As of March 25, 2021, the registrant had 104,914,339
shares of Common Stock outstanding.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2020 AND 2019
NOTE
1 – DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Quanta,
Inc. (the “Company”) is an applied science company focused on increasing energy levels in plant matter to increase performance
within the human body. The Company’s operations are based in Burbank, California. On April 28, 2016, the Company was incorporated
as Freight Solution, Inc. in the State of Nevada. Effective June 6, 2018, the Company (then known as Bioanomaly Inc.) was acquired by
Freight Solution in a transaction accounted for as a reverse merger transaction. On July 11, 2018, the Company changed its name to Quanta,
Inc.
On
December 21, 2020, the Company entered into a Securities Exchange Agreement with Medolife Rx, Inc., a Wyoming corporation, (“Medolife
Rx”) pursuant to which, the Company agreed to acquire 51% of Medolife Rx in exchange for 9,000 shares of newly created Series B
Convertible Preferred Stock. On January 14, 2021, we completed the acquisition of 51% of Medolife, which has nominal assets, liabilities,
and operations. (see Notes 12 and 13).
Going
Concern
The
accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and
the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying financial statements,
for the year ended December 31, 2020, the Company incurred a net loss of $8,164,428 and used cash in operating activities
of $2,118,172, and at December 31, 2020, the Company had a stockholders’ deficit of $2,608,246. These
factors raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date that
the financial statements are issued. The consolidated financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern.
At
December 31, 2020, the Company had cash on hand in the amount of $6,270. Subsequent to December 31, 2020, the Company issued convertible
notes payable and received net proceeds of $275,000 and received $1,263,000 for subscriptions to purchase 31,57,000
shares of common stock. Management estimates that the current funds on hand will be sufficient to continue operations through
the next six months. The Company’s ability to continue as a going concern is dependent upon improving its profitability
and the continuing financial support from its shareholders. Management believes the existing shareholders or external financing
will provide the additional cash to meet the Company’s obligations as they become due. No assurance can be given that any
future financing, if needed, will be available or, if available, that it will be on terms that are satisfactory to the Company.
Even if the Company is able to obtain additional financing, if needed, it may contain undue restrictions on its operations, in
the case of debt financing, or cause substantial dilution for its stockholders, in the case of equity financing
Basis
of presentation and principles of consolidation
The
accompanying consolidated financial statements have been prepared in accordance with accounting standards generally accepted in the United
States of America.
The
consolidated financial statements include the accounts of Quanta Inc, and its wholly-owned subsidiary, Bioanomaly, Inc. All intercompany
balances and transactions have been eliminated in consolidation.
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 of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant accounting
estimates include certain assumptions related to, among others, allowance for doubtful accounts receivable, impairment analysis of long-term
assets, valuation allowance on deferred income taxes, assumptions used in valuing stock instruments issued for services, assumptions
made in valuing derivative liabilities, and the accrual of potential liabilities. Actual results may differ from these estimates.
Revenue
recognition
The
Company follows the guidance of Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers.
ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contracts, which includes
(1) identifying the contracts or agreements with a customer, (2) identifying our performance obligations in the contract or agreement,
(3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing
revenue as each performance obligation is satisfied. The Company only applies the five-step model to contracts when it is probable that
the Company will collect the consideration it is entitled to in exchange for the services it transfers to its clients.
Product
Sales—Substantially all of the Company’s revenue is derived from product sales. Product revenue and costs of sales are
recognized when control of the products transfers to our customer, which generally occurs upon shipment from our facilities. The Company’s
performance obligations are satisfied at that time. The Company does not have any significant contracts with customers requiring performance
beyond delivery, and contracts with customers contain no incentives or discounts that could cause revenue to be allocated or adjusted
over time.
License
revenue— Revenue from symbolic IP is recognized over the access period to the Company’s IP (see Note 2).
Cost
of goods sold includes direct costs and fees related to the sale of our products.
Accounts
Receivable
Accounts
receivable are recorded net of an allowance for any uncollectible accounts if deemed necessary, and payments are generally due within
thirty to forty-five days of invoicing. Management reviews the adequacy of the allowance for doubtful accounts on an ongoing basis, using
historical collection trends and aging of receivables. Management also periodically evaluates individual customer’s financial condition,
credit history, and the current economic conditions to make adjustments in the allowance when it is considered necessary. Account balances
are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered
remote. At December 31, 2020 and December 31, 2019, the Company did not record any allowance for uncollectible accounts.
Inventories
Inventories
are stated at the lower of cost or net realizable value with cost determined on a first-in, first-out (“FIFO”) basis. We
regularly review our inventory quantities on hand and record a provision for excess and obsolete inventory based primarily on our estimated
forecast of product demand and our ability to sell the product(s) concerned. Demand for our products can fluctuate significantly. Additionally,
our management’s estimates of future product demand may be inaccurate, which could result in an understated or overstated provision
required for excess and obsolete inventory. At December 31, 2020, a reserve for raw materials, product obsolescence and packaging for
products that may no longer be viable of $9,125 has been established. No such reserves were established for fiscal year 2019.
Equipment
Equipment
is stated at cost less accumulated depreciation. Depreciation is provided over the estimated useful lives of the equipment, which is
three years, using the straight-line method. Expenditures for major additions and improvements are capitalized and minor repairs and
maintenance are charged to expense as incurred. When equipment is retired or otherwise disposed of, the cost and accumulated depreciation
are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period.
Management
assesses the carrying value of equipment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
If there is indication of impairment, management prepares an estimate of future cash flows expected to result from the use of the asset
and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized to
write down the asset to its estimated fair value. For the years ended December 31, 2020 and 2019, the Company determined there were no
indicators of impairment of its property and equipment.
Impairment of Long-lived Assets
The Company reviews its equipment, right-of-use
assets, and other long-lived assets, for impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset group may not be recoverable. Recoverability is measured by a comparison of the carrying amount of an asset to the
estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its
estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the
asset exceeds the fair value of the assets. Fair value is generally determined using the asset’s expected future discounted
cash flows or market value, if readily determinable. For the years ended December 31, 2020 and 2019, the Company had no impairment
of long-lived assets.
Leases
The
Company accounts for its leases in accordance with the guidance of ASC 842, Leases. The Company determines whether a contract is, or
contains, a lease at inception. Right-of-use assets represent the Company’s right to use an underlying asset during the lease term,
and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and
lease liabilities are recognized at lease commencement based upon the estimated present value of unpaid lease payments over the lease
term. The Company uses its incremental borrowing rate based on the information available at lease commencement in determining the present
value of unpaid lease payments The Company adopted ASC 842 on January 1, 2019. There was no cumulative-effect adjustment to accumulated
deficit (see Note 5).
Derivative
Financial Instruments
The
Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded
derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded
at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations.
For stock-based derivative financial instruments, the Company uses a probability weighted average Black-Scholes-Merton model to value
the derivative instruments at inception and on subsequent valuation dates through the December 31, 2020, reporting date. The classification
of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end
of each reporting period,
Convertible
Notes with Fixed Rate Conversion Options
The
Company may enter into convertible notes, some of which contain, predominantly, fixed rate conversion features, whereby the outstanding
principal and accrued interest may be converted by the holder, into common shares at a fixed discount to the market price of the common
stock at the time of conversion. This results in a fair value of the convertible note being equal to a fixed monetary amount. The Company
records the convertible note liability at its fixed monetary amount by measuring and recording a premium, as applicable, on the Note
date with a charge to interest expense in accordance with ASC 480 - “Distinguishing Liabilities from Equity”.
