UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2020

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____________to ____________

 

000-56025

Commission file number

 

Quanta, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada   81-2749032
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)

 

632 S Glenwood Pl, Burbank, CA   91506
(Address of principal executive offices)   (Zip Code)

 

(818) 659-8052

Registrant’s telephone number, including area code

 

Securities registered under Section 12(b) of the Exchange Act: None

 

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, par value $0.001

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [  ] No [X]

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ] Accelerated filer [  ] Non-accelerated filer [  ]

 

Smaller reporting company [X] Emerging growth company [X]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter was $625,911.

 

As of March 25, 2021, the registrant had 104,914,339 shares of Common Stock outstanding.

 

 

 

 
 

 

TABLE OF CONTENTS

 

Explanatory Note 3
Item 1. Business. 4
Item 1A. Risk Factors 5
Item 1B. Unresolved Staff Comments. 5
Item 2. Properties. 5
Item 3. Legal Proceedings. 5
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. 6
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 7
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 12
Item 8. Financial Statements and Supplementary Data. 12
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. 12
Item 9A. Controls and Procedures. 12
Item 9B. Other Information. 13
Item 10. Directors, Executive Officers and Corporate Governance. 14
Item 11. Executive Compensation. 17
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. 19
Item 13. Certain Relationships and Related Transactions, and Director Independence. 25
Item 14. Principal Accounting Fees and Services. 26
Item 15. Exhibits, Financial Statement Schedules. 27
SIGNATURES 29

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This report contains forward-looking statements that involve a number of risks and uncertainties. Although our forward-looking statements reflect the good faith judgment of our management, these statements can be based only on facts and factors of which we are currently aware. Consequently, forward-looking statements are inherently subject to risks and uncertainties. Actual results and outcomes may differ materially from results and outcomes discussed in the forward-looking statements.

 

Forward-looking statements can be identified by the use of forward-looking words such as “may,” “will,” “should,” “anticipate,” “believe,” “expect,” “plan,” “future,” “intend,” “could,” “estimate,” “predict,” “hope,” “potential,” “continue,” or the negative of these terms or other similar expressions. These statements include, but are not limited to, statements under the captions “Risk Factors,” “Management’s Discussion and Analysis or Plan of Operation” and “Description of Business,” as well as other sections in this report. Such forward-looking statements are based on our management’s current plans and expectations and are subject to risks, uncertainties and changes in plans that may cause actual results to differ materially from those anticipated in the forward-looking statements. You should be aware that, as a result of any of these factors materializing, the trading price of our common stock may decline. These factors include, but are not limited to, the following:

 

  the availability and adequacy of capital to support and grow our business;
  economic, competitive, business and other conditions in our local and regional markets;
  actions taken or not taken by others, including competitors, as well as legislative, regulatory, judicial and other governmental authorities;
  competition in our industry;
  changes in our business and growth strategy, capital improvements or development plans;
  the availability of additional capital to support development; and
  other factors discussed elsewhere in this annual report.

 

The cautionary statements made in this annual report are intended to be applicable to all related forward-looking statements wherever they may appear in this report.

 

We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to publicly update any forward looking-statements, whether as a result of new information, future events or otherwise.

 

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PART I

 

Item 1. Business.

 

Effective June 6, 2018, Quanta, Inc., formerly known as Freight Solution, Inc., a Nevada corporation (the “Registrant” or the “Company”) consummated an Agreement of Merger and Plan of Reorganization (the “Merger Agreement”), with Bioanomaly, Inc., a California corporation d/b/a Quanta (“Quanta”) and Quanta Acquisition Corp., a California corporation and wholly-owned subsidiary of the Company (“Acquisition”). Pursuant to the terms of the Merger Agreement, Acquisition merged with and into Quanta in a statutory reverse merger (the “Merger”) with Quanta surviving as a wholly-owned subsidiary of the Company.

 

Pursuant to the merger agreement, all the shareholders of Bioanomaly exchanged all of their shares of Bioanomaly for an aggregate of 21,908,810 newly issued shares of Freight Solution’s common stock. Freight Solution shareholders retained 6,500,000 shares of common stock, which represents 23% of the issued and outstanding stock following the merger.

 

Simultaneously with the Merger, the Company accepted subscriptions for 6,500,000 shares of common stock in a private placement offering (the “Offering”) at a purchase price of $0.20 per share, offered pursuant to Regulation D of the Securities Act of 1933, as amended (the “Securities Act”) for the aggregate offering amount of $1,300,000. The Company also issued two non-affiliated individuals four-year warrants to purchase 3,000,000 shares of common stock at an exercise price of $0.30 per share.

 

Following the consummation of the Merger, Quanta shareholders beneficially owned approximately sixty-three percent (63%) of the issued and outstanding Common Stock of the Registrant.

 

On April 14, 2020, we issued to Eric Rice, our former Chairman, Chief Executive Officer and Chief Financial Officer, 2,500,000 shares of a newly created class of preferred stock, Series A Preferred Stock.

 

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. 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.

 

On December 21, 2020, the Company entered into a Securities Exchange Agreement with Medolife Rx, Inc., a Wyoming corporation, (“Medolife”) pursuant to which, the Company agreed to acquire 51% of Medolife in exchange for 9,000 shares of newly created Series B Convertible Preferred Stock. On January 14, 2021, we completed our acquisition of 51% of Medolife and Medolife’s founder, Arthur Mikaelian, PhD, a member of our Board of Directors, officially replaced Phillip Sands as our Chief Executive Officer. Phillip Sands remains our President and serves with Dr. Mikaelian on our Board of Directors.

 

Medolife provides contract research services. The Company focuses on research, development, and production of pharmaceutical-grade products, as well as clinical evidence-based nutraceuticals utilizing patented polarization technology. Medolife Rx serves clients in the United States.

 

Quanta for 2021 will be undergoing a name change to be announced shortly as well as Quanta is in the process of expanding its product line from 4 SKUs to 38 by summer. We will also be introducing all new branding with new color schemes, new packaging, and exciting celebrity endorsements for the pain relief products and a newly introduced beauty product line. Quanta will also be working on a men’s cosmetic line in conjunction with one of the celebrity endorsements planned for late 2021. The company has hired an advertising agency to help with the rollout of the new branding expected second quarter 2021. This will work in conjunction with a major push the company is on the path of with some major big box retail chains.

 

Overview

 

Quanta is an applied science company focused on increasing energy levels in plant matter to increase performance within the human body. Our proprietary technology uses quantum mechanics to increase bio-activity of targeted molecules to enhance the desired effects. We specialize in potentiating rare naturally occurring elements to create impactful and sustainable healing solutions that we believe will one day be as powerful and predictable as pharmaceutical drugs.

 

We offer our technology as a platform, making it accessible to existing high-quality product makers with existing distribution channels, as well as consumer products. Our mission is to power as many impactful, high-performing and wholly organic solutions as possible through product lines and a series of licensing and distribution partnerships.

 

Bioanomaly Inc. (now Quanta) was founded in 2016 by a group of technology and industry entrepreneurs and provides licensed technology solutions to natural product companies in multiple verticals. Our headquarters is located in Burbank, California.

 

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Quanta Basics

 

Quanta is a cutting-edge technology platform whose patented, proprietary technology harnesses advances in quantum biology to increase the potency of active ingredients. Currently, Quanta supports product formulations in pain management, anti-inflammation, skincare, agriculture, nutritional supplements, and plant-based consumables. Ultimately, Quanta’s mission is to deliver better, more effective ingredients to elevate product efficacy, reduce waste and facilitate healthier, more sustainable consumption.

 

The established resonance theory behind Quanta’s polarization process has many potential applications. From potentiating bio-ingredients to produce more-effective carbon-trapping plants to transformative anti-aging solutions Quanta’s technology has the opportunity to upend how commercial products are made and the benefits from them. Already we see multi-trillion-dollar global industries benefiting from Quanta’s technology.

 

Our proof of concept, Quanta’s market-leading CBD pain-relief rub (“Muscle Rub”), is only the first in a series of paradigm shift products to emerge from our labs. At the heart of its well-documented effectiveness is our proprietary “polarization” process, which uses electromagnetic force to markedly enhance bioactivity at the molecular level—a polarized active ingredient is more soluble and creates stronger bonds with the body’s receptors. This allows us to enhance ingredients so they work faster and more powerfully without the use of chemical by-products or cellular penetration. Quanta believes this natural solution has nearly limitless applications in the world of plant-based consumer products.

 

Quanta is involved in ambitious projects that we believe will reshape the next wave of climate science, sustainability, nutrition, and more. Having harnessed the technology of the future, Quanta is dedicated to bringing tomorrow’s health and wellness solutions to the billions in need today.

 

Government Regulation

 

We believe we are in compliance with applicable federal, state and other regulations and that we have compliance programs in place to ensure compliance going forward. There are no regulatory notifications or actions pending.

 

Item 1A. Risk Factors.

 

Risks Related to the Business

 

The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.

 

Item 1B. Unresolved Staff Comments

 

The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.

