Notes
to Condensed Consolidated Interim Financial Statements (unaudited)
April
30, 2016
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, Anna 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.
Basis
of Presentation
The
condensed consolidated interim financial statements are presented in conformity with accounting principles generally accepted
in the United States of America, as reported on our fiscal period ended on April 30, 2016. We have summarized our most significant
accounting policies.
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, 2015.
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.
Precious
Investments, Inc.
Notes
to Condensed Consolidated Interim Financial Statements (unaudited)
April
30, 2016
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.
NOTE
1 – ORGNIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
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.
Inventories
Inventory
consist of loose colored diamond acquired during the period (See Note 8) 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.
Precious
Investments, Inc.
Notes
to Condensed Consolidated Interim Financial Statements (unaudited)
April
30, 2016
Recently
Issued Accounting Pronouncements
On
May 28, 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”. The standard outlines
a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes
most current revenue recognition guidance. The accounting standard is effective for annual reporting periods (including interim
reporting periods within those periods) beginning after December 15, 2017. Early adoption is permitted as of annual reporting
periods beginning after December 15, 2016, including interim periods within that period. The impact on the condensed interim financial
statements of adopting ASU 2014-09 will be assessed by management.
On
August 27, 2014, the FASB issued a new financial accounting standard on going concern, ASU No. 2014-15, “Presentation of
Financial Statements – Going Concern (Sub-Topic 205-40): Disclosure of Uncertainties about an Entity’s Ability to
Continue as a Going Concern.” The standard provides guidance about management’s responsibility to evaluate whether
there is a substantial doubt about the organization’s ability to continue as a going concern. The amendments in this Update
apply to all companies. They become effective in the annual period ending after December 15, 2016, with early application permitted.
The impact on the condensed consolidated interim financial statements of adopting ASU 2014-15 will be assessed by management.
Management
does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material
effect on the accompanying condensed consolidated interim financial statements.
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 April 30, 2016, the Company has an accumulated deficit of $4,541,148. 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.
NOTE
3 – BITGEMS ASSETS MANAGEMENT LTD
On
March 24, 2016, the Company entered into an Agreement for Transfer of Ownership with Gulf Peal Ltd. and goNumerical Ltd.(the “Consulting
Firms”) (the “Transfer Agreement”). Under the Transfer Agreement, the Company agreed to transfer all intellectual
property rights as part of the cryptocurrency diamond market and PinkCoin projects to Gulf Pearl Ltd. and GoNumerical Ltd. (the
“Consulting Firms”). In addition, the Company agreed to transfer ownership and management of its subsidiary, Bitgems
Assets Management Ltd., to the Consulting Firms. In exchange, the Consulting Firms agreed to return their collective 1,000,000
shares in the Company acquired under the previously entered Memorandum of Understanding dated October 1, 2015 and Amended Memorandum
of Understanding dated October 12, 2015.
On
the date of the sale, Bitgems Assets Management had no assets or liabilities and as such the Company recorded the value of the
1,000,000 shares received of $2,400,000 as a gain on the sale of subsidiary. Additionally, the Company recorded the amortization
of a previously recorded prepaid expense of $2,092,500 (See note 4) associated with the MOU to the sale price of the subsidiary.
As a result during the three and nine months ended April 30, 2016, the Company recorded a net gain on the sale of its subsidiary
of $307,500.
Precious
Investments, Inc.
Notes
to Condensed Consolidated Interim Financial Statements (unaudited)
April
30, 2016
NOTE
4 – PREPAID EXPENSES
On
October 1, 2015, we entered into a Memorandum of Understanding (“MOU”) with Gulf Peal Ltd. and goNumerical Ltd. (the
“Consulting Firms”) in which each of the Consulting Firms shall receive 500,000 shares of common stock upon meeting
certain milestones, with 250,000 shares of common stock being earned upon execution of the MOU. During the period ended April
30, 2016, we issued a total of 1,000,000 shares of common stock valued at $2,790,000 based on the fair market value on the agreement
date to the consultants related to the agreement.
During
the quarter ended April 30, 2016, the Company had included the value of the 750,000 unearned shares amounting to $2,092,500 as
a prepaid expense until such time the milestones were met and the shares were earned.