Income
taxes
The
Company accounts for income taxes using an asset and liability approach which allows for the recognition and measurement of deferred
tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred
taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more
likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is
uncertain.
Stock-based compensation
The
Company periodically issues stock options, warrants, shares of common stock, and restricted stock unit awards, as share-based compensation
to employees and non-employees. The Company accounts for its share-based compensation in accordance with FASB ASC 718, Compensation
– Stock Compensation (Topic 718). Stock-based compensation cost for employees is measured at the grant date, based on the estimated
fair value of the award, and is recognized as expense over the requisite service period. Recognition of compensation expense for non-employees
is in the same period and manner as if the Company had paid cash for the services.
The
fair value of the Company’s stock options is estimated using the Black-Scholes-Merton Option Pricing model, which uses certain
assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or restricted stock, and future
dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes-Merton Option Pricing model and based
on actual experience. The assumptions used in the Black-Scholes-Merton Option Pricing model could materially affect compensation expense
recorded in future periods.
Advertising
costs
Advertising
costs are expensed as incurred. During the years ended December 31, 2020 and 2019, advertising costs totaled $78,895 and $103,401, respectively.
Research
and Development Costs
Costs
incurred for research and development are expensed as incurred. During the years ended December 31, 2020 and 2019, research and development
costs totaled $452,443 and $351,670, respectively and include salaries, benefits, and overhead costs of personnel conducting research
and development of the Company’s products.
Net
Loss per Share
Basic
net loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares
outstanding during the period. Shares used in the calculation of basic net loss per common share include vested but unissued shares underlying
awards of restricted common stock. Diluted loss per share reflects the potential dilution, using the treasury stock method that could
occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance
of common stock that then shared in the loss of the Company. In computing diluted loss per share, the treasury stock method assumes that
outstanding warrants and convertible notes are exercised and the proceeds are used to purchase common stock at the average market price
during the period. Warrants and convertible notes may have a dilutive effect under the treasury stock method only when the average market
price of the common stock during the period exceeds the exercise price of the options and warrants.
For
the year ended December 31, 2020 and 2019, the dilutive impact of common stock equivalents, e.g. stock options, warrants and convertible
notes payable have been excluded from calculation of weighted average shares because their impact on the loss per share is anti-dilutive.
As
of December 31, 2020, 4,130,000 options were outstanding of which 2,956,477 were exercisable, no warrants were outstanding and exercisable,
and convertible debt and accrued interest totaling $1,499,879 was convertible into 97,064,539 shares of common stock. It should be noted
that contractually the limitations on the third-party notes (and the related warrant) limit the number of shares converted to either
4.99% or 9.99% of the then outstanding shares. As of December 31, 2020, and 2019 potentially dilutive securities consisted of the following:
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
Stock options
|
|
|
4,130,000
|
|
|
|
3,290,000
|
|
Warrants
|
|
|
-
|
|
|
|
-
|
|
Convertible notes payable
|
|
|
97,064,539
|
|
|
|
889,469
|
|
Total
|
|
|
101,194,539
|
|
|
|
4,179,469
|
|
Fair
Value of Financial Instruments
The
Company follows the authoritative guidance issued by the Financial Accounting Standards Board (“FASB”) for fair value measurements.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy
was established, which prioritizes the inputs used in measuring fair value into three broad levels as follows:
Level
1—Quoted prices in active markets for identical assets or liabilities.
Level
2—Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.
Level
3—Unobservable inputs based on the Company’s assumptions.
The
Company is required to use of observable market data if such data is available without undue cost and effort.
The
Company believes the carrying amount reported in the balance sheet for cash, accounts receivable, accounts payable and accrued liabilities,
and notes payable, approximate their fair values because of the short-term nature of these financial instruments.
As
of December 31, 2019, the Company’s balance sheet includes Level 2 liabilities comprised of the fair value of embedded derivative
liabilities of $400,139. As of December 31, 2020, the Company did not have any Level 2 liabilities comprised of the fair value of embedded
derivative liabilities.
Concentrations
of risks
For the years ended December 31, 2020 and
2019, no customer accounted for 10% or more of revenue. As of December 31, 2020, one customer accounted for 100% of accounts receivable.
At December 31, 2019, two customers accounted for 19% and 12% of accounts receivable, and no other customer accounted for 10% or more
of accounts receivable.
Additionally,
for the same periods, no vendor accounted for 10% or more of the Company’s cost of goods sold, or accounts payable at period-end.
The
Company maintains the majority of its cash balances with one financial institution, in the form of demand deposits that are insured by
the Federal Deposit Insurance Corporation, or FDIC. At times, deposits held may exceed the amount of insurance provided by the FDIC.
The Company has not experienced any losses in its cash and believes it is not exposed to any significant credit risk.
Segments
The
Company operates in one segment for the development and distribution of our CBD products. In accordance with the “Segment Reporting”
Topic of the ASC, the Company’s chief operating decision maker has been identified as the Chief Executive Officer, who reviews
operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing guidance, which
is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly and
to report annually entity-wide disclosures about products and services, major customers, and the countries in which the entity holds
material assets and reports revenue. All material operating units qualify for aggregation under “Segment Reporting” due to
their similar customer base and similarities in economic characteristics; nature of products and services; and procurement, manufacturing
and distribution processes. Since the Company operates in one segment, all financial information required by “Segment Reporting”
can be found in the accompanying financial statements.
Recent
Accounting Pronouncements
In
June 2016, the FASB issued ASU No. 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments (“ASC 326”).
The standard significantly changes how entities will measure credit losses for most financial assets, including accounts and notes receivables.
The standard will replace today’s “incurred loss” approach with an “expected loss” model, under which companies
will recognize allowances based on expected rather than incurred losses. Entities will apply the standard’s provisions as a cumulative-effect
adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The standard is
effective for interim and annual reporting periods beginning after December 15, 2022. The Company is currently assessing the impact of
adopting this standard on the Company’s financial statements and related disclosures.
In
August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts
in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.
This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity,
and also improves and amends the related EPS guidance for both Subtopics. The ASU will be effective for annual reporting periods after
December 15, 2021 and interim periods within those annual periods and early adoption is permitted. We are currently evaluating the impact
of the new guidance on our consolidated financial statements.
Other
recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public
Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s
present or future consolidated financial statements.
NOTE
2 – LICENSE AGREEMENT
Effective
January 22, 2019, the Company entered into an agreement with a wholesaler for the exclusive rights to distribute the Company’s
products in the state of Colorado for three years. In consideration, the Company received an up-front payment of $100,000. The Company
determined that the exclusive distribution agreement was a distinct agreement for the license of symbolic IP and thus should be recognized
on a straight-line basis over the three-year life of the agreement. For the years ended December 31, 2020 and 2019, the Company recognized
revenue related to the agreement of $33,394, and $31,788, respectively.