 

Item 2. Properties

 

The Company does not own any physical location. Quanta currently leases its corporate headquarters in Burbank, California which lease expires in August, 2023.

 

Item 3. Legal Proceedings

 

From time to time, we are a party to, or otherwise involved in, legal proceedings arising in the normal and ordinary course of business. As of the date of this report, we are not aware of any other proceeding, threatened or pending, against us which, if determined adversely, would have a material effect on our business, results of operations, cash flows or financial position.

 

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PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

(a) Market Information

 

On August 16, 2018 the Company changed its stock symbol to “QNTA.” The following table lists the high and low bid information for our common stock as quoted on the OTC Markets for the fiscal year ended December 31, 2020 and 2019. Quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

 

Fiscal Year Ended December 31, 2020   High     Low  
Fourth Quarter   $ 0.12     $ 0.02  
Third Quarter   $ 0.17     $ 0.03  
Second Quarter   $ 0.20     $ 0.02  
First Quarter   $ 0.32     $ 0.04  

 

Fiscal Year Ended December 31, 2019   High     Low  
Fourth Quarter   $ 0.58     $ 0.20  
Third Quarter   $ 19.00     $ 0.20  
Second Quarter   $ 2.35     $ 1.83  
First Quarter   $ 5.00     $ 1.00  

 

(b) Holders of Our Common Stock

 

As of the date of filing approximately we had 142 shareholders of record.

 

(c) Dividends

 

Since inception we have not paid any dividends on our common stock. We currently do not anticipate paying any cash dividends in the foreseeable future on our common stock. Although we intend to retain our earnings, if any, to finance the exploration and growth of our business, our Board of Directors will have the discretion to declare and pay dividends in the future. Payment of dividends in the future will depend upon our earnings, capital requirements, and other factors, which our Board of Directors may deem relevant.

 

(d) Securities authorized for issuance under equity compensation plans

 

To date we have not authorized the issuance of any shares of common stock under equity compensation plans.

 

Transfer Agent and Registrar

 

The Company’s transfer agency is Action Stock Transfer located at 2469 E. Fort Union Blvd., Suite 214, Salt Lake City, UT 84121. Telephone (801) 274-1088.

 

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

FORWARD-LOOKING STATEMENTS

 

This form 10-K contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose, any statements contained in this Form 10-K that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as “may”, “will”, “expect”, “believe”, “anticipate”, “estimate” or “continue” or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within our control. These factors include by are not limited to economic conditions generally and in the industries in which we may participate; competition within our chosen industry, including competition from much larger competitors; technological advances and failure to successfully develop business relationships.

 

This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those anticipated in these forward-looking statements.

 

SUMMARY OF BUSINESS

 

Quanta Basics

 

Quanta, Inc. (“Quanta”) is a cutting-edge technology platform whose patented, proprietary technology harnesses advances in quantum biology to increase the potency of active ingredients. Currently, Quanta supports product formulations in pain management, anti-inflammation, skincare, agriculture, nutritional supplements, and plant-based consumables. Ultimately, Quanta’s mission is to deliver better, more effective ingredients to elevate product efficacy, reduce waste and facilitate healthier, more sustainable consumption.

 

The established resonance theory behind Quanta’s polarization process has many potential applications. From potentiating bio-ingredients to produce more-effective carbon-trapping plants to transformative anti-aging solutions Quanta’s technology has the opportunity to upend how commercial products are made and the benefits from them. Already we see multi-trillion-dollar global industries benefiting from Quanta’s technology.

 

Our proof of concept, Quanta’s market-leading CBD pain-relief rub (“Muscle Rub”), is only the first in a series of paradigm shift products to emerge from our labs. At the heart of its well-documented effectiveness is our proprietary “polarization” process, which uses electromagnetic force to markedly enhance bioactivity at the molecular level—a polarized active ingredient is more soluble and creates stronger bonds with the body’s receptors. This allows us to enhance ingredients so they work faster and more powerfully without the use of chemical by-products or cellular penetration. Quanta believes this natural solution has nearly limitless applications in the world of plant-based consumer products.

 

Quanta is involved in ambitious projects that we believe will reshape the next wave of climate science, sustainability, nutrition, and more. Having harnessed the technology of the future, Quanta is dedicated to bringing tomorrow’s health and wellness solutions to the billions in need today.

 

Proof of Concept

 

Creating, producing and selling consumer products was never our primary focus; Quanta’s Muscle Rub was simply a means to an end - proof of concept and a revenue driver in a small emerging market as our business model took shape. Fundamentally, Quanta can be a licensing concern designed to collaborate with large brands to improve product quality and the profit margins of existing and new products. But the market needed proof and we chose to start in the under-developed category of CBD because of its speed to market.

 

Understandably, we met the same initial hurdles every start-up encounters. In addition to simply explaining quantum mechanics, we had no track record of success from a business standpoint. The immediate goal was to prove our model was defensible. Hence, we chose CBD as a launch category. This market provided protection from industry titans that may have felt threatened by such a powerful technology while allowing us to drive profits during R&D.

 

Over the last two years, we have developed and sold products largely to the medical industry, along with some consumer retail. This effort was designed to drive revenue and to prove the concept of our model: that polarizing a single ingredient can produce a demonstrably superior product that consumers find safe and effective (establish consumer appetite).

 

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Discovery Synopsys

 

Using our product development process and business-to-business and direct-to-consumer sales approaches as a benchmark for future business, we developed the Quanta business model. Our technology’s unique ability to strengthen ingredients renders them more potent without added chemicals or penetrating cells means Quanta is in a first-of-its-kind position in the market. As the world’s first company focused on Quantum Biology we sit in a strong, but unique position in the market.

 

Our ability to increase ingredient efficacy by up to 500% means we are in a rare position to truly disrupt many areas of material science.

 

Quanta’s technology renders products superior to any on the market today. A 30% re-purchase rate (on one SKU alone) illustrates consumer appetite for the product.

 

Upcoming products and ventures will be designed to achieve or surpass this level of consumer benefit and uptake.

 

Quanta Business Model in 3 P’s: Potentiation, Partners, and Profits

 

After two years we believe the best possible model for the long-term success of the company is collaborating with best-in-class partners through joint ventures for new verticals, products, and research. These joint ventures may involve a jointly owned special purpose entity or they may be entirely based on contractual obligations.

 

Our mission has never been to create the best novel products on the planet. Our mission has always been to revolutionize the way formulations are developed and how products perform. We seek to work with the best product makers in the world to positively impact as many industries as possible.

 

The unique ability to increase the ingredient and product performance opens the doors for major opportunities. Higher performing ingredients mean less is needed to make a strong impact (increased margins, increase overall efficacy). We proved this with our Muscle Rub, which uses approximately 1/3 the CBD of competing products with demonstrably improved results.

 

The level of potentiation delivered by Quanta allows our partners the unique ability to provide higher-performing products, lower material costs, more competitive pricing and increased profit margins. In short, our partners will be able to make better performing, more affordable products with a higher repeat purchase. This is true disruption and consumer utopia.

 

We aim to work with groups that specialize in manufacturing, marketing, selling and distributing existing product lines that utilize ingredients we can potentiate. Partners like this facilitate efficient market delivery of joint innovations.

 

We believe this strategy provides greater shareholder value, enhances revenue potential, defrays upfront expenses and affords us the ability to raise capital for new projects without massive dilution.

 

Ultimately, these ventures would result in licensing out our technology to other reputable brands and companies to create co-branded products whereas the term “Powered by Quanta” becomes as recognized as “Intel Inside.”

 

We believe this type of partnership will afford a company Quanta partners with:

 

  Development of emerging products with cutting edge ingredients.
     
  A product line with a true point of differentiation.
     
  New SKUs with an increased margin.
     
  Decreased cost of goods sold.

 

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Simultaneously these partnerships will allow Quanta:

 

  Greater brand recognition.
     
  Increased revenue and in turn profitability.
     
  Quicker timeline to more licensing opportunities because of a track record of success.
     
  Brand to become synonymous with improving the performance of ingredients within products.

 

Manufacturing Partnerships -

 

Quanta is currently focused on partnering with large-scale manufacturers and distributors able to produce products that meet the requirements of applicable regulations IE: Good Manufacturing Practices to fulfill orders of our own product line. This type of partnership is crucial because it will afford:

 

  New product development that meets certification requirements
     
  Much larger production scale
     
  Speed to market
     
  Increased distribution and profitability

 

With our licensing capabilities, Quanta technology can render better, more efficacious products that cost less to create but command a higher purchase value because of polarized ingredients. This, in turn, allows companies to diversify their catalog of products while simultaneously providing them with a distinguished advantage. More efficacious ingredients.

 

Employees

 

As of the date of this report, Quanta has 10 full time and no part time employees. We believe we enjoy good employee relations. None of our employees are members of any labor union, and we are not a party to any collective bargaining agreement.

 

RESULTS OF OPERATIONS

 

Summary of Key Results

 

Results of Operations for year ended December 31, 2020 compared to the year ended December 31, 2019

 

Revenue

 

Net sales are comprised of wholesale sales to our retail partners and sales through our direct-to-consumer channel. Net sales in both channels reflect the impact of product returns as well as discounts for certain sales programs or promotions.

