Item
1.01 Entry into a Material Definitive Agreement
Acquisition
of Karrah Inc.
On
April 25, 2016, we signed an Acquisition of Shares Agreement (the “Agreement”) with Karrah Inc., an Ontario corporation
(“Karrah”), and the sole shareholder of Karrah, Farrah Khan (“Khan”). Khan is the wife of our director,
Kashif Khan. Pursuant to the Agreement, we 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, we issued to Khan a three year promissory note
(the “Note”) in the amount of $1,500,000, with interest at 6% per annum. Interest will be payable at maturity or from
time to time at our sole discretion. We have the right to prepay the Note. The Note will be secured by the assets of Karrah.
In
addition, we assumed 100% of all account receivables currently outstanding by Karrah as of the date of the Agreement. The account
receivable records show one receivable in the amount of $293,275.67 from Asset Auctions. In exchange for the outstanding receivable,
we issued to Khan a three year promissory note (the “AR Note”) in the amount of $293,275.67, with interest at 6% per
annum. Interest will be payable at maturity or from time to time at our sole discretion. We have the right to prepay the Note.
The Note will be secured by the assets of Karrah.
A
copy of the Agreement, the Note and the AR Note are attached hereto as Exhibits 2.1, 10.1 and 10.2 and are incorporated herein
by reference. The foregoing description of the Agreement, the Note and the AR Note is qualified in its entirety by reference to
the full text of the Agreement, the Note and the AR Note.
About
Karrah Inc.
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.
Risk
Factors
The
following are certain risks associated with Karrah’s business.
Diamond
Prices and Marketability
Karrah’s
financial results are significantly affected by the price and marketability of diamonds. Numerous factors beyond Karrah’s
control may affect the price and marketability of any diamonds produced which cannot be accurately predicted, such as: international
economic and political trends; global or regional consumption and demand and supply patterns; increased production of diamond
producers, especially due to the small concentration of producers and sellers within the market and increased competition from
the sale of diamonds. There is no assurance that the sale price of diamonds will be such that Karrah’s business can be operated
at a profit.
Economic
Conditions
Unfavorable
economic conditions may negatively impact Karrah’s financial ability. Unfavorable economic conditions could also increase
Karrah’s financing costs, decrease estimated income from prospective diamond sales, limit access to capital markets and
negatively impact Karrah’s results of operations.
Currency
Risk
Currency
fluctuations may impact Karrah’s financial performance. Diamonds may be sold in US dollar with Karrah’s costs and
expenses being incurred in Canadian dollars. As a consequence, fluctuations in exchange rates may have a significant effect on
Karrah’s cash flows and operating results in either a positive or negative direction.
Competition
The
diamond industry is intensely competitive in all its phases and Karrah competes with other companies that have greater financial
resources and technical capacity.
Legal
Proceedings
Due
to the nature of its business, Karrah may be subject to numerous regulatory investigations, claims, lawsuits and other proceedings
in the ordinary course of its business. The results of these legal proceedings cannot be predicated with certainty due to the
uncertainty inherent in litigation, including the effects of discovery of new evidence or advancement of new legal theories, the
difficulty of predicting decisions of judges and juries and the possibility that decisions may be reversed on appeal. There can
be no assurance that these matters will not have a material adverse effect on Karrah’s business.