NOTE
3 – INVENTORIES
Inventories
are valued at the lower of cost (first-in, first-out) or net realizable value, and net of reserves, consisted of the following:
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
Raw materials and packaging
|
|
$
|
16,076
|
|
|
$
|
102,428
|
|
Finished goods
|
|
|
3,144
|
|
|
|
20,091
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19,220
|
|
|
$
|
122,519
|
|
The
Company has recorded a reserve for slow moving and potentially obsolete inventory. The reserve at December 31, 2020 was $9,125. There
was no reserve at December 31, 2019.
NOTE
4 - EQUIPMENT
Equipment,
stated at cost, less accumulated depreciation consisted of the following:
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
Machinery-technology equipment
|
|
$
|
704,772
|
|
|
$
|
607,000
|
|
Machinery-technology equipment under construction
|
|
|
35,969
|
|
|
|
30,000
|
|
|
|
|
740,741
|
|
|
|
637,000
|
|
Less accumulated depreciation
|
|
|
(540,218
|
)
|
|
|
(323,522
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
200,523
|
|
|
$
|
313,478
|
|
Depreciation expense for the years ended December
31, 2020 and 2019 was $216,696 and $173,902, respectively. At December 31, 2020 and 2019, machinery-technology equipment included
machinery acquired from Arthur G. Mikaelian, Ph.D (see Note 12) initially costing $592,500, with a
net book value of $121,389 and $272,602, respectively.
NOTE
5 - OPERATING LEASE
At
December 31, 2019, the Company had one operating lease for its headquarters office space in Burbank, California (the “First”
lease). At December 31, 2019, the balance of the First lease’s operating lease right-of-use (“ROU”) asset and corresponding
lease liability were $332,980 and $337,453, respectively.
In
February 2020, the Company took possession of a second leased facility consisting of office, research, and production space also located
in Burbank, California (the “Second” lease). The Second lease commenced on January 1, 2020, and has a term for 5 years, with
annual fixed rental payments ranging from $90,000 to $101,296. The aggregate total fixed rent is approximately $477,822 and resulted
in the recognition of an operating lease “ROU” asset and of a corresponding lease liability of $431,402 each. The Company
also paid a security deposit of $16,883. At December 31, 2020, the Company did not have any other leases.
During
the year ended December 31, 2020, the Company consolidated it operations into the Second lease space. In connection with the First
lease that is no longer utilized, the Company recorded an impairment of the related net ROU of $255,093, and wrote off
a deposit of $16,769 with the lessor. The total due to the lessor for the First lease is $235,759 and is recorded as lease settlement
obligation at December 31, 2020.
At
December 31, 2020, the balance of the Second lease’s ROU asset and corresponding lease liability were $362,227 and
$395,781, respectively.
ROU
assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Generally,
the implicit rate of interest in arrangements is not readily determinable and the Company utilizes its incremental borrowing rate in
determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding
of what its credit rating would be. The operating lease ROU asset includes any lease payments made and excludes lease incentives.
The
components of lease expense and supplemental cash flow information related to leases for the period are as follows:
|
|
Year ended
December 31, 2020
|
|
Lease Cost
|
|
|
|
|
Operating lease cost (included in selling, general, and administrative expense in the Company’s statement of operations)
|
|
$
|
195,509
|
|
|
|
|
|
|
Other Information
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities for 2020
|
|
$
|
92,000
|
|
Weighted average remaining lease term – operating leases (in years)
|
|
|
3.0
|
|
Average discount rate – operating leases
|
|
|
4
|
%
|
The
supplemental balance sheet information related to leases for the period is as follows:
|
|
At December 31, 2020
|
|
Operating leases
|
|
|
|
|
Long-term right-of-use assets
|
|
$
|
362,227
|
|
|
|
|
|
|
Short-term operating lease liabilities
|
|
$
|
100,901
|
|
Long-term operating lease liabilities
|
|
|
294,880
|
|
Total operating lease liabilities
|
|
$
|
395,781
|
|
Maturities
of the Company’s lease liabilities are as follows:
Year Ending
|
|
Operating Leases
|
|
2021
|
|
|
92,700
|
|
2022
|
|
|
95,481
|
|
2023
|
|
|
98,345
|
|
2024
|
|
|
118,266
|
|
Total lease payments
|
|
|
404,792
|
|
Less: Imputed interest
|
|
|
9,011
|
|
Present value of lease liabilities
|
|
|
395,781
|
|
Less current portion
|
|
|
(100,901
|
)
|
Operating lease liabilities, long-term
|
|
$
|
294,880
|
|
Lease
expense were $195,509 and $107,588 during the year ended December 31, 2020 and December 31, 2019, respectively.
NOTE
6 – NOTES PAYABLE
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
(a) Notes payable secured by equipment (net of deferred finance charge of $74,817)
|
|
$
|
363,817
|
|
|
$
|
-
|
|
(b) Note payable, secured by assets
|
|
|
33,350
|
|
|
|
55,850
|
|
(c) Note payable, Payroll Protection Loan
|
|
|
134,125
|
|
|
|
-
|
|
(d) Note payable, Economic Injury Disaster Loan
|
|
|
160,000
|
|
|
|
-
|
|
(e) Revenue sharing agreement
|
|
|
242,800
|
|
|
|
-
|
|
Total notes payable outstanding
|
|
|
934,092
|
|
|
|
55,850
|
|
Current portion
|
|
|
482,724
|
|
|
|
55,850
|
|
|
|
|
|
|
|
|
|
|
Long term portion
|
|
$
|
451,368
|
|
|
$
|
-
|
|
|
(a)
|
In
April 2020 and May 2020, the Company entered into two financing agreements aggregating $505,646. The notes have a stated
interest rate of 10.9%. The notes were issued at a discount including fees for underwriting, legal and administrative
costs along with deferred financing costs. The deferred financing costs are being amortized over the terms of the notes. The
notes are secured by the Company’s equipment, and require monthly payments of principal and interest of $21,000, and
mature in April 2022 and May 2022. During the year ended December 31, 2020, the Company made payments of $67,366 and at December
31, 2020, the balance due on these notes was $438,634. Deferred financing charges against these loans, included in both short
term and long term aggregated $74,817 at December 31, 2020.
|
|
|
|
|
(b)
|
Note
payable, interest at 8.3% per annum, secured by all the assets of the Company. The note was due January 13, 2019 and on April 24,
2020, the note holder waived the default through December 31, 2020. During the year ended December 31, 2020, the company made principal
payments of $22,500. The note is in default and the Company is in discussion with the note holder.
|
|
(c)
|
On
May 7, 2020, the Company was granted a loan (the “PPP loan”) from Bank of America in the aggregate amount of $134,125,
pursuant to the Paycheck Protection Program (the “PPP”) under the CARES Act. The PPP loan agreement is dated May 4, 2020,
matures on May 4, 2022, bears interest at a rate of 1% per annum, with the first six months of interest deferred, is payable monthly
commencing on November 2020, and is unsecured and guaranteed by the U.S. Small Business Administration (“SBA”). The loan
term may be extended to April 20, 2025, if mutually agreed to by the Company and lender. We applied ASC 470, Debt, to account
for the PPP loan. The PPP loan may be prepaid at any time prior to maturity with no prepayment penalties. Funds from the PPP loan
may only be used for qualifying expenses as described in the CARES Act, including qualifying payroll costs, qualifying group health
care benefits, qualifying rent and debt obligations, and qualifying utilities. The Company intends to use the entire loan amount
for qualifying expenses. Under the terms of the PPP, certain amounts of the loan may be forgiven if they are used for qualifying
expenses. The Company intends to apply for forgiveness of the PPP loan with respect to these qualifying expenses, however, we cannot
assure that such forgiveness of any portion of the PPP loan will occur. As for the potential loan forgiveness, once the PPP loan
is, in part or wholly, forgiven and a legal release is received, the liability would be reduced by the amount forgiven and a gain
on extinguishment would be recorded. The terms of the PPP loan provide for customary events of default including, among other things,
payment defaults, breach of representations and warranties, and insolvency events. The Company was in compliance with the terms of
the PPP loan as of December 31, 2020.