  

For the year ended December 31, 2020 the Company recognized $1,124,721 in net sales. For the year ended December 31, 2019, the Company recognized $1,232,200 in net sales. The decrease in sales is due to the change in management and furlough of most employees during the three months ended December 31, 2020, compared to 2019.

 

For the year ended December 31, 2020 the Company recognized $33,394 in license revenue. For the year ended December 31, 2019, the Company recognized $31,788 in license revenue.

 

Expenses

 

Operating expenses for the year ended December 31, 2020 were $6,262,680. The Company incurred $452,443 in research and development costs ($420,000 paid to related party), and $4,273,394 in selling, general, and administrative costs, including legal and professional fees of $886,589, and $1,281,750 of compensation and related costs, and an impairment of an operating lease right of use asset of $255,093.

 

Operating expenses for the year ended December 31, 2019 were $6,453,091. The Company incurred $351,670 ($343,300 paid to related party) in research and development costs, and $4,799,030 in selling, general, and administrative costs, including legal and professional fees of $651,764, and $1,302,391 of compensation and related costs.

 

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Other Income (Expense)

 

For the year ended December 31, 2020, the Company recognized $2,778,593 of net other expenses, including interest expense of $512,907, private placement costs of $381,084, debt discount amortization of $755,538, loss on debt extinguishment of $1,230,290 and income of $101,226 for the change in the fair market value of derivative liabilities.

 

For the year ended December 31, 2019, the Company recognized $299,541 of net other expenses, including interest expense of $226,202, private placement costs of $238,395, $145,565 of extinguishment of derivative liabilities and income of $19,491 for the change in the fair market value of derivative liabilities.

 

Net Loss

 

Net loss for the year ended December 31, 2020 was $8,164,428. Net loss for the year ended December 31, 2019 was $5,787,364. We recorded no provision for federal income taxes for either period.

 

Basic and diluted loss per share - Basic and diluted loss per share for the year ended December 31, 2020 was $0.14 per share. Basic and diluted number of shares outstanding was 59,908,938 for 2020. Basic and diluted loss per share for the year ended December 31, 2019 was $.14 per share. Basic and diluted number of shares outstanding was 42,808,603 for 2019.

 

Going concern

 

We have yet to establish any history of profitable operations. For the year ended December 31, 2020, the Company incurred a net loss of $8,164,428 and used cash in operating activities of $2,118,428, and at December 31, 2020 the Company had a stockholders’ deficit of $2,608,246. These factors raise substantial doubt about our ability to continue as a going concern within one year after the date the financial statements are issued. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the year ended December 31, 2020 with respect to this uncertainty. This going concern opinion could materially limit our ability to raise additional funds through the issuance of new debt or equity securities and future reports on our financial statements may also include an explanatory paragraph with respect to our ability 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 31,575,000 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

 

Critical Accounting Policies and Estimates

 

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. GAAP requires us to make estimates and assumptions that affect the reported amounts in our financial statements including various allowances and reserves for accounts receivable and inventories, the estimated lives of long-lived assets and trademarks and trademark licenses, as well as claims and contingencies arising out of litigation or other transactions that occur in the normal course of business. The following summarizes our most significant accounting and reporting policies and practices:

 

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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, 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”. 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. The Company historically has offered no discounts, rebates, rights of return, or other allowances to clients which would result in the establishment of reserves against revenue.

 

Stock Compensation

 

The Company issues stock options, warrants, and shares of common stock as share-based compensation to employees and non-employees. The Company accounts for its share-based compensation to employees in accordance with FASB ASC 718, Compensation – Stock Compensation (Topic 718). Stock-based compensation cost 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.

 

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”.

 

Recently Issued Accounting Pronouncements

 

See Note 1 to the Consolidated Financial Statements.

 

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

 

We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item

 

Item 8. Financial Statements and Supplementary Data.

 

The financial statements together with the report of our independent registered public accounting firm, required to be filed pursuant to this Item 8 are appended to this Annual Report on Form 10-K. An index of those consolidated financial statements is found in Item 15 of this Annual Report on Form 10-K.

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

None

 

Item 9A. Controls and Procedures.

 

Disclosure Controls and Procedures

 

We have established disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that information relating to the Company is accumulated and communicated to management, including our principal officers, as appropriate to allow timely decisions regarding required disclosure. Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2020, and have concluded that our disclosure controls and procedures were not effective as of December 31, 2020 due to material weaknesses in our internal control over financial reporting as described below.

 

Management’s Annual Report on Internal Control over Financial Reporting

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15. Internal control over financial reporting is defined in Rule 13a-15(f) and 15(d)-15(f) under the Exchange Act as a process designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements. Management conducted an assessment of the Company’s internal control over financial reporting as of December 31, 2020 based on the framework and criteria established by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013) (COSO). Based on the assessment, management concluded that, as of December 31, 2020, the Company’s internal controls over financial reporting were not effective.

 

We identified material weaknesses in our internal controls over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis.

  

The material weaknesses identified include (i) we had an insufficient number of personnel appropriately qualified to perform control design, execution and monitoring activities; (ii) we did not have written documentation of our internal control policies and procedures, including written policies and procedures to ensure the correct application of accounting and financial reporting with respect to the current requirements of U.S. GAAP and SEC disclosure requirements; (iii) we had ineffective controls over our financial statement close and reporting process and did not provide reasonable assurance that accounts were complete and accurate and agreed to detailed support and that reconciliations of accounts were properly performed, reviewed and approved, (iv) we did not maintain effective controls over the recording and approval of recurring and non-recurring journal entries and (v) we had inadequate segregation of duties consistent with control objectives.

 

Notwithstanding the identified material weaknesses, management has concluded that the Financial Statements included in this Annual Report on Form 10-K present fairly, in all material respects, the Company’s financial position, results of operations and cash flows for the periods disclosed in conformity with U.S. GAAP.

 

Planned Remediation of Material Weaknesses

 

Our management has been actively engaged in developing and implementing remediation plans to address material weaknesses described above. These remediation efforts are ongoing and include or are expected to include preparation of written documentation of our internal control policies and procedures, increasing personnel resources and technical accounting expertise within the accounting function, and to hire one or more additional personnel. During the third and fourth quarters of 2020, and as of the date of this Report, we continue to work with an outside consultant with experience and expertise in U.S. GAAP and public company SEC accounting and reporting requirements to assist management with its accounting and reporting of complex and/or non-recurring transactions and related disclosures.

 

12
 

 

Changes in Internal Control over Financial Reporting

 

There were no changes in internal control over financial reporting (as defined by Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the year ended December 31, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Inherent Limitations on Effectiveness of Controls

 

Our management, including our Chief Executive Officer and Chief Financial Officer, intends that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected.

 

Item 9B. Other Information.

 

None.

 

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PART III

 

Item 10. Directors, Executive Officers and Corporate Governance.

 

The following table sets forth the name and age of officers and director as of the date hereof. Our executive officers are elected annually by our board of directors. Our executive officers hold their offices until they resign, are removed by the Board, or his successor is elected and qualified.

 

Our management consists of:

 

Name   Age   Title
Arthur Mikaelian, Ph.D   58   Chairman, Chief Executive Officer and Chief Financial Officer
Phillip Sands   59   President, Director

 

On November 13, 2020 Mr. Phillip Sands was appointed to serve as Chief Executive Officer. Eric Rice has resigned from all officer and director positions with the Company.

 

On December 21, 2020 Mr. Phillip Sands resigned as Chief Executive Officer and was appointed President.

 

On December 21, 2020, in connection with the entry into the Securities Exchange Agreement with Medolife Rx, Inc., Arthur G. Mikaelian, Ph.D was appointed as member of the Board of Directors of Quanta, Inc. Dr. Mikaelian joins Phillip Sands on our Board, and Mr. Sands continues to serve as the Company’s President and Director.

 

On December 21, 2020, Dr. Mikaelian was also appointed to serve as the Company’s Chief Executive Officer.