As
of April 30, 2016, no additional milestones were met and as a result of the Transfer Agreement (See Note 3) and the return of
the previously issued shares, the Company has amortized the balance of the outstanding prepaid of $2,092,500 to the selling price
of the subsidiary. As of April 30, 2016 and 2015, the balance of the prepaid expenses is $0.
NOTE
5 – PROMISSORY NOTES
Promissory
notes payable as of April 30, 2016 and July 31, 2015 consisted of the following:
Description
|
|
April
30, 2016
|
|
|
July
31,
2015
|
|
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
|
|
These
notes have matured as of April 30, 2016, however have not been paid. Interest expense related to the notes for the six months
ended April 30, 2016 and 2015 was $1,482 and $1,446 respectively.
Precious
Investments, Inc.
Notes
to Condensed Consolidated Interim Financial Statements (unaudited)
April
30, 2016
NOTE
6- CONVERTIBLE DEBT
Convertible
debt as of April 30, 2016 and July 31, 2015 consisted of the following:
Description
|
|
April
30,
2016
|
|
|
July
31,
2015
|
|
Convertible
note agreement dated January 11, 2007, of up to $1,000,000 bearing interest at 10% per annum, originally scheduled to mature
on January 11, 2009. Convertible by Lender at its sole option into units in the capital stock such that for each $0.40 of
principal outstanding at the time of conversion may be converted into one unit consisting of one common share and one non-transferable
share purchase warrant exercisable for a period of up to two years from the date of conversion. Each warrant shall entitle
the Lender to purchase an additional common share of the Company at $0.60 during the term of the warrants. The remaining balance
of the beneficial feature conversion applicable to this note at January 31, 2016 and July 31, 2014 was zero.
|
|
$
|
289,140
|
|
|
$
|
289,140
|
|
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.
|
|
|
25,119
|
|
|
|
27,056
|
|
Convertible
note agreements (3) dated August 10, 2015, totaling $4,000,000. Maturing on August 9, 2018 bearing interest at 6% per annum.
Principal and accrued interest is convertible at $.247 per share. The beneficial conversion feature was recorded as a discount
to the debt and is being amortized over the term of the notes. (See note 8)
|
|
|
4,000,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Less:
unamortized discount
|
|
|
(3,036,594
|
)
|
|
|
(3,910
|
)
|
Convertible notes,
net of discount
|
|
|
1,277,665
|
|
|
|
312,285
|
|
The
Company does not have a copy of the Convertible note agreement dated January 11, 2007. Neither the Note nor the name of the lender
are found in our public filings. The Company has taken significant efforts to locate a copy of the Note to no avail. The Company
contacted the prior auditor, Dale Matheson Carr-Hilton Labonte LLP, which audited our July 31, 2008 and 2007 financial statements
found in our 10KSB for the year ended July 31, 2008. After conducting a search, Dale Matheson informed us that they do not have
a copy of the Note. Despite not having a copy of the Note, the material terms of the note were contained in our prior financial
statements for the year ended July 31, 2008, and those terms are sufficient for all material purposes to accurately present our
current financial statements. The Note matured on January 11, 2009 and the statute of limitations ran on January 11, 2015. As
such, the Company cannot file a copy of the Note, but believe the present circumstances warrant a departure from the requirements
of Item 601 of Regulation S-K.
During
the nine months ended April 30, 2016 and 2015, the Company recognized $967,317 and $8,800 of accretion expense on the above notes,
respectively. Interest expense related to these notes for the nine months ended April 30, 2016 and 2015 was $184,054 and $2,552,
respectively.
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 $18,400 during the nine months ended April 30, 2016. As of the April 30, 2016 and July 31, 2015,
there were $64,349 and $45,949 due to related parties, respectively. All advances from related parties are interest free and due
upon demand.
Precious
Investments, Inc.
