
Statements filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of financial position and the results of operations for the interim period presented have been
reflected herein. The results of operations for the interim period are not necessarily indicative of the results to be expected
for the full year. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited
financial statements for the most recent fiscal period, as reported in the Form 10-K, have been omitted.
The consolidated
financial statements include the financial statements of the Company and its 75% owned subsidiary Flawless Fund GP, Inc. All inter-company
balances and transactions have been eliminated.
Unaudited Condensed 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, 2017. 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. Cash and cash equivalents
The Company considers all highly liquid
instruments purchased with a maturity of three months or less to be cash equivalents.
The Company minimizes its credit risk
associated with cash by periodically evaluating the credit quality of its primary financial institution. The balance at times may
exceed federally insured limits. At October 31, 2017, no cash balances exceeded the federally insured limit.
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, 2017 and 2016 the allowance for doubtful accounts was $0 and $0, respectively.
Use of Estimates
The preparation of financial statements
in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the financial statements
and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those
estimates.
Income Taxes
The Company’s calculation
of its tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various taxing
jurisdictions. The Company recognizes tax liabilities for uncertain tax positions based on management’s estimate of whether
it is more likely than not that additional taxes will be required. The Company had no uncertain tax positions as of October 31,
2017 and 2016.
Deferred income taxes are
recognized in the consolidated financial statements for the tax consequences in future years of differences between the tax basis
of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates. Temporary differences
arise from net operating losses, differences in depreciation methods of archived images, and property and equipment, stock-based
and other compensation, and other accrued expenses. A valuation allowance is established when it is determined that it is more
likely than not that some or all of the deferred tax assets will not be realized.
Precious Investments, Inc.
Notes to Condensed Interim Financial
Statements (unaudited)
October 31, 2017
The application of tax laws
and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are
subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings.
Therefore, the actual liability for U.S., or the various state jurisdictions, may be materially different from management’s
estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities.
Interest and penalties are included in tax expense.
The Company includes
interest and penalties arising from the underpayment of income taxes in the statements of operation in the provision for income
taxes. As of October 31, 2017 and 2016, the Company had no accrued interest or penalties related to uncertain tax positions.
Derivative Financial Instruments
The Company does not use derivative
instruments to hedge exposures to cash flow, market, or foreign currency risks.
The Company reviews the terms
of convertible loans, equity instruments and other financing arrangements to determine whether there are embedded derivative instruments,
including embedded conversion options that are required to be bifurcated and accounted for separately as a derivative financial
instrument. Also, in connection with the issuance of financing instruments, the Company may issue freestanding options or warrants
to employees and non-employees in connection with consulting or other services. These options or warrants may, depending on their
terms, be accounted for as derivative instrument liabilities, rather than as equity.
Derivative financial instruments
are initially measured at their fair value. For derivative financial instruments that are accounted for as liabilities, the derivative
instrument is initially recorded at fair value and then re-valued at each reporting date, with changes in the fair value reported
as charges or credits to income. To the extent that the initial fair values of the freestanding and/or bifurcated derivative instrument
liabilities exceed the total proceeds received an immediate charge to income is recognized in order to initially record the derivative
instrument liabilities at their fair value.
The discount from the face value
of the convertible debt instruments resulting from allocating some or all of the proceeds to the derivative instruments, together
with the stated rate of interest on the instrument, is amortized over the life of the instrument through periodic charges to income,
using the effective interest method.
The classification of derivative
instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each
reporting period. If reclassification is required, the fair value of the derivative instrument, as of the determination date,
is reclassified. Any previous charges or credits to income for changes in the fair value of the derivative instrument are not
reversed. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or
not net-cash settlement of the derivative instrument could be required within twelve months of the balance sheet date.
Fair value of financial instruments
The Company’s financial instruments
consist of its liabilities. The carrying amount of payables and the loan payable – related party approximate fair value because
of the short-term nature of these items. The promissory notes, and convertible notes payables are measured at amortized cost using
the effective interest method, which approximates fair value due to the relationship between the interest rate on long-term debt
and the Company’s incremental risk adjusted borrowing rate.