 

Arthur Mikaelian, P.hD, Newly Appointed Director, Chief Executive Officer and Treasurer and Corporate Secretary . Dr. Arthur Mikaelian, a pioneer of polarization technology, has been awarded U.S. Patent 8,097,284 B2 as it pertains to Polarized Scorpion Venom solution and the method for making it. Dr. Mikaelian’s technical education began at the 2nd Medical Institute of Moscow and continued at the Vernadsky University of Biosphere Knowledge in Moscow, where he earned his doctorate in Biological Psychology; he then went on to complete his post-doctorate work at Vernadsky. He also earned an MBA from the University of Bologna in Italy. You can find more about Medolife Rx at: http://medolife.com/

 

Phillip Sands, President, Secretary, Treasurer and Director. Mr. Phillip Sands brings over 30 plus years of corporate executive experience, business development, project management, investment consultation, and B2B sales experience within Small Business and Corporate America. He has served in diverse companies with positions of Investment Consultant, Business Development Manager, Director of Investor Relations and Principal of small businesses. Mr. Sands has through collaboration worked with investment firms and helped develop strategies for public and private funding offerings, debt debenture offerings, help with Private Placements, balance sheet review and offer investment location consultation, client presentation, coaching, and access to market makers and broker dealers. Has worked with clients from all sectors with diverse back grounds on the OTC markets as well NASDAQ companies. Sectors range from alternative energy, technical, medical, manufacturing and more. Since 2011, Mr. Sands has served as Principal of Cold River Capital Incorporated, providing consulting services to clients seeking capital through private equity and institutional investors. His work with small business owners and Small-Cap companies has helped to raise capital through debt & equity structured funding, acquisition and growth capital. From 2004 to 2011, Mr. Sands served as Principal of Dynamic Business Services. From 2000 to 2004, Mr. Sands served as Principal of Splashmail Incorporated, a software sales company. From 1998 to 2000, Mr. Sands served as Northeast Territory Manager for Avatech Solutions. From 1997 to 1998, Mr. Sands began his career as a Consultant/Northeast Business Development Manager with General Electric Information Technology Systems. Mr. Sands studied Business Administration at Emmanuel College

 

Board of Directors

 

Each director is elected by the Board and serves until his or her successor is elected and qualified, unless he or she resigns or is removed earlier. Each of our officers is elected by the Board to a term of one (1) year and serves until his or her successor is duly elected and qualified, or until he or she is earlier removed from office or resigns.

 

At the very least all directors will be reimbursed by the Company for expenses incurred in attending directors’ meetings provided that the Company has sufficient resources to pay these expenses. The Company will consider in applying for officers and directors’ liability insurance at such time that it has the financial resources to do so.

 

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Committees of the Board of Directors

 

Concurrent with having sufficient members and resources, our Board of Directors intends to establish an audit committee and a compensation committee. The audit committee will review the results and scope of the audit and other services provided by the independent auditors and review and evaluate the system of internal controls. The compensation committee will review and recommend compensation arrangements for the officers and employees. No final determination has yet been made as to the memberships of these committees or when we will have sufficient members to establish committees. We believe that we will need a minimum of three independent directors to have effective committee systems.

 

As of the date hereof, we have not established any Board committees.

 

Family Relationships

 

No family relationship exists between any director, executive officer, or any person contemplated to become such.

 

Director Independence

 

We currently do not have any independent directors serving on our board of directors.

 

Possible Potential Conflicts

 

The OTC Markets, on which we have our shares of common stock quoted, does not currently have any director independence requirements.

 

Certain conflicts of interest may arise between us and our officer(s) and director(s) in that they may have other business interests in the future to which they devote their attention, and they may be expected to continue to do so although management time must also be devoted to our business. As a result, conflicts of interest may arise that can be resolved only through their exercise of such judgment as is consistent with each officer’s understanding of his/her fiduciary duties to us.

 

Currently we have two officers and two directors and will seek to add additional officer(s) and/or director(s) as and when the proper personnel are located and terms of employment are mutually negotiated and agreed, and we have sufficient capital resources and cash flow to make such offers.

 

We cannot provide assurances that our efforts to eliminate the potential impact of conflicts of interest will be effective.

 

Involvement in Certain Legal Proceedings

 

None of our directors or executive officers has, during the past ten years:

 

  has had any bankruptcy petition filed by or against any business of which he was a general partner or executive officer, either at the time of the bankruptcy or within two years prior to that time;
     
  been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offences);
     
  been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities, futures, commodities or banking activities;
     
  been found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; or
     
  been subject or a party to or any other disclosable event required by Item 401(f) of Regulation S-K.

 

15
 

 

Code of Business Conduct and Ethics

 

Upon incorporation we adopted a written code of ethics applicable to our board of directors, officers and employees in accordance with applicable Federal and states securities laws. Our board of directors shall oversee compliance with the code of ethics as it relates to the Company through an officer designated by the board. Employees are required to report known and suspected breaches of our code of ethics to an appropriate supervisor, or in the case of officers and directors, to a senior officer designated by our board of directors. Our code of ethics is designed to deter wrongdoing and to promote:

 

  honest and ethical conduct;
     
  full, fair, accurate, timely and understandable disclosure in reports and documents that we will file with securities regulators and in our other public communications;
     
  compliance with applicable laws, rules and regulations, including insider trading compliance; and
     
  accountability for adherence to the code and prompt internal reporting of violations of the code, including illegal or unethical behavior regarding accounting or auditing practices.

 

A copy of our Code of Business Conduct and Ethics has been filed with the Securities and Exchange Commission as Exhibit 14.1 to our Registration Statement filed on Form S-1 on June 1, 2017

 

Delinquent Section 16(a) Reports

 

Section 16(a) of the Exchange Act requires our directors, executive officers and holders of more than 10% of our common stock to file with the SEC initial statements of beneficial ownership of our securities (Form 3) and statements of changes in beneficial ownership of our securities (Forms 4 and 5). As of December 31, 2020, our former directors, executive officers and holders of more than 10% of our common stock had not filed the required reports with the SEC.

 

Based on a review of Forms 3 filed in January 2020, the Company believes that each of our former officers and directors: Eric Rice, Jeffrey Doiron, Blake Gillette and Kirk Westwood filed such forms late. Messrs. Doiron, Gillette and Westwood also each filed a Form 4 in January 2020 each untimely reporting one transaction that occurred in December 2019. Mr. Rice also filed a Form 4 in January 2020 untimely reporting 29 transactions that had occurred between November and December 2019.

 

16
 

 

Item 11. Executive Compensation.

 

The following table sets forth all of the compensation awarded to, earned by or paid to our named directors, executive officers and key employees for the fiscal years ended December 31, 2020 and 2019:

 

Name and Principal Position   Period  

Base

Salary

($)

   

Option Awards

($)(4)

   

All

Other

Compensation
($)(5)&(6)

   

Total

($)

 
Arthur Mikaelian
Chief Executive Officer and member of the board of directors
  Fiscal Year ended December 31, 2020     -       -       1,292,530       1,292,530  
Non-officer   Fiscal Year ended December 31, 2019     -       -       2,317,868       2,317,868  
                                     
Phillip Sands
Formerly Chief Executive Officer, currently President and member of the board of directors.
  December 4, through December 31, 2020     8,000       -       465,000       473,000  
                                     
Eric Rice (1)   Fiscal Year ended December 31, 2020     113,900       -       -       113,900  
    Fiscal Year ended December 31, 2019     103,044       -       -       103,044  
                                     
Jeffrey Doiron   Fiscal Year ended December 31, 2020     77,938                          
Former President (2)   Fiscal Year ended
December 31, 2019
    93,732       415,672       -       509,404  
                                     
Kirk Westwood   Fiscal Year ended December 31, 2020     57,699               20,807          
Former Vice President (2)   Fiscal Year ended
December 31, 2019
    71,803       566,826       30,293       668,922  
                                     
Blake Gillette (3)   Fiscal Year ended December 31, 2020     72,703                          
    Fiscal Year ended
December 31, 2019
            -       -          

 

17
 

 

(1) Appointed June 6, 2018, resigned as Chief Executive Officer December 4, 2020.
   
(2) Appointed June 6, 2018, resigned, officer position December 4, 2020.
   
(3)  Resigned officer position December 4, 2020.
   
(4) The amounts reported in this column represent the aggregate grant date fair value of option awards computed in accordance with FASB ASC Topic 718 by utilizing the Black-Scholes option-pricing model.
   
(5) Dr. Mikaelian was awarded 8,000,000 shares of restricted common shares in 2019. 2,250,000 shares vested in 2019 and were valued at $2,317,868, 2,500,000 shares vested in 2020 and were valued at $1,292,530 and additional 625,000 will vest within 60 days of the issuance of this report.
   
(6) The Preferred Series A shares were valued by and independent valuation professional to be $0.186 per share on April 14, 2020 for a total of approximately $465,000, based on the control features of the shares.

 

Director Compensation

 

We have no arrangement to compensate directors for their services in their capacity as directors. Directors are not paid for meetings attended. However, we intend to review and consider future proposals regarding board compensation. All travel and lodging expenses associated with corporate matters are reimbursed by us, if and when incurred.

 

Pension Table

 

None.

 

Retirement Plans

 

We do not offer any annuity, pension, or retirement benefits to be paid to any of our officers, directors, or employees in the event of retirement. There are also no compensatory plans or arrangements with respect to any individual named above which results or will result from the resignation, retirement, or any other termination of employment with our company, or from a change in the control of our Company.

 

Compensation Committee

 

We do not have a separate compensation committee. Instead, our Board reviews and approves executive compensation policies and practices, reviews salaries and bonuses for other officers, administers our stock option plans and other benefit plans, if any, and considers other matters that may be brought forth to it.

 

Risk Management Considerations

 

We believe our compensation policies and practices for our employees, including our executive officers, do not create risks that are reasonably likely to have a material adverse effect on our Company.