Notes
to Condensed Consolidated Interim Financial Statements (unaudited)
April
30, 2016
NOTE
8 – DIAMOND PURCHASE AGREEMENTS
On
August 10, 2015, we entered into a Diamond Purchase Agreement (the “Agreement”) with Kashif Khan (“Khan”),
an arm’s length party. Pursuant to the Agreement, we acquired from Khan colored diamonds (the “Assets”) for
three demand secured convertible promissory notes (the “Notes”) in the aggregate principal amount of $4,000,000. The
Notes have the following features:
Note
A
Note
A is in the principal amount of $1.7 million, accrues interest at 6% per annum and matures: a) within 20 business days of a receipt
of written demand from the holder for payment of all of the Notes, provided that i) we have not raised $5 million in debt or equity
financing before written demand was tendered or any portion of Note was converted into shares of our common stock; or b) in all
other cases, thirty-six months from the issuance of Note A.
Upon
written demand for payment, the Company may either pay all principal and accrued interest on the Notes or return the Assets to
the holder to fulfill all obligations.
The
holder may convert the principal and accrued interest into shares of our common stock at $0.247386975 per share up to a maximum
conversion allowance of 6,871,825 shares. If the we raise $5 million in debt or equity financing or if the holder converts any
portion of Note A, then the Note will automatically convert at maturity into a total of 6,871,825 shares of our common stock.
If we prepay Notes B and C, however, then the conversion price will adjust to $0.105139464 per share for a total conversion allowance
of 16,169,000 shares.
The
Company may not prepay Note A and it is secured by $1,700,000 worth of the Assets.
Note
B
Note
B is in the principal amount of $1.15 million, accrues interest at 6% per annum and matures: a) within 20 business days of a receipt
of written demand from the holder for payment of all of the Notes, provided that i) we have not raised $5 million in debt or equity
financing before written demand was tendered or any portion of Note was converted into shares of our common stock; or b) in all
other cases, thirty-six months from the issuance of Note B.
Upon
written demand for payment, the Company may either pay all principal and accrued interest on the Notes or return the Assets to
the holder to fulfill all obligations.
The
holder may convert the principal and accrued interest into shares of our common stock at $0.247386975 per share up to a maximum
conversion allowance of 4,648,588 shares. If we raise $5 million in debt or equity financing or if the holder converts any portion
of Note B, then the Note will automatically convert at maturity into a total of 4,648,588 shares of our common stock.
The
Company may prepay all of the outstanding principal and accrued interest under Note B, provided that we also prepays all of the
outstanding principal and accrued interest of Note C. Note B is secured by $1,150,000 worth of the Assets.
Note
C
Note
C is in the principal amount of $1.15 million, accrues interest at 6% per annum and matures: a) within 20 business days of a receipt
of written demand from the holder for payment of all of the Notes, provided that i) we have not raised $5 million in debt or equity
financing before written demand was tendered or any portion of Note was converted into shares of our common stock; or b) in all
other cases, thirty-six months from the issuance of Note C.
Upon
written demand for payment, the Company may either pay all principal and accrued interest on the Notes or return the Assets to
the holder to fulfill all obligations.
The
holder may convert the principal and accrued interest into shares of our common stock at $0.247386975 per share up to a maximum
conversion allowance of 4,648,588. If we raise $5 million in debt or equity financing or if the holder converts any portion of
Note B, then the Note will shares automatically convert at maturity into a total of 4,648,588 shares of our common stock.
Precious
Investments, Inc.
Notes
to Condensed Consolidated Interim Financial Statements (unaudited)
April
30, 2016
The
Company may prepay all of the outstanding principal and accrued interest under Note C, provided that we also prepay all of the
outstanding principal and accrued interest of Note B. Note C is secured by $1,150,000 worth of the Assets.
Also,
as provided in the Agreement, our former officer and director, Natalya Hearn, agreed to transfer her 250,000 shares of Series
A Preferred Stock to Khan. Under the Agreement, these shares of Series A Preferred Stock will cancel and return to our treasury
upon Khan converting the Notes into 51% of the Company issued and outstanding common stock. Also, if Kahn demands payment of the
Notes, then the shares of Series A Preferred Stock will cancel and return to our treasury.
The
Company also agreed to appoint two nominees of Khan to our board of directors and to register 7,500,000 shares of common stock
converted from existing notes along with remaining shares of common stock underlying convertible notes. The Notes in favor of
Khan do not have registration rights.
