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).
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.
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.
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
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
|
|
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.
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
|
|
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
|
|
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.
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.
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
|
|
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.