 

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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

The following table sets forth information known to the Company regarding beneficial ownership of the Company’s common stock as of April 14, 2021 by:

 

  each person known by the Company to be the beneficial owner of more than 5% of outstanding Company common stock;
     
  each of the Company’s executive officers and directors; and
     
  all executive officers and directors of the Company as a group.

 

Beneficial ownership is determined according to the rules of the SEC, which generally provide that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power over that security, including options and warrants that are currently exercisable or exercisable within 60 days. Common stock issuable upon exercise of options or warrants currently exercisable or exercisable within 60 days are deemed outstanding solely for purposes of calculating the percentage of class and percentage of total voting power of the beneficial owner thereof.

 

The beneficial ownership of the Company’s common stock is based on 100,975,328 shares of Company common stock issued and outstanding as of April 9, 2021.

 

Unless otherwise indicated, management believes that each person named in the table below has sole voting and investment power with respect to all shares of management common stock beneficially owned by him or her.

 

Name And Address (1)   Beneficially Owned     Percentage Owned (2)  
Arthur Mikaelian, PhD, Chairman, Chief Executive Officer     6,000,000       6 %
Phillip Sands, President     -       - %
All directors and officers as a group (2 persons)     6,000,000       6 %
                 
Other 5% Holders                
Brothers Pascarella LLC     9,800,000       9.7 %

 

 

 

  (1) The address for all officers, directors and beneficial owners is 3606 W Magnolia Blvd, Burbank, Ca 91505.

 

Arthur Mikaelian, was awarded 8,000,000 shares of restricted common stock of which 6,000,000, will have vested within 60 days of the filing of this report. In addition, the Company issued 9,000 shares of Series B Preferred Stock. The preferred shares entitle the holder to voting rights equal to 54% of the shares of common stock outstanding as of the date of this report.

 

Phillip Sands, received 2,500,000 shares of Series A Preferred Stock in conjunction with the closing of the Control Block Transfer Agreement. The preferred shares entitle the holder to voting rights equal to 51% of the shares of common stock outstanding as of the date of this report.

 

Long-Term Incentive Plans and Awards

 

We do not have any long-term incentive plans that provide compensation intended to serve as incentive for performance. No individual grants or agreements regarding future payouts under non-stock price-based plans have been made to any executive officer or any director or any employee or consultant since our inception; accordingly, no future payouts under non-stock price-based plans or agreement s have been granted or entered into or exercised by our officer or director or employees or consultants since we were founded.

 

19
 

 

Grants of Plan-Based Awards Table

 

None of our named executive officers received any grants of stock, option awards or other plan-based awards during the years ended December 31, 2020 and December 31, 2019. Arthur Mikaelian, was awarded 8,000,000 shares in restricted common in 2019 prior to becoming an officer and director. Which includes 6,000,000, will have vested within 60 days of the filing of this report.

 

Options Exercised and Stock Vested Table

  

On June 27, 2019, our board of directors adopted the Quanta, Inc. 2019 Omnibus Stock Incentive Plan (the “2019 Plan”). The following is a summary of the principal features of the 2019 Plan:

 

Provision of Plan   Description
Eligible Participants:   Employees, directors, and consultants of the Company, any related entity, and any successor entity that adopts the 2019 Plan.

 

Share Reserve:   Total of 12,000,000 shares of the Company’s Common Stock.
    The reserved shares will be reduced (i) by one share for each share granted pursuant to stock options, stock appreciation rights, or other awards awarded under the 2019 Plan, and (ii) to the extent cash is delivered in lieu of shares of Common Stock upon the exercise of a stock appreciation right, the Company will be deemed to have issued the greater of the number of shares of Common Stock which it was entitled to issue upon such exercise or on the exercise of any related stock option.

 

Award Types:   Incentive stock options
    Non statutory stock options
    Stock appreciation rights
    Restricted stock awards
    Restricted stock unit awards
    Dividend equivalent rights

 

Vesting:   Determined by the board of directors.
     
Award Limits:   No more than 1,200,000 shares may be issued to a single participant pursuant to stock options and stock appreciation rights in a calendar year.
     
Repricings:   Repricing of outstanding stock awards is not permitted without the approval of the Company’s stockholders, except for certain ratable capitalization adjustments as set forth in the 2019 Plan.
     
Plan Termination Date:   June 27, 2029.

 

Outstanding Equity Awards at Fiscal Year-End

 

None of our named executive officers had any outstanding stock or option awards as of the fiscal years ended December 31, 2020 and December 31, 2019. The Company has not issued any awards to its named executive officers. The Company and its board may grant awards as it sees fit to its employees as well as key consultants and other outside professionals.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

None.

 

Description of our Capital Stock

 

We were incorporated under the laws of the State of Nevada on April 28, 2016. The Company is authorized to issue 500,000,000 shares of common stock, par value $0.001 per share (the “Common Stock”) and 25,000,000 shares of preferred stock, par value $0.001 per share (the “Preferred Stock”).

 

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Preferred Stock

 

Our articles of incorporation authorize the issuance of 25,000,000 shares of Preferred Stock with designations, rights and preferences determined from time to time by our board of directors. 2,510,000 shares of Preferred Stock have been designated, issued and were outstanding as of the date of this report. Accordingly, our board of directors is empowered, without stockholder approval, to issue up to 22,490,000 shares of Preferred Stock with voting, liquidation, conversion, or other rights that could adversely affect the rights of the holders of the common stock. Although we have no present intention to issue any shares of Preferred Stock, there can be no assurance that we will not do so in the future.

 

Among other rights, our board of directors may determine, without further vote or action by our stockholders:

 

  the number of shares and the designation of the series;
  whether to pay dividends on the series and, if so, the dividend rate, whether dividends will be cumulative and, if so, from which date or dates, and the relative rights of priority of payment of dividends on shares of the series;
  whether the series will have voting rights in addition to the voting rights provided by law and, if so, the terms of the voting rights;
  whether the series will be convertible into or exchangeable for shares of any other class or series of stock and, if so, the terms and conditions of conversion or exchange;
  whether or not the shares of the series will be redeemable and, if so, the dates, terms and conditions of redemption and whether there will be a sinking fund for the redemption of that series and, if so, the terms and amount of the sinking fund; and
  the rights of the shares of the series in the event of our voluntary or involuntary liquidation, dissolution or winding up and the relative rights or priority, if any, of payment of shares of the series.

 

Series A Preferred Stock Description

 

On April 14, 2020, the Company filed a Certificate of Designation for the Company’s Series A Preferred Stock 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.

 

2,500,000 issued and outstanding as of the filing report.

 

Series B and C Convertible Preferred Stock

 

On January 12, 2021, the Company filed Certificates of Designation establishing the designations, preferences, limitations and relative rights of the Company’s Series B Convertible Preferred Stock and Series C Convertible Preferred Stock in the State of Nevada.

 

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Series B Convertible Preferred Stock - Description

 

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 twenty for (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 one hundred twelve million five hundred thousand (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 one hundred twelve million five hundred thousand (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.

 

9,000 issued and outstanding as of the filing report.

 

Series C Convertible Preferred Stock - Description

 

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 twenty for (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 one hundred twelve million five hundred thousand (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 one hundred twelve million five hundred thousand (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.

 

1,000 issued and outstanding as of the filing report.

 

The foregoing descriptions of the terms of the Certificates of Designation are qualified in their entirety by the Certificates of Designation that were filed with the Nevada Secretary of State on April 14, 2020 and January 12, 2021.

 

Any of Preferred Stock or any rights to purchase preferred shares may have the effect of making it more difficult for a third party to acquire control of us. This may delay, defer or prevent a change of control in our Company or an unsolicited acquisition proposal. The issuance of Preferred Stock also could decrease the amount of earnings attributable to, and assets available for distribution to, the holders of our Common Stock and could adversely affect the rights and powers, including voting rights, of the holders of our Common Stock.

 

Common Stock

 

Our articles of incorporation authorize the issuance of 500,000,000 shares of Common Stock. There are 100,975,328 shares of our Common Stock issued and outstanding at April 9, 2021. 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 holders of our Common Stock:

 

  have equal ratable rights to dividends from funds legally available for payment of dividends when, as and if declared by the board of directors;
  are entitled to share ratably in all of the assets available for distribution to holders of Common Stock upon liquidation, dissolution or winding up of our affairs;
  do not have preemptive, subscription or conversion rights, or redemption or access to any sinking fund; and
  are entitled to one non-cumulative vote per share on all matters submitted to stockholders for a vote at any meeting of stockholders

 

22
 

 

See Plan of Distribution regarding negative implications of being classified as a “Penny Stock.”

 

Authorized but Unissued Capital Stock

 

Nevada law does not require stockholder approval for the issuance of authorized shares. These additional shares may be used for a variety of corporate purposes, including future public offerings to raise additional capital or to facilitate corporate acquisitions.

 

One of the effects of the existence of unissued and unreserved Common Stock (or Preferred Stock) may be to enable our board of directors to issue shares to persons friendly to current management, which issuance could render more difficult or discourage an attempt to obtain control of our board by means of a merger, tender offer, proxy contest or otherwise, and thereby protect the continuity of our management and possibly deprive the stockholders of opportunities to sell their shares of our Common Stock at prices higher than prevailing market prices.