|
|
|
|
|
(d)
|
On
September 5, 2020, the Company received a $160,000 loan (the “EID Loan”) from the SBA under the SBA’s Economic
Injury Disaster Loan program. The EID Loan has a thirty-year term and bears interest at a rate of 3.75% per annum. Monthly principal
and interest payments of $0.7 per month are deferred for twelve months, and commence in June 2021. The EID Loan may be prepaid at
any time prior to maturity with no prepayment penalties. The proceeds from the EID Loan must be used for working capital. The Loan
contains customary events of default and other provisions customary for a loan of this type. The Company was in compliance with the
terms of the EID loan as of December 31, 2020.
|
|
|
|
|
(e)
|
Between
July 7, 2020, and July 29, 2020, the Company issued notes payable to third-party investors
totaling $250,000. Under the terms of the note, the Company is to pay 50% of the net
revenues beginning on August 21, 2020, for a product to be designed and produced by the
Company. The product has not been produced and therefore no payments have been made.
The Company issued 280,000 shares of common stock as fees in conjunction with this financing.
The Company recorded $28,000, of discount which was fully amortized to interest
expense in 2020. The Company has received a notice of default and demand for payment
from three note holders (owed approximately $146,000). The Company has retained counsel
who is in discussion with the note holders. See Note 13.
|
NOTE
7 – CONVERTIBLE NOTES PAYABLE
Convertible
notes payable consisted of the following:
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
Unsecured
|
|
|
|
|
|
|
|
|
(a) Convertible notes with fixed discount percentage conversion prices
|
|
$
|
180,200
|
|
|
$
|
282,000
|
|
Put premiums on stock settled debt
|
|
|
117,866
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
(b) Convertible notes with fixed conversion prices
|
|
|
936,944
|
|
|
|
-
|
|
Default penalty principal added, charged to loss on debt extinguishment
|
|
|
369,086
|
|
|
|
-
|
|
Total convertible notes principal outstanding
|
|
|
1,614,096
|
|
|
|
282,000
|
|
Debt discount
|
|
|
(539,282
|
)
|
|
|
(225,000
|
)
|
|
|
|
|
|
|
|
|
|
Convertible notes, net of discount and premium
|
|
$
|
1,074,814
|
|
|
$
|
57,000
|
|
Current portion
|
|
|
1,074,814
|
|
|
|
57,000
|
|
Long-term portion
|
|
$
|
-
|
|
|
$
|
-
|
|
|
(a)
|
At December 31, 2019, there was a $282,000 convertible
notes with adjustable conversion prices outstanding. During the year ended December 31, 2020, the Company issued one unsecured
convertible promissory note for $153,000, bearing interest at 10% per annum, and maturing in February 2021. Also, during the
year ended December 31, 2020, the Company issued two unsecured convertible notes payable for $30,000, bearing interest at
10% per annum, and maturing on December 31, 2020, that were issued as loan commitment fees for notes payable. On September
9, 2020 and September 20, 2020, the Company issued two unsecured convertible promissory notes for $150,200, bearing interest
at 10% to 12%, per annum, and maturing in September 2021. At the option of the holder, the notes are convertible into shares
of the Company’s common stock at a price per share discount of 39% to 50% of the average market price of the Company’s
common stock, as defined. As a result, the Company determined that the conversion options of the convertible notes were not
considered derivatives and qualify as stock settled debt under ASC 480 – “Distinguishing Liabilities from Equity”.
Therefore, the Company calculated fixed premiums totaling $225,685 which were charged to interest expense at the dates
of the note issuance. On April 29, 2020, the $282,000 convertible note payable was paid off. During the year ended December
31, 2020, the $153,000 note and related premium of $107,819 was fully converted into common stock. At December
31, 2020, the balance of these convertible notes was $180,200.
|
|
|
|
|
(b)
|
At
December 31, 2019, the Company had no convertible notes outstanding with fixed conversion prices. During the eight months ended August
31, 2020, the Company issued seven convertible notes with fixed conversion prices aggregating $496,944. The notes are unsecured,
bear interest at 10% per annum, and mature through March 31, 2021. The notes were initially convertible into shares of the Company’s
common stock at a fixed conversion price of $0.05 per share. The Company recorded debt discounts and expenses of $531,000 to account
for loan fees, beneficial conversion features ($323,000), and original issue discounts ($76,944). The debt discounts are amortized
over the life of the notes or are amortized in full upon the conversion of the corresponding notes to common stock.
|
|
|
On
September 2, 2020, the Company issued a convertible note (see paragraph a above) having
a conversion price less than $0.05 which triggered a term common to all notes in paragraph
b, which changed the conversion terms to be the lower of $0.05 or 61% of the lowest traded
price during the 15 days prior to the conversion. This event is also considered a default
for which a penalty is charged equal to 150% of the accrued interest, default interest
and principal, totaling $314,441. At December 31, 2020 the new principal totaled $811,385.
On
December 9, 2020, the Company executed amendments to these notes effective September 30, 2020, which extended the maturity dates
and fixed the conversion price at $0.015. The Company determined that the change in the note terms resulted in old and new
debt instruments that were substantially different, with the old debt being extinguished. Due to the change in conversion
terms the notes also require the recognition of the beneficial conversion feature of the increased principal ($314,441
default principal) and lowering of the conversion price resulting in recognition of additional charges. Loss on debt extinguishment
was charged $757,293 and debt discounts were charged $314,441 with a credit to additional paid in capital for the
debt discounts. In addition $243,285 related to the unamortized discounts as originally recorded was also charged to loss on
debt extinguishment for the unamortized balance of debt discounts. In addition, loss on debt extinguishment was charged $229,712
for other costs related of the extinguishment.
During the three months ended December
31, 2020, the Company issued nine convertible notes with fixed conversion prices aggregating $440,000. The notes are
unsecured, bear interest at 10% per annum, and mature through June 30, 2021. The notes are convertible into common stock at
$0.015 per share. The Company recorded debt discounts of $43,000. On December 2, 2020 default penalties of $54,645
were declared by the note holders. The principal balance of these notes totals $494,645 at December 31, 2020. Beneficial
conversion features having a value of $451,646 were also recognized with a charge to debt discount offset with a credit to
additional paid in capital. The debt discounts are amortized over the life of the notes or are amortized in full upon
the conversion of the corresponding notes to common stock.
|
At December 31, 2019, the balance of unamortized
discount on convertible notes was $225,000. During the year ended December 31, 2020, debt discount of $2,556,602 was recorded,
debt discount amortization of $775,538 was recorded, discount of $381,084 was recorded as private placement costs, and
$1,085,698 was removed upon debt extinguishment. At December 31, 2020, the balance of the unamortized discount was $539,282.