Precious Investments, Inc.
Notes to Condensed Interim Financial
Statements (unaudited)
October 31, 2017
Inventories
Inventory consist of loose colored precious stones and
is stated at the lower of cost or net realizable value. The Company writes-down inventory once it has been determined that conditions
exist that may not allow the inventory to be sold for its intended purpose or the inventory is determined to be excess or obsolete
based on our forecasted future sales. The charge related to inventory write-downs is recorded as a cost of revenue.
Discontinued Operations
For those businesses where management has committed
to a plan to divest, each business is valued at the lower of its carrying amount or estimated fair value less cost to sell. If
the carrying amount of the business exceeds its estimated fair value, an impairment loss is recognized. Fair value is estimated
using accepted valuation techniques such as a DCF model, valuations performed by third parties, earnings multiples, or indicative
bids, when available. A number of significant estimates and assumptions are involved in the application of these techniques, including
the forecasting of markets and market share, sales volumes and prices, costs and expenses, and multiple other factors. Management
considers historical experience and all available information at the time the estimates are made; however, the fair value that
is ultimately realized upon the divestiture of a business may differ from the estimated fair value reflected in the Consolidated
Financial Statements. Depreciation, depletion, and amortization expense is not recorded on assets of a business to be divested
once they are classified as held for sale. Businesses to be divested are classified in the Consolidated Financial Statements as
either discontinued operations or held for sale.
For businesses classified as discontinued operations,
the balance sheet amounts and results of operations are reclassified from their historical presentation to assets and liabilities
of operations held for sale on the Consolidated Balance Sheet and to discontinued operations on the Consolidated Statement of Operations,
respectively, for all periods presented. The gains or losses associated with these divested businesses are recorded in discontinued
operations on the Consolidated Statement of Operations. The Consolidated Statement of Cash Flows is also reclassified for assets
and liabilities of operations held for sale and discontinued operations for all periods presented.
Revenue Recognition
The Company recognizes revenue related to product sales
when (i) the seller’s price is substantially fixed, (ii) shipment has occurred causing the buyer to be obligated to pay for
product, (iii) the buyer has economic substance apart from the seller, and (iv) there is no significant obligation for future performance
to directly bring about the resale of the product by the buyer as required by ASC 605 – Revenue Recognition. Cost of sales,
rebates and discounts are recorded at the time of revenue recognition or at each financial reporting date.
NOTE 2 – GOING CONCERN
These condensed consolidated interim
financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern,
which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.
As of October 31, 2017, the Company has an accumulated deficit of $79,600,723. The Company’s 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. These condensed consolidated interim financial statements do not include any adjustments that might
arise from this uncertainty.
Precious Investments, Inc.
Notes to Condensed Interim Financial
Statements (unaudited)
October 31, 2017
NOTE 3 – PROMISSORY NOTES
Promissory notes payable as of October 31, 2017 and July
31, 2017 consisted of the following:
Description
|
|
October 31, 2017
|
|
July
31, 2017
|
* Note payable dated January 15, 2014, matured January 15, 2015 bearing interest at 12% per annum.
|
|
$
|
3,000
|
|
|
$
|
3,000
|
* Note payable dated February 14, 2014 matured February 14, 2015, bearing interest at 12% per annum.
|
|
|
3,750
|
|
|
|
3,750
|
* Note payable dated April 1, 2014 matured April 1, 2015, bearing interest at 12% per annum.
|
|
|
4,700
|
|
|
|
4,700
|
* Note payable dated January 30, 2014, matured January 30, 2015, bearing interest at 12% per annum.
|
|
|
5,000
|
|
|
|
5,000
|
Total
|
|
$
|
16,450
|
|
|
$
|
16,450
|
On February 2, 2018, these notes were
extended by the noteholder to December 31, 2018 and are no longer in default.
Interest expense related to the notes
for the three months ended October 31, 2017 and 2016 was $498 and $498 respectively.