 

Shareholder Matters

 

As an issuer of “penny stock” the protection provided by the federal securities laws relating to forward looking statements does not apply to us if our shares are considered to be penny stocks (which they currently are and probably will be for the foreseeable future). Although the federal securities law provide a safe harbor for forward-looking statements made by a public company that files reports under the federal securities laws, this safe harbor is not available to issuers of penny stocks. As a result, we will not have the benefit of this safe harbor protection in the event of any claim that the material provided by us, including this Annual Report, contained a material misstatement of fact or was misleading in any material respect because of our failure to include any statements necessary to make the statements not misleading.

 

As a Nevada corporation, we are subject to the Nevada Revised Statutes (“NRS” or “Nevada law”). Certain provisions of Nevada law described below create rights that might be deemed material to our shareholders. Other provisions might delay or make more difficult acquisitions of our stock or changes in our control or might also have the effect of preventing changes in our management or might make it more difficult to accomplish transactions that some of our shareholders may believe to be in their best interests.

 

Directors’ Duties. Section 78.138 of the Nevada law allows our directors and officers, in exercising their powers to further our interests, to consider the interests of our employees, suppliers, creditors and shippers. They can also consider the economy of the state and the nation, the interests of the community and of society and our long-term and short-term interests and shareholders, including the possibility that these interests may be best served by our continued independence. Our directors may resist a change or potential change in control if they, by a majority vote of a quorum, determine that the change or potential change is opposed to or not in our best interest. Our board of directors may consider these interests or have reasonable grounds to believe that, within a reasonable time, any debt which might be created as a result of the change in control would cause our assets to be less than our liabilities, render us insolvent, or cause us to file for bankruptcy protection

 

Dissenters’ Rights. Among the rights granted under Nevada law which might be considered material is the right for shareholders to dissent from certain corporate actions and obtain payment for their shares (see NRS 92A.380-390). This right is subject to exceptions, summarized below, and arises in the event of mergers or plans of exchange. This right normally applies if shareholder approval of the corporate action is required either by Nevada law or by the terms of the articles of incorporation.

 

A shareholder does not have the right to dissent with respect to any plan of merger or exchange, if the shares held by the shareholder are part of a class of shares which are:

 

  listed on a national securities exchange,
  included in the national market system by the Financial Industry Regulatory Authority (“FINRA”), or
  held of record by not less than 2,000 holders.

 

This exception notwithstanding, a shareholder will still have a right of dissent if it is provided for in the articles of incorporation or if the shareholders are required under the plan of merger or exchange to accept anything but cash or owner’s interests, or a combination of the two, in the surviving or acquiring entity, or in any other entity falling in any of the three categories described above in this paragraph.

 

23
 

 

Inspection Rights. Nevada law also specifies that shareholders are to have the right to inspect company records (see NRS 78.105). This right extends to any person who has been a shareholder of record for at least six months immediately preceding his demand. It also extends to any person holding, or authorized in writing by the holders of, at least 5% of outstanding shares. Shareholders having this right are to be granted inspection rights upon five days’ written notice. The records covered by this right include official copies of:

 

  i. the articles of incorporation, and all amendments thereto,
  ii. bylaws and all amendments thereto; and
  iii. a stock ledger or a duplicate stock ledger, revised annually, containing the names, alphabetically arranged, of all persons who are stockholders of the corporation, showing their places of residence, if known, and the number of shares held by them, respectively.

 

In lieu of the stock ledger or duplicate stock ledger, Nevada law provides that the corporation may keep a statement setting out the name of the custodian of the stock ledger or duplicate stock ledger, and the present and complete post office address, including street and number, if any, where the stock ledger or duplicate stock ledger specified in this section is kept.

 

Control Share Acquisitions. Sections 78.378 to 78.3793 of Nevada law contain provisions that may prevent any person acquiring a controlling interest in a Nevada-registered company from exercising voting rights. To the extent that these rights support the voting power of minority shareholders, these rights may also be deemed material. These provisions will be applicable to us as soon as we have 200 shareholders of record with at least 100 of these having addresses in Nevada as reflected on our stock ledger. While we do not yet have the required number of shareholders in Nevada or elsewhere, it is possible that at some future point we will reach these numbers and, accordingly, these provisions will become applicable. We do not intend to notify shareholders when we have reached the number of shareholders specified under these provisions of Nevada law. Shareholders can learn this information pursuant to the inspection rights described above and can see the approximate number of our shareholders by checking under Item 5 of our Annual Report on Form 10-K. This form is filed with the Securities and Exchange Commission within 90 days after the close of each fiscal year hereafter. You can view these and our other filings at www.sec.gov in the “EDGAR” database.

 

Under NRS Sections 78.378 to 78.3793, an acquiring person who acquires a controlling interest in company shares may not exercise voting rights on any of these shares unless these voting rights are granted by a majority vote of our disinterested shareholders at a special shareholders’ meeting held upon the request and at the expense of the acquiring person. If the acquiring person’s shares are accorded full voting rights and the acquiring person acquires control shares with a majority or more of all the voting power, any shareholder, other than the acquiring person, who does not vote for authorizing voting rights for the control shares, is entitled to demand payment for the fair value of their shares, and we must comply with the demand. An “acquiring person” means any person who, individually or acting with others, acquires or offers to acquire, directly or indirectly, a controlling interest in our shares. “Controlling interest” means the ownership of our outstanding voting shares sufficient to enable the acquiring person, individually or acting with others, directly or indirectly, to exercise one-fifth or more but less than one-third, one-third or more but less than a majority, or a majority or more of the voting power of our shares in the election of our directors. Voting rights must be given by a majority of our disinterested shareholders as each threshold is reached or exceeded. “Control shares” means the company’s outstanding voting shares that an acquiring person acquires or offers to acquire in an acquisition or within 90 days immediately preceding the date when the acquiring person becomes an acquiring person.

 

These Nevada statutes do not apply if a company’s articles of incorporation or bylaws in effect on the tenth day following the acquisition of a controlling interest by an acquiring person provide that these provisions do not apply.

 

According to NRS 78.378, the provisions referred to above will not restrict our directors from taking action to protect the interests of our Company and its shareholders, including without limitation, adopting or executing plans, arrangements or instruments that deny rights, privileges, power or authority to a holder of a specified number of shares or percentage of share ownership or voting power. Likewise, these provisions do not prevent directors or shareholders from including stricter requirements in our articles of incorporation or bylaws relating to the acquisition of a controlling interest in the Company.

 

Our articles of incorporation and bylaws do not exclude us from the restrictions imposed by NRS 78.378 to 78.3793, nor do they impose any more stringent requirements.

 

24
 

 

Certain Business Combinations. Sections 78.411 to 78.444 of the Nevada law may restrict our ability to engage in a wide variety of transactions with an “interested shareholder.” As was discussed above in connection with NRS 78.378 to 78.3793, these provisions could be considered material to our shareholders, particularly to minority shareholders. They might also have the effect of delaying or making more difficult acquisitions of our stock or changes in our control. These sections of NRS are applicable to any Nevada company with 200 or more stockholders of record and that has a class of securities registered under Section 12 of the 1934 Securities Exchange Act, unless the company’s articles of incorporation provide otherwise. By the filing of our Registration Statement on Form S-1, we are not registering our Common Stock under Section 12(g) of the Exchange Act. However upon effectiveness of the Registration Statement on Form S-1 we became subject to those very statutes.

 

These provisions of Nevada law prohibit us from engaging in any “combination” with an interested stockholder for three years after the interested stockholder acquired the shares that cause him/her to become an interested shareholder, unless he had prior approval of our board of directors. The term “combination” is described in NRS 78.416 and includes, among other things, mergers, sales or purchases of assets, and issuances or reclassifications of securities. If the combination did not have prior approval, the interested shareholder may proceed after the three-year period only if the shareholder receives approval from a majority of our disinterested shares or the offer meets the requirements for fairness that are specified in NRS 78.441-42. For the above provisions, a “resident domestic corporation” means a Nevada corporation that has 200 or more shareholders. An “interested stockholder” is defined in NSR 78.423 as someone who is either:

 

  the beneficial owner, directly or indirectly, of 10% or more of the voting power of our outstanding voting shares; or
  our affiliate or associate and who within three years immediately before the date in question, was the beneficial owner, directly or indirectly, of 10% or more of the voting power of our outstanding shares at that time.

 

Amendments to Bylaws. Our articles of incorporation provide that the power to adopt, alter, amend, or repeal our bylaws is vested exclusively with the board of directors. In exercising this discretion, our board of directors could conceivably alter our bylaws in ways that would affect the rights of our shareholders and the ability of any shareholder or group to effect a change in our control; however, the board would not have the right to do so in a way that would violate law or the applicable terms of our articles of incorporation.

 

Transfer Agent

 

The transfer agent for our Common Stock is Action Stock Transfer Corporation, 2469 E. Fort Union Blvd, Suite 214, Salt Lake City, Utah 84121. Its telephone number is (801) 274-1088.

