Item 13. Certain Relationships and Related Transactions, and Director Independence.
As at April 30, 2018, the Company was owed $327,541 from a significant shareholder. As of April 30, 2018, the Company was not indebted to the significant shareholder compared to April 30, 2017 when the Company owed the significant shareholder $1,872 for advances of working capital and expenses paid on behalf of the Company. The amount is unsecured, non-interest bearing and due on demand.
On June 22, 2017, the Company entered into a secured loan with a corporation with a significant shareholder for a loan up to CAD$450,000 for the purpose of purchasing digital currency mining hardware (“Mining Hardware”). The loan was non-interest bearing and due on August 31, 2017. The Mining Hardware purchased with the loaned funds was held as collateral until the loan amount had been fully repaid. As at September 30, 2017, the Company had not made the required payment of the loan and the Lender took sole possession of the Mining Hardware.
During the year ended April 30, 2018, the Company incurred $228,000 in consulting fees from a former officer and a former director of the Company. As of April 30, 2018, the Company has included in accounts payable $228,000 due to these parties. As of April 30, 2017, the Company did not owe these parties for consulting fees.
On April 27, 2018, the Company issued 12,500,000 each shares to its directors Dr. Pruthvinath Kancherla and Dr. Ravindranath Kancherla as well 12,500,000 to its CEO and director, Dr. Ramesh Para. These shares were issued as consideration for a Memorandum of Understanding by and between the Company and Black Cactus Global Technologies Pvt. Limited, a company organized under the laws of India (“Black Cactus India”). We also issued 12,500,000 to Sai Krishna Para, an unrelated third party, as part of the same transaction. The proposed agreement calls for the Company to acquire a 29% interest in Black Cactus India in exchange for the share issuances described in the paragraph. Once we receive approval of regulators in India, we anticipate entering into a formal Share Exchange Agreement with Black Cactus India. The shares have been returned for cancellation in the event that regulatory approval is not received.
On July 15, 2016, the Company entered into a loan agreement for a principal balance of up to $50,000 at any given time. The amount is unsecured, non-interest bearing and due on July 15, 2018. At April 30, 2018, the Company has received gross loan proceeds of $54,716. Upon receipt of the funds, the Company recorded fair value discounts of $6,836. During the year ended April 30, 2017, the Company repaid $10,600 of principal and recognized accretion of the discount of $2,067. During the year ended April 30, 2018, the Company repaid $5,000 of principal and recognized accretion of the discount of $3,918. At April 30, 2018, the net carrying value of the loan was $37,725.
At April 30, 2018, the Company was indebted for loans amounting to $500 (April 30, 2017 - $24,129). The amounts are unsecured, non-interest bearing and due on demand.
At April 30, 2018, the Company had repaid in full a loan of $8,676 (CAD$12,000.00) which was outstanding as of April 30, 2017.
On September 15, 2017, the Company entered into a loan agreement with a principal balance of $500,000 with an unrelated third party. The loan was subject to interest at 10% and due on April 30, 2018. On April 30, 2018, the Company issued 10,630,000 shares of common stock with a fair value of $1,275,600 to settle the $500,000 of principal and $31,250 of interest owed under the loan agreement. The Company recorded a loss on settlement of debt upon settlement of $744,350.
On February 14, 2018, the Company entered into a loan agreement for a principal balance of $25,000 with an unrelated third party. The loan bears interest at 10% and is due on February 13, 2019.
On April 23, 2018, the Company entered into a loan agreement for a principal balance of $15,000 with an unrelated third party. The loan bears interest at 10% and is due on May 15, 2018.
On September 30, 2017, the Company borrowed $130,000 from an unrelated third party which was due April 30,2018. This debt was in default as of April 30, 2018. Subsequent to our year end, the Company issued 2,600,000 shares of its common stock in settlement of $130,000 in principal and $6,500 in accrued interest.
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On November 27, 2017, the Company sold its Note for $500,000 to Bellridge and issued Bellridge 2,793,296 shares of the Company’s common stock as a commitment fee. The Company also issued Bellridge 7,894,737 warrants to purchase the underlying shares of common stock. The warrants were to be issued six months after closing of the first Note or May 27, 2018 and have a term of four years. The warrants are exerciseable at the lower of $0.10 per share or seventy percent (70%) of the lowest traded price of the Company’s common stock during the prior twenty consecutive trading days, subject to adjustments. On December 20, 2017, Bellridge advanced an additional $300,000 to the Company and the Company issued its second Note for $300,000 on April 5, 2018. The first Note is due November 27, 2018 and the second Note is due on December 20, 2018. Both Notes accrue interest at five percent (5%) on an annual basis and may be converted into shares of the Company’s common stock at the lower of $0.10 per share or seventy percent (70%) of the lowest traded price of the Company’s common stock during the prior twenty consecutive trading days, subject to adjustments.
In April, 2018, we issued Bellridge three warrants for an aggregate 85 million shares of common stock with an exercise price of $0.10 for a period of four years. We also issued a warrant to purchase 560,717 of our common stock at $0.10 per share for a period of four years to our financial advisor in connection with the Bellridge transactions.
As part of the Bellridge Agreements, we also executed Registration Rights Agreement, Intellectual Property Security Interest Agreement, Subsidiary Guaranty and a Security Interest Agreement in all the Company’s assets to Bellridge.
Director Independence
We have two independent directors. Because our Common Stock is not currently listed on a national securities exchange, we have used the definition of “independence” of The NASDAQ Stock Market to make this determination. NASDAQ Listing Rule 5605(a)(2) provides that an “independent director” is a person other than an officer or employee of the company or any other individual having a relationship, which in the opinion of the Company’s Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The NASDAQ listing rules provide that a director cannot be considered independent if:
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the director is, or at any time during the past three years was, an employee of the company;
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the director or a family member of the director accepted any compensation from the company in excess of $120,000 during any period of 12 consecutive months within the three years preceding the independence determination (subject to certain exclusions, including, among other things, compensation for board or board committee service);
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a family member of the director is, or at any time during the past three years was, an executive officer of the company;
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the director or a family member of the director is a partner in, controlling stockholder of, or an executive officer of an entity to which the company made, or from which the company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject to certain exclusions);
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the director or a family member of the director is employed as an executive officer of an entity where, at any time during the past three years, any of the executive officers of the company served on the compensation committee of such other entity; or
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the director or a family member of the director is a current partner of the company’s outside auditor, or at any time during the past three years was a partner or employee of the company’s outside auditor, and who worked on the company’s audit.
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Dr. Ravindranath Kancherla and Dr. Pruthvinath Kancherla are considered independent. Mr. Sangha and Dr. Para s are not considered independent because they are officers and directors of the Company.
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