NOTE 4- CONVERTIBLE DEBT
Convertible debt as of October 31, 2017 and July 31, 2017
consisted of the following:
Description
|
|
October
31, 2017
|
|
July
31, 2017
|
Convertible note agreements (3) dated November 1, 2013, totaling $45,000. Maturing on November 30, 2015 bearing interest at 12% per annum. Principal and accrued interest is convertible at $.00225 per share. The beneficial conversion feature was recorded as a discount to the debt and is being amortized over the term of the notes.
|
|
|
9,448
|
|
|
|
9,448
|
|
|
|
|
|
|
|
|
Convertible notes, net of discount
|
|
|
9,448
|
|
|
|
9,448
|
During the three months ended October
31, 2017 and 2016, Interest expense related to these notes for the three months ended October 31, 2017 and 2016 was $286 and $611,
respectively.
NOTE 5 – 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 $13,623
and $113,810 during the three months ended October 31, 2017 and 2016, respectively. As of October 31, 2017 and July 31, 2017, there
were $473,689 and $460,066 due to related parties, respectively.
ASSET PURCHASE AGREEMENT
On March 28, 2016, the Company signed
a letter of intent (the “LOI”) with Karrah Inc., an Ontario corporation (“Karrah”), and the sole shareholder
of Karrah, Farrah Khan (“Khan”). Khan is the wife of the Company’s officer and director, Kashif Khan. Pursuant
to the LOI, the parties set forth their understandings in contemplation of an acquisition from Khan of all of the issued and outstanding
shares of stock in Karrah, resulting in a parent subsidiary relationship. In consideration for the acquisition of Karrah, the Company
planned to issue to Khan a three year promissory note (the “Note”) for $1,500,000, with interest at 6% per annum. Interest
would have been payable at maturity or from time to time at the Company’s sole discretion. The Company had the right to prepay
the Note and it would have been secured by the assets of Karrah.
Precious Investments, Inc.
Notes to Condensed Interim Financial
Statements (unaudited)
October 31, 2017
On October 26, 2016, the Company learned
that it was not possible to obtain an audit of Karrah. As such on October 28, 2016, the Company restructured the entire transaction
by entering into a Termination and Restructure Agreement.
As part of the Termination and Restructure
Agreement, the Company and Khan mutually agreed to cancel the Agreement to acquire the issue and outstanding shares of stock in
Karrah. Second, the Company agreed to purchase from Karrah its customer list in exchange for a revised promissory note. The New
Note will be in favor of Karrah, valued at $1,500,000 with interest at 6% per annum, and will not be secured by the assets of Karrah.
During the three months ending October 31, 2017 and 2016, the Company recognized of $7,118 and $14,003 of interest expense. As
of the October 31, 2017 and July 31, 2017, the note had a balance of $673,634 and $470,634, respectively.
CONSULTING AGREEMENT
On December 6, 2016, the Company entered
into a one year Consulting Agreement with Karrah, Inc. and Kashif Khan for the team to act as a non-exclusive advisor and sales
agent in assisting the Company in the marketing and sales of the Company’s colored diamond inventory on an international
basis and domestically.
In exchange for the consulting services,
the Company agreed to allow the consultant to retain up to the first $1,500,000 in revenues generated, which shall be used exclusively
to pay off that certain promissory note we issued to Karrah, Inc. dated October 28, 2016 in the principal amount of $1,500,000.
Following such payment, The Company has agreed to a revenue share, with the consultant allotted 5% of all gross revenues received
solely from the efforts of the consultant in the sale of our diamond inventory. Sales conducted by the Company will not be subject
to a revenue share.
During the three months ended October
31, 2017, the Consultant retained $203,000 in Company sales in payment of the above mentioned note payable.
NOTE 6 – STOCKHOLDERS’
EQUITY
The Company is authorized to issue 250,000,000
shares of its $0.001 par value common stock. As of October 31, 2017 and July 31, 2017 there were 12,565,645 shares of common stock
issued and outstanding.
NOTE 7 – 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.
NOTE 8 – SUBSEQUENT
EVENTS
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 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. 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.
Precious Investments, Inc.
Notes to Condensed Interim Financial
Statements (unaudited)
October 31, 2017
The following tables summarized the
financial position of American Freight as of the date of acquisition.