 

Item 13. Certain Relationships and Related Transactions, and Director Independence.

 

We have not entered into any transactions with our officers, directors, persons nominated for these positions, beneficial owners of 5% or more of our common stock, or family members of those persons wherein the amount our total assets for the last two fiscal years or the transition period ended December 31, 2018. Arthur Mikaenlian executed an agreement with the Company for the license of proprietary supplements (refer to Footnote regarding related parties). In addition, Dr. Makaelian entered into a licensing agreement with the Company in 2019. The agreement has been modified. The agreement predates Dr. Makaelian,s appointment as an officer and director.

 

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. 1,000,000 shares vested immediately, and the balance of 7,000,000 shares will vest 625,000 shares per quarter over 2.8 years. The award predates Dr. Makaelian,s appointment as an officer and director.

 

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,

 

Related Person Transaction Policy

 

Our Board of Directors is responsible to approve all related party transactions. We have not adopted written policies and procedures specifically for related person transactions.

 

Director Independence

 

For purposes of determining director independence, we have applied the definitions set out in NASDAQ Rule 5605(a)(2). The NASDAQ definition of “Independent Director” means a person other than an Executive Officer or employee of the Company or any other individual having a relationship which, in the opinion of the Company’s Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

 

According to the NASDAQ definition, Mr. Phillip Sands is not an independent director because he currently holds the title of officer in the Company.

 

25
 

 

Item 14. Principal Accounting Fees and Services.

 

The following tables present the fees billed for the years ended December 31, 2020 and 2019 by Weinberg & Company.

 

The caption “Audit Fees” refers to the aggregate fees billed for the audit of the Company’s financial statements and review of financial statements included in the Company’s Form 10-Q and other SEC filings or services that were normally provided by the accountants in connection with statutory and regulatory filings or engagements for such periods. The caption “Audit-Related Fees” refers to the aggregate fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s financial statements and are not reported under “Audit Fees”. The caption “Tax Fees” refers to the aggregate fees billed for professional services rendered for tax compliance, tax advice, and tax planning. The caption “All Other Fees” refers to the aggregate fees billed for products and services other than the services previously described.

 

All services reflected in the following fee tables were pre-approved, respectively, in accordance with the policy of the Board.

 

   

Year Ended

December 31, 2020

   

Year Ended

December 31, 2019

 
Audit fees   $ 76,767     $ 71,372  
Audit-related fees     -          
Tax fees     13,915          
All other fees     20,186       950   
Total Fees   $ 104,862     $ 72,322  

 

Policy on Pre-Approval by the Board of Services Performed by Independent Auditors.

 

In its capacity, the Board pre-approves all audit (including audit-related) and permitted non-audit services to be performed by the independent auditors. The Board will annually approve the scope and fee estimates for the year-end audit to be performed by the Company’s independent auditors for the fiscal year. With respect to other permitted services, the Board pre-approves specific engagements, projects and categories of services on a fiscal year basis, subject to individual project and annual maximums.

 

Where You Can Find Additional Information

 

We have filed with the SEC this Annual Report on Form 10-K including exhibits. You may read and copy all or any portion of any reports, statements or other information in the files at Commission’s Public Reference Room located at 100 F Street, NE., Washington, DC 20549, on official business days during the hours of 10 a.m. to 3 p.m.

 

You can request copies of these documents upon payment of a duplicating fee by writing to the SEC. You may call the SEC at 1-800-SEC-0330 for further information on the operation of its public reference room. The Company’s filings, including this Annual Report on Form 10-K, will also be available to you on the website maintained by the SEC at http://www.sec.gov.

 

The Company’s website is located at http://www.BuyQuanta.com. The Company’s website and the information to be contained on that site, or connected to that site, are not part of or incorporated by reference into this filing.

 

26
 

 

PART IV

 

Item 15. Exhibits, Financial Statement Schedules.

 

The following exhibits are incorporated into this Form 10-K Annual Report:

  

Exhibit Number   Description
     
2.1   Agreement and Plan of Merger and Reorganization among Freight Solution, Inc., Bioanomaly, Inc. and Quanta Acquisition Corp. (Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K/A filed with the Securities and Exchange Commission on June 18, 2018)
     
3.1   Articles of Incorporation of Quanta, Inc. (Incorporated by reference to Exhibit 3.1 to the S-1 Registration Statement filed with the Securities and Exchange Commission on March 27, 2017)
     
3.2   Bylaws of Quanta, Inc. (Incorporated by reference to Exhibit 3.2 to the S-1 Registration Statement filed with the Securities and Exchange Commission on March 27, 2017)
     
3.3   Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 4.1 to the Current Report filed with the Securities and Exchange Commission on February 5, 2019)
     
4.1   Description of Securities (incorporated by reference to Exhibit 4.1 to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 3, 2020)
     
10.1   Conflict of Interest Agreement (Incorporated by reference to Exhibit 10.1 to the S-1 Registration Statement filed with the Securities and Exchange Commission on March 27, 2017)
     
10.2   Form of Subscription Agreement dated June 2018 (Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 15, 2018)
     
10.3   Form of Warrant dated June 2018 (Incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 15, 2018)
     
10.4   Joint Venture Agreement by and between Quanta, Inc. and 2664431 Ontario Inc. dated as of September 5, 2018 (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on September 25, 2018)
     
10.5   Exclusive License and Joint Venture Agreement dated March 23, 2017 (Incorporated by reference to Exhibit 10.6 to the Transition Report on Form 10-KT filed with the Securities and Exchange Commission on April 16, 2019)
     
10.6   Quanta, Inc. 2019 Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed with the Commission on June 27, 2019)
     
10.7   Form of Employment Agreement, dated as of September 4, 2019, by and between Quanta, Inc. and Eric Rice (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed with the Commission on September 5, 2019)
     
10.8   Form, of Employment Agreement, dated as of September 4, 2019, by and between Quanta, Inc. and Jeffrey Doiron (incorporated by reference to Exhibit 10.2 of Registrant’s Current Report on Form 8-K filed with the Commission on September 5, 2019)
     
10.9   Form of Employment Agreement, dated as of September 4, 2019, by and between Quanta, Inc. and Blake Gillette (incorporated by reference to Exhibit 10.3 of Registrant’s Current Report on Form 8-K filed with the Commission on September 5, 2019)
     
10.10   Form of Employment Agreement, dated as of September 4, 2019, by and between Quanta, Inc. and Kirk Westwood (incorporated by reference to Exhibit 10.4 of Registrant’s Current Report on Form 8-K filed with the Commission on September 5, 2019)
     
10.10   Form of Securities Purchase Agreement, dated as of November 25, 2019, by and between Quanta, Inc. and the Purchasers Signatory Thereto (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed with the Commission on November 26, 2019)
     
10.11   Form of Registration Rights Agreement, dated as of November 25, 2019, by and between Quanta, Inc. and the Purchasers Signatory Thereto (incorporated by reference to Exhibit 10.2 of Registrant’s Current Report on Form 8-K filed with the Commission on November 26, 2019)
     
10.12   Ten Percent (10%) Convertible Note, dated as of November 25, 2019, issued by Quanta, Inc. in favor of Livingston Asset Management LLC (incorporated by reference to Exhibit 10.3 of Registrant’s Current Report on Form 8-K filed with the Commission on November 26, 2019)
     
14.1   Quanta, Inc. Code of Business Ethics and Conduct (Incorporated by reference to Exhibit 14.1 to the S-1 Registration Statement filed with the Securities and Exchange Commission on March 27, 2017)
     
21.1   Subsidiaries of the Company
     
31.1   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
31.2  

Certification of Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

     
32.1   Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
32.2  

Certification of Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

     
101.INS *   XBRL Instance Document.
     
101.SCH *   XBRL Taxonomy Extension Schema Document.
     
101.CAL *  

XBRL Taxonomy Extension Calculation Linkbase

Document.

     
101.DEF *  

XBRL Taxonomy Extension Definition Linkbase

Document.

     
101.LAB *   XBRL Taxonomy Extension Label Linkbase Document.
     
101.PRE *  

XBRL Taxonomy Extension Presentation Linkbase

Document.

     
104   Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

 

* Filed along with this document

 

27
 

 

The following are included as part of this Form 10-K:

 

  Page
   
Report of Independent Registered Public Accounting Firm F-2
   
Consolidated Balance Sheets as of December 31, 2020 and December 31, 2019 F-3
   
Consolidated Statements of Operations for the Years ended December 31, 2020 and December 31, 2019 F-4
   
Consolidated Statements of Changes in Stockholders’ (Deficit)/Equity for the Years ended December 31, 2020 and December 31, 2019 F-5
   
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and December 31, 2019 F-6
   
Notes to Consolidated Financial Statements F-7

  

Item 16. Form 10-K Summary.

 

None.

 

28
 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  Quanta, Inc.
     