Note
8 – DERIVATIVE LIABILITIES AND FINANCIAL INSTRUMENTS
|
|
At December 31, 2020
|
|
|
December 31, 2019
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Derivative Liability
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
400,139
|
|
|
|
-
|
|
A
roll-forward of the level 2 valuation financial instruments is as follows:
|
|
Derivative Liabilities
|
|
Balance at December 31, 2018
|
|
$
|
-
|
|
Recognition of derivative liabilities upon initial valuation
|
|
|
565,195
|
|
Decrease in fair market value during the year ended December 31, 2019
|
|
|
(19,491
|
)
|
Gain on debt extinguishment recognized upon liquidation of related convertible notes
during the year ended December 31, 2019
|
|
|
(145,565
|
)
|
Balance at December 31, 2019
|
|
|
400,139
|
|
Decrease in fair market value during the year ended December 31, 2020
|
|
|
(101,226
|
)
|
Gain on debt extinguishment recognized upon liquidation of related convertible notes during the year ended December 31, 2020
|
|
|
(298,913
|
)
|
Balance at December 31, 2020
|
|
$
|
-
|
|
At December 31, 2018, there was no balance
of derivative liabilities. During the year ended December 31, 2019, the Company recorded additions of $565,195 related to the
conversion features of convertible notes issued during the period (see Note 7), and a decrease in fair value of derivatives of
($19,491). In addition, the Company recorded a decrease in derivative liability of ($145,565) related to derivative liabilities
that were extinguished when the related convertible note payable was paid off (see Note 7). At December 31, 2019, the balance
of the derivative liabilities was $400,139.
During the year ended December 31, 2020, a
decrease in the fair value of derivatives of $101,226 was recorded, and the balance of the derivative liabilities of $298,913
was fully extinguished upon pay-off of the related convertible note, and resulted in a gain on debt extinguishment
of $298,913. At December 31, 2020, the Company had no convertible notes outstanding that are considered to have embedded derivative
liabilities that require bifurcation per the note agreements.
At
December 31, 2019, the derivative liabilities were valued at the following dates using a probability weighted Black-Scholes-Merton model
with the following assumptions:
|
|
December 31, 2019
|
|
Conversion feature:
|
|
|
|
|
Risk-free interest rate
|
|
|
1.77
|
%
|
Expected volatility
|
|
|
222
|
%
|
Expected life (in years)
|
|
|
1 year
|
|
Expected dividend yield
|
|
|
-
|
|
Fair Value:
|
|
|
|
|
Conversion feature
|
|
$
|
400,139
|
|
The
risk-free interest rate was based on rates established by the Federal Reserve Bank. The expected volatility is based on the historical
volatility of the Company’s stock. The expected life of the conversion feature of the notes was based on the remaining terms of
the related notes. The expected dividend yield was based on the fact that the Company has not customarily paid dividends to its common
stockholders in the past and does not expect to pay dividends to its common stockholders in the future.
NOTE
9 – INCOME TAXES
The
Company had no income tax expense for the years ended December 31, 2020 December 31, 2019. The following is a reconciliation of the statutory
federal income tax rate to the Company’s effective tax rate:
|
|
Year ended
December 31, 2020
|
|
|
Year ended
December 31, 2019
|
|
|
|
|
|
|
|
|
Federal tax at statutory rate
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
State tax, net of federal benefit
|
|
|
7.0
|
|
|
|
7.0
|
|
Change in valuation allowance
|
|
|
(28.0
|
)
|
|
|
(28.0
|
)
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Deferred
tax assets and liabilities consist of the following:
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
$
|
1,599,000
|
|
|
$
|
1,039,000
|
|
Operating lease liability
|
|
|
111,000
|
|
|
|
94,000
|
|
Derivative expenses
|
|
|
173,000
|
|
|
|
67,000
|
|
Net operating loss carryforwards
|
|
|
2,522,000
|
|
|
|
1,132,000
|
|
Gross deferred tax assets
|
|
|
4,405,000
|
|
|
|
2,332,000
|
|
Less: valuation allowance
|
|
|
(4,405,000
|
)
|
|
|
(2,103,000
|
)
|
Total deferred tax assets
|
|
|
282,000
|
|
|
|
229,000
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
135,000
|
|
|
|
90,000
|
|
Derivative gain
|
|
|
46,000
|
|
|
|
46,000
|
|
Operating lease right-of-use asset
|
|
|
101,000
|
|
|
|
93,000
|
|
Total deferred tax liabilities
|
|
|
282,000
|
|
|
|
229,000
|
|
Net deferred tax asset (liability)
|
|
$
|
-
|
|
|
$
|
-
|
|
The
provisions of ASC Topic 740, Accounting for Income Taxes, require an assessment of both positive and negative evidence when determining
whether it is more likely than not that deferred tax assets are recoverable. For the year ended December 31, 2020 and December 31, 2019,
based on all available objective evidence, including the existence of cumulative losses, the Company determined that it was more likely
than not that the net deferred tax assets were not fully realizable. Accordingly, the Company established a full valuation allowance
against its net deferred tax assets. The Company intends to maintain a full valuation allowance on net deferred tax assets until sufficient
positive evidence exists to support reversal of the valuation allowance. During the year ended December 31, 2020 and December 31, 2019,
the valuation allowance increased by $2.3 million and $1.5 million, respectively.
At
December 31, 2020 and 2019, the Company had available Federal and state net operating loss carryforwards (“NOL”s)
to reduce future taxable income. For Federal purposes the amounts available were approximately $10.1 million and $4.3 million,
respectively. For state purposes approximately $8.8 million and $3.1 was available at December 31, 2020 and 2019, respectively.
The Federal carryforwards expire on various dates through 2040 and the state carryforwards expire through 2037. Due to restrictions
imposed by Internal Revenue Code Section 382 regarding substantial changes in ownership of companies with loss carryforwards,
the utilization of the Company’s NOL may be limited as a result of changes in stock ownership. NOLs incurred subsequent
to the latest change in control are not subject to the limitation.
The
Company’s operations are based in California and it is subject to Federal and California state income tax. Tax years after 2015
are open to examination by United States and state tax authorities.
The
Company adopted the provisions of ASC 740, which requires companies to determine whether it is “more likely than not” that
a tax position will be sustained upon examination by the appropriate taxing authorities before any tax benefit can be recorded in the
financial statements. ASC 740 also provides guidance on the recognition, measurement, classification and interest and penalties related
to uncertain tax positions. As of December 31, 2020, and December 31, 2019, no liability for unrecognized tax benefits was required to
be recorded or disclosed.
NOTE
10 – STOCKHOLDERS’ DEFICIT
The
Company’s authorized capital consists of 525,000,000 shares, of which 500,000,000 shares are designated as shares of common stock,
par value $0.001 per share, and 25,000,000 shares are designated as shares of preferred stock, par value $0.001 per share. 2,500,000
shares of preferred stock are currently outstanding at December 31, 2020, and designated as Series A. Shares of preferred stock may be
issued in one or more series, each series to be appropriately designated by a distinguishing letter or title, prior to the issuance of
any shares thereof. The voting powers, designations, preferences, limitations, restrictions, relative, participating, options and other
rights, and the qualifications, limitations, or restrictions thereof, of the preferred stock are to be determined by the Board of Directors
before the issuance of any shares of preferred stock in such series.