As of November 1, 2017
|
|
|
Consolidated Balance Sheet:
|
|
|
|
|
|
Total assets
|
|
$
|
526,494
|
Total liabilites
|
|
$
|
936,018
|
Total stockholders' defcit
|
|
$
|
(409,524)
|
Total Liabilites and Stockholders' Deficit
|
|
$
|
526,494
|
Through November 1, 2017
|
|
|
Consolidated Statement of Operations:
|
|
|
|
|
|
Revenue
|
|
$
|
2,654,270
|
Cost of revenue
|
|
$
|
1,277,473
|
Loss from operations
|
|
$
|
1,514,912
|
Net income (loss)
|
|
$
|
(138,115)
|
On February 20, 2018, Precious Investments,
Inc. (the “Company”), entered into a Letter of Intent (“Letter of Intent”) for the Company to purchase
100% of the issued and outstanding stock of Recommerce Group, Inc. (“Recommerce”), along with certain other related
documents.
Recommerce provides retailers and
manufacturers with a comprehensive green approach to managing, remanufacturing, recycling and selling returned consumer products
creating profits from returns.
Along with the Letter of Intent,
the Company executed a Secured Promissory Note, dated February 20, 2018 (“Note 1”) of the Company with Professional
Trading Services, Ltd. (the “Lender”), in the principal amount of $1,034,000, to be used a Bridge Loan pursuant to
second Secured Promissory Note, dated February 20, 2018, between the Company and Recommerce (“Note 2”). The proceeds
of Note 1 were to be used as a loan to Recommerce, prior to the closing of the transaction, for specific payments to be made by
Recommerce, as detailed by a Use of Proceeds agreed to by the Company, Lender and Recommerce. Note 1 and Note 2 were both due on
March 8, 2018, subsequent Events or upon the funding to the Company of a total of $2,000,000, to be used for the acquisition of
Recommerce, whichever was later. Additionally, as part of Note 1 and Note 2, an “escrow account” was to be set up regarding
the specific use of proceeds of the Proceeds of Note 1 and Note 2, that being a loan to Recommerce by the Company, and as set forth
on the Schedule 1.02 annexed to Note 1 and Note 2. The Company, Lender and Recommerce, also agreed, as set forth in Note 1 and
Note 2 to the appointment of an Escrow Agent to hold the Proceeds of the Note to be disbursed pursuant to the Use of Proceeds agreed
upon in Note 1 and Note 2.
The Letter of Intent had an expiration date of March 30, 2018. On
April 4, 2018, Recommerce notified the Company that the Letter of Intent had expired. The Company and Recommerce continued to engage
in discussion about a transaction past the expiration date of the Letter of Intent.
On April 4, 2018, the Company was notified that the remaining balance
of funds from Note 1, in the amount of approximately $203,000, that had not been disbursed and released pursuant to the agreed
upon Use of Proceeds, as specified in Note 1 and Note 2, had without any notification or approval by the Company, had been removed
from the account and sent to a third party, and not the Lender, by agents of the Lender.
The Company did not give any approval for this action.
Pursuant to Note 1 and Note 2, it was agreed that the Lender or
his/its designee shall approve any and all disbursements of the Proceeds by the Escrow Agent from the Proceeds of this Note, prior
to any disbursement by the Escrow Agent. The Company agrees to provide the Escrow Agent and the Lender reasonable documentation
as to the use of any of the Proceeds.
The President of the Company, James W. Zimbler is also a control
person of Recommerce.
On
November 16, 2017, the Company entered into an Agreement of Conveyance, Transfer and Assignment of Assets, where we transferred
all assets and business operations associated with our colored diamond business and joint venture, Flawless Fund GP Inc., to the
other parties to the agreement. In exchange, the Company received 16,000,000 shares in our company and a promise to assume up
to $100,000 in liabilities relating to our former business.
At the time the colored
diamond business was considered to represent the entire Company and therefore cannot be distinguished from the rest of the Company.
As such, the colored diamond business does not meet the definition of a component of the Company and is not presented as discontinued
operations in the current quarter financial statements.