The
Company has determined that the asset acquired did not meet the definition of a business as defined in ASC 805 and as such the
transaction was treated as an asset acquisition and the diamonds are shown on the Company’s condensed consolidated interim
balance sheet as inventory.
In
measuring the Notes, it was determined that they contained a beneficial conversion feature, which upon measurement resulted in
the full amount of the proceeds being allocated entirely to the beneficial conversion feature.
Additional
Diamond Purchase Agreements
During
the three months ended April 30, 2016, the Company entered into various additional Diamond Purchase Agreements to purchase diamond
assets consisting of various colored diamonds for 2,303,090 shares of common stock. The shares have not been issued as of April
30, 2016 and as such none of the purchase agreements have closed; however, subsequent to period end 414,250 shares were issued
related to these agreements, the remaining agreements are still outstanding.
NOTE
9 – STOCKHOLDERS’ EQUITY
On
September 18, 2015, the Company issued 1,000 units consisting of one share and one warrant of stock for $2,000 cash.
During
the nine months ended April 30 2016, the Company issued 335,860 shares of common stock for $33,586 cash.
During
the nine months ended April 30, 2016, the Company issued 750,000 shares valued at $1,800 for the conversion of a convertible note
payable dated November 1, 2013.
During
the nine months ended April 30, 2016, the Company issued 1,000,000 shares valued at $2,790,000 for services. The shares were returned
during the three months ended April 30, 2016 and are being held in treasury (Note 3).
During
the nine months ended April 30, 2016, the Company issued 500,000 shares valued at $1,490,000 for services.
Precious
Investments, Inc.
Notes
to Condensed Consolidated Interim Financial Statements (unaudited)
April
30, 2016
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.
NOTE 11
– SUBSEQUENT EVENTS
On
April 25, 2016, the Company signed an Acquisition of Shares Agreement (the “Agreement”) with Karrah Inc., an Ontario
corporation (“Karrah”), and the sole shareholder of Karrah, Farrah Khan, who is the wife of our director, Kashif Khan.
Pursuant to the Agreement, the Company acquired 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 issued to Farrah Khan two three year promissory
notes totaling $1,793,276 with interest at 6% per annum. Interest will be payable at maturity or from time to time at the Company’s
sole discretion. The Company has the right to prepay the Notes. The Note will be secured by all the assets of Karrah.
Karrah
has been successful in buying liquidation and closeout merchandise and supplying the same to retailers, auctioneer and collectors
in Toronto and Vancouver, Canada. We plan to scale the business by funding the acquisition of more merchandise in order to do
the same business in the United States auction houses and retailers. We intend to be a manufacturer and wholesaler of fine jewelry,
a wholesaler of fine pre-owned vintage watches and buyer of jewelry, watches and diamonds via liquidations, bankruptcies and estate
sales. Karrah has developed relationships with brokers and agents involved in liquidation and bankruptcy for closeout merchandise.
In addition, Karrah has also developed manufacturing tactics that allow it to customize Swiss watches with diamonds and gems enhancing
their value. We plan to build upon these two strengths to grow our company.
As
of the date of this filing the initial accounting for the business combination is incomplete, and as such the Company has omitted
the revenue and earnings of Karrah and the supplemental pro forma as required by ASC 805. Once the accounting is completed, Karrah
will undergo an audit as required by SEC rules and regulations.
The
acquisition agreement was consummated and it closed on May 1, 2016. The Company has not received the completed financial information
from Karrah, and as such has omitted the required pro forma financial statement disclosure from this note as required by ASC 805.
Once the financial information is completed, Karrah will undergo an audit as required by SEC rules and regulations.
In
addition to the Diamond Purchase Agreements signed during the period (Note 8), Subsequent to year end, the board of directors
authorized the issuance of 1,537,410 shares of common stock related to various additional Diamond Purchase Agreements with stated
values of $4,093,276.
On
May 5, 2016, the Company issued 414,250 shares of common stock related to various Diamond Purchase Agreements.
On
June 7, 2016, we issued 3,255,749 shares of common stock related to various Diamond Purchase Agreements for colored diamonds with
stated values of $8,248,722.
On
May 16, 2016, the Company issued 450,000 shares of common stock in partial conversion of a certain note payable dated November
1, 2013