Series
A Preferred Stock
On
April 14, 2020, the Company filed a Certificate of Designation for the Company’s Series A Preferred Stock (“Series A”)
with the Secretary of State of Nevada designating 2,500,000 shares of its authorized preferred stock as Series A Preferred Stock, par
value of $0.001 per share. The Series A Preferred Stock is not entitled to receive any dividends or liquidation preference and are not
convertible into shares of the Company’s common stock. The holders of the Series A Preferred Stock, in the aggregate, have voting
power equal to 51% of the total votes of all of the outstanding common and preferred stock of the Company entitled to vote. Accordingly,
each share of Series A Preferred Stock shall have voting rights equal to one and one-tenth (1.1) times a fraction, the numerator of which
is the shares of outstanding common stock and undesignated preferred stock of the Company and the denominator of which is number of shares
of outstanding Series A Preferred Stock. With respect to all matters upon which stockholders are entitled to vote or give consent, the
holders of the outstanding shares of Series A Preferred Stock shall vote with the holders of the common stock and any outstanding preferred
stock without regard to class, except as to those matters on which separate class voting is required by applicable law or the Company’s
Articles of Incorporation.
On
April 14, 2020, The Company issued 2,500,000 shares of the Series A to the Company’s Chief Executive Officer in a private placement
transaction. The fair value of the stock was determined to be $465,000 as determined by a third party valuation expert, and was recorded
as stock compensation.
On
November 16, 2020, the Company entered into a Control Block Transfer Agreement with Eric Rice and Phillip Sands, pursuant to which, Mr.
Rice agreed to transfer the 2,500,000 shares of the Series A to Mr. Sands, representing a transfer of majority voting control over the
Company because the holder of such 2,500,000 shares automatically carries a vote equal to 51% on all matters submitted to a vote of the
holders of our Common Stock and Preferred Stock. Mr. Rice agreed to transfer the Control Block to Phillip Sands in order to consummate
the Company’s transition into a holding company, without requiring the Company to further dilute its stock through the issuance
of new shares.
Series
B Preferred Stock
On
December 21, 2020, the Company entered into a Securities Exchange Agreement with Medolife Rx, Inc., a Wyoming corporation, (“Medolife
Rx”) pursuant to which, the Company agreed to acquire 51% of Medolife Rx in exchange for 9,000 shares of newly created Series B
Convertible Preferred Stock, which, were issued to Dr. Arthur Mikaelian upon closing on January 14, 2021. Dr. Mikaelian’s 9,000
shares of Series B Convertible Preferred Stock are convertible into fifty-four percent (54%) of the issued and outstanding shares of
the Company’s common stock on a fully converted basis.
Common
Stock
On
November 20, 2020, the Board of Directors approved an increase in the Company’s authorized shares of Common Stock from 100,000,000
to 500,000,000 shares by Unanimous Written Consent. The Secretary of State of Nevada approved the share increase.
The
Company has 500,000,000 shares of par value $0.001 common stock authorized and 46,756,970 shares outstanding as of December
31, 2020. At December 31, 2019 there were 100,000,000 shares of par value $0.001 common stock authorized and 49,087,255
shares outstanding.
Common
stock share cancellation by former executive
On
November 16, 2020, the Company entered into a Share Cancellation Agreement with Eric Rice, holder of 18,030,032 shares of QNTA Common
Stock, pursuant to which Mr. Rice agreed to cancel 17,030,032 shares (16,951,432 shares were cancelled December 29, 2020), and to retain
ownership of 1,000,000 shares of Common Stock.
Common
stock issued for cash
During
the year ended December 31, 2020, the Company agreed to issue 407,408 shares of common stock in a private placement of
shares at a price of $0.26 per share for total proceeds of $125,000.
During
the years ended December 31, 2019, the Company completed a private placement of shares at prices ranging from $.10 to $0.50 per
share. A total of $2,926,375 was received, including $2,090,375 in 2019 for shares issued in 2019, $530,000 in 2019 for shares
subscribed, and $306,000 received in 2018 for shares issued in 2019.
The
Company agreed to issue a total 12,011,269 shares in the private placements, of which 6,942,750 shares were issued through December 31,
2019, and 68,519 shares are included in shares to be issued on the accompanying financial statements.
Common
stock issued as compensation
During
the year ended December 31, 2020, the Company issued 451,198 shares of common stock to employees and officers of the Company.
The fair value of the shares was determined to be $71,001 based on the closing price of the Company’s common stock
on the date shares were granted, and recorded as stock compensation in selling, general and administrative expense during the
year ended December 31, 2020.
During the year ended December 31, 2020, the
Company recorded $1,267,720 to stock-based compensation as accretion of the expense related to grants of restricted stock
(see below).
During the year ended December 31, 2020, the
Company issued 750,000 common shares of stock to service vendors for a total fair value of $60,200.
Restricted
common stock
On
May 20, 2019, the Company agreed to issue 8,000,000 shares of the Company’s common stock with vesting terms to Arthur G. Mikaelian,
Ph.D , a consultant for services (see Note 12). 1,000,000 shares vested immediately, and the balance of 7,000,000 shares vest 625,000
shares per quarter over 2.8 years. In the event the consultants service with the Company terminates, any or all of the shares of common
stock held by such recipient that have not vested as of the date of termination are forfeited to the Company in accordance with such
restricted grant agreement.
The total fair value of the 8,000,000 shares
was determined to be $4,000,000 based on the price per shares of a contemporaneous private placement of the Company’s common
stock on the date granted. The Company accounts for the share awards using a graded vesting attribution method over the requisite
service period, as if each tranche were a separate award. During the year ended December 31, 2020 and 2019, total share-based
expense recognized related to vested restricted shares totaled $1,267,720 and $2,317,868, respectively. At December 31,
2020, there was $431,411 of unvested compensation related to these awards that will be amortized over a remaining vesting
period of 1.4 years.
The
following table summarizes restricted common stock activity for the years ended December 31, 2020 and 2019:
|
|
Number of shares
|
|
|
Fair value of shares
|
|
Non-vested shares, December 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
8,000,000
|
|
|
|
4,000,000
|
|
Vested
|
|
|
(2,250,000
|
)
|
|
|
(2,301,000
|
)
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Non-vested shares, December 31, 2019
|
|
|
5,750,000
|
|
|
|
1,699,000
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Vested
|
|
|
(2,500,000
|
)
|
|
|
(1,268,000
|
)
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Non-vested shares, December 31, 2020
|
|
|
3,250,000
|
|
|
$
|
431,000
|
|
As
of December 31, 2020, no shares have been issued and 4,750,000 vested shares are included in shares to be issued on the accompanying
financial statements
Common
stock issued for financing
The
Company issued 1,127,522 common shares of stock to secure financing for total fair value of $105,408.
Common
stock issued in conversion of convertible notes payable
The Company issued 6,885,019 common shares
of stock to holders of convertible notes for shares valued at $336,179.