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.
For a period of 12 months from the Closing Date of the Merger,
we agreed that no new convertible instruments will be issued that would cause outstanding shares to be issued below a $20 million
market cap. In addition, for the same period of time, we are permitted to issue up to and no more than 145 million shares of common
stock or convertible securities that convert up to and no more than 145 million shares of common stock. Moreover, any such issuance
can only be made to acquire another business entity and for no other reason. However, if we receive permission from the majority
of the minority shareholders, then this restriction may be waived. In addition, the number of shares of common stock that we can
issue depends on the number of shares exercised from outstanding warrants, as follows:
|
§
|
If 75%-100% of the warrants are exercised then we
can issue up to 145 million shares of common stock.
|
|
§
|
If 50%-74% of the warrants are exercised then we
can issue up to 133,750,000 shares of common stock.
|
|
§
|
If 25%-49% of the warrants are exercised then we
can issue up to 122,500,000 shares of common stock.
|
|
§
|
If 0%-24% of the warrants are exercised then we can
issue up to 111,250,000 shares of common stock.
|
American Freight provided customary representations and warranties
and closing conditions, including approval of the Merger by a unanimous vote of its board of directors and voting stockholders.
Spin-Out of Assets
At the same time as the Merger, we entered into an Agreement
of Conveyance, Transfer and Assignment of Assets (the “Conveyance Agreement”) with our prior officer and director,
Kashif Khan, along with shareholders Faeghen Niakab, and Parand Bioukzadeh and joint venture partner, Eddeb Management. Pursuant
to the Conveyance Agreement, we transferred all assets and business operations associated with our colored diamond business and
joint venture, Flawless Fund GP Inc., to the other parties to the agreement. In exchange, Mr. Khan, Mr. Niakab and Mr. Bioukzadeh agreed to cancel 16,000,000 shares in our company
and to assume up to $100,000 in liabilities relating to our former business.
This transaction was fully disclosed in a Current Report
on Form 8-K, filed with the Securities and Exchange Commission on December 5, 2017.
We intend to carry on the business of American Freight, as our primary
line of business. We have relocated our principal executive offices to 170 Traders Blvd East, Mississauga, Ontario L4Z 1W7, and
our telephone number is 631-994-3242.
In the near future, we intend to change our name to American Freight
Xchange, Inc. or something similar, which is more in line with our new business direction.
American Freight Xchange, Inc. is an integrated 3PO and logistics
company. We are engaged in the business of the fulfillment of e-commerce transportation and logistics for third parties.
American Freight Xchange, Inc. manages the entire “logistics
process”. Our freight management program obtains the most effective combination of rates, carriers, tracking and service
points to pick up returned products from store and distribution center levels with centralized billing, auditing and claims capabilities.
American Freight Xchange, Inc., through our wholly owned subsidiary
KRG Logistics, Inc. has the expertise to manage all the manufacturers and retailers shipping. Due to our strategic placement in
the supply chain relative to the manufacturers and retailers or distributors position, we are best suited to offer these services.
American Freight Xchange, Inc. customizes freight management and fulfillment programs that provide manufacturers and retailers
with the most cost-effective services from the moment the shipment authorization is issued to the time the product is shipped and
received.
Our Business
We are both a less-than-truckload (“LTL”) and
a Third-Party Logistics (“3PL”) carrier, providing regional, inter-regional and national LTL and or 3PL services. These
include arranging for ground and air expedited transportation and consumer household pickup and delivery (“P&D”),
through a single integrated organization. In addition to our core LTL services, we offer a range of value-added services which
cover different areas, such as, truckload brokerage, supply chain consulting and warehousing and pick and ship services.
We believe the growth in demand for our services can be attributed
to our ability to consistently provide a superior level of customer service at a fair price, which allows our customers to meet
their supply chain needs. Our integrated structure allows us to offer our customers consistent high-quality service from origin
to destination, and we believe our operating structure and proprietary information systems enable us to efficiently manage our
operating costs. Our services are complemented by our technological capabilities, which we believe provide the tools to improve
the efficiency of our operations while also empowering our customers to manage their individual shipping needs.
Results of Operation for Three Months Ended October 31,
2017 and 2016
Revenues
We generated revenue of $203,000 for the three months ended
October 31, 2017, as compared revenues of $668,566 for same period ended 2016. All of our revenues were generated from the sale
of our colored diamond inventory. Since we have divested our colored diamond business, all future revenues are expected to come
from our freight logistics business.
Our cost of revenues was $203,000 for the three months ended
October 31, 2017, as compared with cost of revenue of $668,556 for the same period ended 2016. This is attributable to the fair
market value of the shares of common stock that we sold to acquire our colored diamonds.
Operating Expenses
Operating expenses decreased to $91,443 for the three months
ended October 31, 2017 from $158,975 for the three months ended October 31, 2016. Our operating expenses for the three months ended
October 31, 2017 consisted of the equity expense to compensate our sole officer and director of $25,000, equity and cash consideration
for professional fees of $38,798 and general and administrative expenses of $26,445. Our operating expenses for the three months
ended October 31, 2016 consisted of professional fees of $80,288, general and administrative expenses of $53,687 and executive
compensation of $25,000.
We expect that our operating expenses will increase for the
year ended 2018 as a result of the transaction with American Freight Xchange, Inc., and KRG Logistics, Inc.
Other Expenses
We had other expenses of $(7,901) for the three months ended
October 31, 2017, compared with other expenses of $(16,090) for the three months ended October 31, 2016. Other expenses for the
three months ended October 31, 2017 consisted solely of interest expense. Other expenses for the three months ended October 31,
2016 consisted of interest expense of $16,090, the loss on the purchase of assets of $4,506,438.
Net Loss
Net loss for the three months ended October 31, 2017 was
$(93,304) compared to net loss of $(4,681,528) for the three months ended October 31, 2016.
Liquidity and Capital Resources
As of October 31, 2017, we had current assets of $25,824 consisting
of Cash on hand of $5,824 and Accounts and other receivables of $20,000. Our total current liabilities as of October 31, 2017 were $824,136.
We therefore had negative working capital of $(798,312) as of October 31, 2017.
Operating activities provided $184,204 in cash for the three months
ended October 31, 2017, as compared with cash provided of $440,090 for the same period ended 2016. Our positive operating cash flow
for the three-months ended October 31, 2017 was mainly the discontinues operations. Our positive operating cash flow for the three-months
ended October 31, 2016 was mainly the result of an increase in inventory and the loss on assets we purchased, offset mainly by
our net loss for the quarter.
Financing activities used $189,377 for the three
months ended October 31, 2017, as compared with cash used of $440,090 for the same period ended 2016. Our positive
financing cash flow for the three months ended October 31, 2017 was mainly the result of loans. Our negative financing cash
flow for the three months ended October 31, 2016 was mainly the result of payments on loans payable, offset up advances from
related parties.
We intend to fund operations through sales and debt and/or
equity financing arrangements, which may be insufficient to fund expenditures or other cash requirements. We plan to seek additional
financing in a private equity offering to secure funding for operations. There can be no assurance that we will be successful in
raising additional funding. If we are not able to secure additional funding, the implementation of our business plan will be impaired.
There can be no assurance that such additional financing will be available to us on acceptable terms or at all.
Off Balance Sheet Arrangements
As of October 31, 2017, there were no off-balance sheet arrangements.
Critical Accounting Policies
In December 2001, the SEC requested that all registrants
list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical
accounting policy” is one which is both important to the portrayal of a company’s financial condition and results,
and requires management’s most difficult, subjective or complex judgments, often as a result of the
need to make estimates about the effect of matters that are inherently uncertain.
Our accounting policies are discussed in detail in the footnotes
to our financial statements included in our Annual Report on Form 10-K for the year ended July 31, 2017, 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, 2017, we had an accumulated deficit of
$25,824. 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 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 October 31, 2017, 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, 2017, 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. 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, 2017, 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 October 31, 2017. 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, 2017, that has materially affected, or
is reasonably likely to materially affect, our internal control over financial reporting.