Stock
Options
During
the year ended December 31, 2019, the Company issued options exercisable into 3,290,000 shares of common stock. The options initially
had an exercise price of $0.23 per share, and this was amended in May 2020 to $0.10 per share. The Company used the Black-Scholes-Merton
option pricing model to estimate the fair value of the modified option grants immediately before and immediately after the modification
and determined the change in fair value related to the modification was de minimis.
During
the year ended December 31, 2020, the Company issued options exercisable into 900,000 shares of common stock. 600,000 of the options
vested immediately, and 300,000 of the options vest over 24 months. The options have an exercise price of $0.10 to $0.14 per share, and
expire in ten years. Total fair value of these options at grant date was approximately $85,000 which was determined using the Black-Scholes-Merton
option pricing model with the following average assumption: stock price $0.14 per share, expected term ranging from five years, volatility
236%, dividend rate of 0% and risk-free interest rate of 0.17%.
During
the years ended December 31, 2020 and 2019, the Company recognized $290,132 and $711,404, respectively, of
compensation expense relating to vested stock options. As of December 31, 2020, the amount of unvested compensation related to
stock options was approximately $300,000 which will be recorded as an expense in future periods as the options vest.
The
risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of measurement corresponding with the expected
term of the share option award; the expected term represents the weighted-average period of time that share option awards granted are
expected to be outstanding giving consideration to vesting schedules and historical participant exercise behavior; the expected volatility
is based upon historical volatility of the Company’s common stock; and the expected dividend yield is based on the fact that the
Company has not paid dividends in the past and does not expect to pay dividends in the future.
A
summary of stock option activity during the years ended December 31, 2020 and 2019:
|
|
Number of options
|
|
|
Weighted Average
Exercise Price
|
|
|
Contractual
Life in Years
|
|
Options Outstanding as of December 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
Granted
|
|
|
3,230,000
|
|
|
|
0.10
|
|
|
|
6.0
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Options Outstanding as of December 31, 2019
|
|
|
3,230,000
|
|
|
|
0.10
|
|
|
|
6.0
|
|
Granted
|
|
|
900,000
|
|
|
|
0.11
|
|
|
|
10.0
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Options Outstanding as of December 31, 2020
|
|
|
4,130,000
|
|
|
|
0.11
|
|
|
|
6.5
|
|
Options Exercisable as of December 31, 2020
|
|
|
2,956,477
|
|
|
$
|
0.10
|
|
|
|
5.5
|
|
At
December 31, 2020, the options outstanding had no intrinsic value.
Stock
Warrants
In
2018, the Company issued warrants exercisable into 3,000,000 shares of common stock. The warrants were fully vested when issued, have
an exercise price of $0.30 per share, and expire in 2022. Total fair value of these warrants at grant date was approximately $377,000.
During the year ended December 31, 2019, there was a cashless exercise
of all of the 3,000,000 warrants.
A
summary of warrant activity during the year ended December 31, 2020 and 2019 is as follows:
|
|
Number of warrants
|
|
|
Weighted Average
Exercise Price
|
|
|
Contractual
Life in Years
|
|
|
|
|
|
|
|
|
|
|
|
Warrants Outstanding and Exercisable as of December 31, 2018
|
|
|
3,000,000
|
|
|
$
|
0.30
|
|
|
|
4.00
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(3,000,000
|
)
|
|
|
0.30
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Warrants Outstanding and Exercisable as of December 31, 2019
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Warrants Outstanding and Exercisable as of December 31, 2020
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
NOTE
11 – COMMITMENTS AND CONTINGENCIES
COVID-19
The
global outbreak of COVID-19 has negatively affected the U.S. and global economies and has negatively impacted businesses, workforces,
customers, and created significant volatility of financial markets. It has also disrupted the normal operations of many businesses,
including ours. The extent of the impact of the pandemic on our business and financial results will depend largely on future developments,
including the duration and severity of the outbreak, the length of restrictions and business closures, and the impact on capital
and financial markets, all of which are highly uncertain and cannot be predicted. This outbreak could decrease spending, adversely
affect demand for our products and harm our business and results of operations. In the quarters ended June 30, 2020, September
30, 2020, and December 31, 2020, we believe the COVID-19 pandemic did impact our operating results as shipments to customers
in the second, third and fourth quarters were down 13%, 10% and 55% respectively from the first quarter of the year. However,
we have not observed any material impairments of our assets or a significant change in the fair value of our assets due to the
COVID-19 pandemic. While it is not possible at this time to estimate the full impact that COVID-19 will have on our business,
restrictions resulting from COVID-19 on general economic conditions could, among other things, impair our ability to raise capital
when needed. This situation is changing rapidly, and additional impacts may arise that we are not aware of currently.
Contingencies
include lease agreements including the abandoned lease discussed
at footnote 3 along with the lease for the headquarters office. In addition, the license agreement as outlined at footnote 2 poses
contingent liabilities.
It
is management’s opinion that there are not material contingent liabilities that are not disclosed in the financial
statements and footnote disclosures as of December 31, 2020.
NOTE
12 – RELATED PARTY TRANSACTIONS
On December 21, 2020, the Company entered
into a Securities Exchange Agreement with Medolife Rx, Inc., a Wyoming corporation, (“Medolife Rx”) pursuant to which,
the Company agreed to acquire 51% of Medolife Rx from entities controlled by Arthur G. Mikaelian, Ph.D. in exchange for 9,000
shares of newly created Series B Convertible Preferred Stock. Prior to this transaction, Dr. Mikaelian was a consultant and shareholder
in the Company (See Notes 4 and 10). On January 14, 2021, the Company completed the acquisition of 51% of Medolife. At December
31, 2020 and through January 14, 2021, Medolife Rx had nominal assets, liabilities, and operations. During December 2021, the
Company advanced $235,000 to Medolife Rx in anticipation of the closing of the acquisition transaction. The funds were used to
pay certain expenses on behalf of the Company. At December 31, 2020, the balance of the advance was $134,704 and
presented as deferred charges-related party. In connection with the acquisition of 51% of Medolife Rx, Dr. Mikaelian was appointed
as a member of the Board of Directors of the Company, and also appointed to serve as the Company’s Chief Executive Officer,
a role which Dr. Mikaelian assumed on January 14, 2021.
The
Company has an agreement with Dr. Mikaelian in consideration of the Company’s exclusive use of patented technology developed by
Dr. Mikaelian. Pursuant to the agreement, as amended, the Company shall pay a royalty of 25% of all the net income from the sale of licensed
products, as defined with a minimum royalty of $35,000 per month payable in cash or common stock of the Company. In addition, the Company
agreed to issue 8,000,000 shares of the Company’s common stock with vesting terms to the individual (see Note 10). During the year
ended December 31, 2020 and 2019, the Company recognized royalty expenses of $420,000 and $343,300, respectively.
On
November 15, 2020, the Company entered into an interim compensation agreement with Mr. Phillip Sands providing for monthly compensation
of $8,000 commencing December 1, 2020 until March 1, 2021.
On
November 16, 2020, the Company entered into a Control Block Transfer Agreement with Eric Rice and Phillip Sands, pursuant to which, Mr.
Rice agreed to transfer 2,500,000 shares of the Company’s Series A Super Voting Preferred Stock to Mr. Sands, representing a transfer
of majority voting control over the Company because the holder of such 2,500,000 shares of our Series A Super Voting Preferred Stock
automatically carries a vote equal to 51% on all matters submitted to a vote of the holders of our Common Stock and Preferred Stock.
Mr. Rice agreed to transfer the Control Block to Phillip Sands in order to consummate the Company’s transition into a holding company
(transition phase), without requiring the Company to further dilute its stock through the issuance of new shares.
NOTE
13 – SUBSEQUENT EVENTS
Approval
and Issuance of New Classes of Preferred Stock
The
Nevada Secretary of State approved the designations of the Series B and C convertible preferred stock on January 13, 2021
The
Board of Directors of the Company previously approved the creation of 9,000 shares of Series B Convertible Preferred Stock and 1,000
shares of Series C Convertible Preferred Stock to be issued to certain Designees of Medolife Rx, Inc., a Wyoming corporation (“Medolife
Rx”) pursuant to the conditions precedent to closing of the December 21, 2020 Securities Exchange Agreement, under which the Company
acquired 51% of Medolife Rx.
Series
B Convertible Preferred Stock
On
January 14, 2021, the Board of Directors of the Company approved the issuance of all 9,000 of the 9,000 authorized shares of Series B
Convertible Preferred Stock to Dr Arthur Mikaelian, in exchange for 51% of Medolife Rx (see Note 12). The stock will be valued on the
basis of the greater of the assets acquired or the fair value of the Series B convertible preferred shares given in the exchange.
Management
has determined that the net asset value of Medolife Rx is not material as of the date of the acquisition of its 51% interest and
therefore no valuation is performed. As the acquisition will not have a material impact on the Company’s consolidated
financial statements, proforma disclosures have not been presented.
Series
B Preferred Stock – Designation Summary
The terms of the Certificate of Designation
of the Series B Convertible Preferred Stock, which was filed with the State of Nevada on January 12, 2021, state that the shares
of Series B Convertible Preferred Stock are convertible into fifty-four percent (54%) of the issued and outstanding shares of the
Company’s common stock on a fully converted basis. Each share of Series B Preferred Stock shall be convertible into 6,750
shares of Common Stock (“Conversion Ratio”), at the option of a Holder, at any time and from time to time, from and
after the issuance of the Series B Preferred Stock; provided that, for a period of 24 months from the Issuance Date, if the Company
issues shares of common stock, including common stock as the result of the purchase, exercise or conversion of outstanding derivative
or convertible securities (or securities, including any derivative securities, containing the right to purchase, exercise or convert
into shares of common stock) (the “Dilution Shares”) such that the outstanding number of shares of common stock on
a fully diluted basis shall be greater than 112,500,000 shares (inclusive of conversions of Series B Preferred Stock at the Conversion
Ratio immediately above), then the Conversion Ratio for the Series B Preferred Stock then outstanding and unconverted as of the
date the Dilution Shares are issued shall be adjusted to equal the Conversion Ratio multiplied by a fraction, the numerator of
which shall be the number of shares outstanding on a fully diluted basis after the issuance of the Dilution Shares, and the denominator
shall be 112,500,000. Each holder of the Series B Preferred Stock shall have the right to vote on any matter that may from time
to time be submitted to the Company’s shareholders for a vote, on an as-converted basis, either by written consent or by
proxy.
Series
C Convertible Preferred Stock
On
January 14, 2021, the Board of Directors of the Company approved the issuance of all 1,000 authorized shares of Series C Convertible
Preferred Stock to the following Medolife Rx Designees:
Trillium
Partners LP
|
500
Shares of Series C Preferred Stock
|
|
|
Sagittarii
Holdings, Inc.
|
500
Shares of Series C Preferred Stock
|
The
stock will be valued on the basis of the greater of the value of the services received or the fair value of the Series C convertible
preferred shares issued.
Series
C Preferred Stock – Designation Summary
The terms of the Certificate of Designation
of the Series C Convertible Preferred Stock, which was filed with the State of Nevada on January 12, 2021, state that such Series
C Convertible shares have a par value of $0.00001 per share and a stated value of $100 per share (the “Stated Value”)
and each Series C Preferred Share shall be convertible into 6,750 shares of Common Stock (“Conversion Ratio”), at the
option of a Holder, at any time and from time to time, from and after the issuance of the Series C Preferred Stock; provided that,
for a period of 24 months from the Issuance Date, if the Company issues shares of common stock, including common stock as the result
of the purchase, exercise or conversion of outstanding derivative or convertible securities (or securities, including any derivative
securities, containing the right to purchase, exercise or convert into shares of common stock) (the “Dilution Shares”)
such that the outstanding number of shares of common stock on a fully diluted basis shall be greater than 112,500,000 shares (inclusive
of conversions of Series C Preferred Stock at the Conversion Ratio immediately above), then the Conversion Ratio for the Series
C Preferred Stock then outstanding and unconverted as of the date the Dilution Shares are issued shall be adjusted to equal the
Conversion Ratio multiplied by a fraction, the numerator of which shall be the number of shares outstanding on a fully diluted
basis after the issuance of the Dilution Shares, and the denominator shall be 112,500,000. Subject to the beneficial ownership
limitations of 9.99%, set forth in Section 5 (b) of the attached Series C Convertible Preferred Stock Certificate of Designation,
each holder of the Series C Preferred Stock shall have the right to vote on any matter that may from time to time be submitted
to the Company’s shareholders for a vote, on an as converted basis, either by written consent or by proxy.
Notice
of Default and Demand for Payment
On
February 5, 2021, the Company received a notification of default and demand for payment from an attorney represent three note holders.
The note holder entered into Product Revenue Loan Agreements totaling $153,300 including accrued interest and attorney fees. The Company
has engaged legal counsel to address the issue with the goal of a settlement rather than litigation.
Common
Stock Issued
Between
February 12, 2021 and the issuance date of this report on Form 10-K, the Company issued 31,575,000 shares of common
stock under the Form S-1 offering (made effective on February 12, 2021). The Company received cash of $1,263,000.
In January and February 2021, the Company
issued a total of 6,500,000 shares of its common stock to individuals as compensation for services, valued at the fair
value of the shares of the Company’s stock on the dates issued.
Since
December 31, 2020, a total of 20,082,369 of common shares were issued to convertible note holders in exchange for principal
and interest of notes held. The conversions fully liquidated the principal and accrued interest in the Geneva Roth Remark and
JSJ and partially converted the Trillium April 27, 2020 convertible notes payable.
Convertible
Notes Issued
On
January 31, 2021, the Company issued three convertible notes payable having a total principal of $303,000 including Original Issue Discount
and received $175,000 in cash. The notes mature on August 31, 2021, bear interest of 10% and are convertible into common stock at a price
of $0.015 per share. Any beneficial conversion feature will be charged to debt discount offsetting credits to additional paid in capital
to the extent of the total cash received and any excess will be charged to private placement fees recorded as other income and expense.
All debt discounts will be amortized to interest expense over the term of the notes.
On February 11, 2021, the Company issued
a convertible note payable having principal of $25,000 for services from an attorney in conjunction with the Form S1. The note
matures on February 11, 2022, bears interest of 12% and is convertible into common stock at a discount to the lowest traded price
over the thirty days prior to conversion. The note terms satisfy the criteria for Stock Settled Debt treatment under ASC 480 a
premium will be calculated and charged to interest expense on date of the note issuance. The principal amount will be charged
to professional fee expense.