Dated: April 15, 2021 By: /s/ Arthur Mikaelian
    Arthur Mikaelian,
    Chief Executive Officer and Chief Financial Officer (Principal Executive and Principal Accounting Officer)
     
    /s/ Phillip Sands
   

Phillip Sands,

President (and Principal Accounting Officer)

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

 

Signature   Title   Date
         
/s/ Arthur Mikaelian  

Chairman,

Chief Executive Officer and Chief Financial Officer

  April 15, 2021
Arthur Mikaelian   (Principal Executive)    
         
/s/ Phillip Sands     President (and Principal Accounting Officer)   April 15, 2021
Phillip Sands,        

 

29
 

 

QUANTA, INC.

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

  Page
   
Report of Independent Registered Public Accounting Firm F-2
   
Consolidated Balance Sheets as of December 31, 2020 and December 31, 2019 F-3
   
Consolidated Statements of Operations for the Years ended December 31, 2020 and 2019 F-4
   
Consolidated Statements of Changes in Stockholders’ (Deficit)/Equity for the Years ended December 31, 2020 and 2019 F-5
   
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and 2019 F-6
   
Notes to Consolidated Financial Statements F-7

 

F- 1

 

 

Report of Independent Registered Public Accounting Firm

 

The Shareholders and Board of Directors of Quanta, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Quanta, Inc. and Subsidiary (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, during the year ended December 31, 2020, the Company incurred a net loss and utilized cash in operations, and at December 31, 2020, had a stockholders deficit. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

We have served as the Company’s auditor since 2019.

 

/s/ Weinberg & Company, P.A.  
Los Angeles, California  
April 15, 2021  

 

F- 2

 

 

QUANTA, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

 

    December 31, 2020     December 31, 2019  
ASSETS                
Current assets:                
Cash   $ 6,270     $ 433,143  
Accounts receivable     685       28,260  
Deferred charges, related party     134,704       -  
Inventories, net of reserve     19,220       122,519  
Prepaid expenses     -       7,500  
Total current assets     160,879       591,422  
                 
Equipment, net     200,523       313,478  
Operating lease right-of-use asset, net     362,227       332,980  
Security deposits     16,883       33,652  
                 
Total assets   $ 740,512     $ 1,271,532  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)                
Current liabilities:                
Accounts payable and accrued expenses   $ 673,494     $ 73,598  
Notes payable (net of deferred finance charge of $74,817 at December 31, 2020)     482,724       55,850  
Deferred revenue, license agreement     34,818       32,742  
Operating lease liabilities     100,901       85,662  
Convertible note payable (net of discounts of $539,282 and $224,660, respectively)     1,074,814       57,340  
Lease settlement obligations     235,759       -  
Derivative liabilities     -       400,139  
Total current liabilities     2,602,510       705,331  
                 
Long term liabilities                
Deferred revenue, licenses agreement, long-term     -       35,470  
Notes payable, long term (net of deferred finance charge of $32,556 at December 31, 2020)     451,368       -  
Operating lease liabilities, long-term     294,880       251,791  
Total liabilities     3,348,758       992,592  
                 
Stockholders’ equity (deficit):                
Preferred stock, $0.001 par value; 25,000,000 shares authorized;                
Series A Preferred stock, 2,500,000 shares issued and outstanding at December 31, 2020 and none issued and outstanding at December 31, 2019     2,500       -  
Common stock, $0.001 par value; 500,000,000 shares authorized; 46,756,970 and 49,087,255 shares issued and outstanding as of December 31, 2020 and December 31, 2019, respectively     46,757       49,087  
Shares to be issued (4,875,000 and 7,318,519 shares to be issued as of December 31, 2020 and December 31, 2019, respectively)     3,641,868       2,847,868  
Additional paid-in capital     10,102,805       5,619,733  
Accumulated deficit     (16,402,176 )     (8,237,748 )
Total stockholders’(deficit) equity     (2,608,246 )     278,940  
                 
Total liabilities and stockholders’ (deficit) equity   $ 740,512     $ 1,271,532  

 

See notes to consolidated financial statements

 

F- 3

 

 

QUANTA, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

 

    Year ended
December 31, 2020
    Year ended
December 31, 2019
 
             
Sale of products, net   $ 1,124,721     $ 1,237,200  
License revenue     33,394       31,788  
Total revenue     1,158,115       1,268,988  
Cost of goods sold     281,270       303,720  
Gross profit     876,845       965,268  
                 
Operating expenses:                
Compensation and benefits     1,281,750       1,302,391  
Research and development (includes $420,000 and $343,300 to related party, respectively)     452,443       351,670  
Impairment of operating lease right of use asset     255,093       -  
Selling, general, and administrative     4,273,394       4,799,030  
Total operating expenses     6,262,680       6,453,091  
Loss from operations     (5,385,835 )     (5,487,823 )
                 
Other income (expense):                
Interest expense     (512,907 )     (226,202 )
Discount amortization     (755,538 )     -  
Extinguishment of derivative liabilities     -       145,565  
Change in fair value of derivative liabilities     101,226       19,491  
Private placement costs     (381,084 )     (238,395 )
Loss on extinguishment of debt     (1,230,290 )     -  
Other income and expense, net     (2,778,593 )     (299,541 )
                 
Net loss   $ (8,164,428 )   $ (5,787,364 )
                 
Net loss per share, basic and diluted   $ (0.14 )   $ (0.14 )
Weighted average common shares outstanding – basic and diluted     59,908,938       42,808,603  

 

See notes to consolidated financial statements.

 

F- 4

 

 

QUANTA, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE YEARS ENDED DECEMBER 31, 2020

AND 2019

 

    Series A
Preferred Stock Par value $0.001
    Common Stock
Par value $0.001
    Additional Paid In     Shares to be     Accumulated        
    Shares     Amount     Shares     Amount     Capital     Issued     Deficit     Total  
Balance, January 1, 2019     -     $ -       39,200,090     $ 39,200     $ 2,360,598     $ 306,000     $ (2,450,384 )   $ 255,414  
                                                                 
Issuance of shares previously subscribed     -       -       612,000       612       305,388       (306,000 )     -       -  
Shares issued for cash     -       -       6,330,750       6,331       2,084,044       -       -       2,090,375  
Cash received for shares to be issued     -       -       -       -       -       530,000       -       530,000  
Shares issued for cashless exercise of warrants     -       -       2,590,910       2,590       (2,590 )     -       -       -  
Fair value of shares for services     -       -       212,505       213       106,040       2,317,868       -       2,424,121  
Fair value of vested options     -       -       -       -       711,404       -       -       711,404  
Fair value of shares issued for loan fee     -       -       141,000       141       54,849       -       -       54,990  
                                                                 
Net loss     -       -       -       -       -       -       (5,787,364 )     (5,787,364 )
Balance, December 31, 2019     -       -       49,087,255       49,087       5,619,733       2,847,868       (8,237,748 )     278,940  
                                                                 
Issuance of shares previously subscribed     -       -       5,000,000       5,000       530,000       (535,000 )     -       -  
Shares issued for cash     -       -       407,408       407       74,593       50,000       -       125,000  
Fair value of shares issued to employees and officers     -       -       1,201,198       1,201       130,000       1,267,720       -       1,398,921  
Fair value of vested options     -       -       -       -       290,132       -       -       290,132  
Fair value of preferred shares issued to officers     2,500,000       2,500       -       -       462,500               -       465,000  
Beneficial conversion feature of issued convertible notes     -       -       -       -       2,556,602       -       -       2,556,602  
Fair value of shares issued for loan fees     -       -       1,127,522       1,128       93,000       11,280       -       105,408  
Shares issued for conversion of convertible notes     -       -       6,885,019       6,885       329,294       -       -       336,179  
                                                                 
Cancellation of shares     -       -       (16,951,432 )     (16,951 )     16,951       -       -       -  
                                                                 
Net loss     -       -       -       -       -       -       (8,164,428 )     (8,164,428 )
Balance, December 31, 2020     2,500,000     $ 2,500       46,756,970     $ 46,757     $ 10,102,805     $ 3,641,868     $ (16,402,176 )   $ (2,608,246 )

 

See notes to consolidated financial statements

 

F- 5

 

 

QUANTA, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

    Year Ended
December 31, 2020
    Year Ended
December 31, 2019
 
CASH FLOW FROM OPERATING ACTIVITIES:                
Net loss   $ (8,164,428 )   $ (5,787,364 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation     216,696       173,902  
Fair value of shares issued to employees and officer     1,398,921       2,424,121  
Fair value of vested options     290,132       711,404  
Fair value of preferred shares issued to officer     465,000       -  
Extinguishment of derivative liabilities     -       (145,565 )
Change in fair value of derivatives     (101,226 )     (19,491 )
Private placement costs (includes $79,748 recorded as interest expense in 2020)     460,832       238,395  
Amortization of convertible note discount     755,538       185,330  
Amortization of deferred revenue     (33,394 )     68,212  
Loss on extinguishment of debt     1,230,290       -  
Impairment of operating lease right of use asset     255,093       -  
Amortization of operating lease right-of-use asset     126,193       87,132  
Gain on settlement of accounts payable and accrued expenses     (16,000 )     -  
Accretion of premium     228,576       -  
Changes in operating assets and liabilities:                
Accounts receivable     27,575       (8,699 )
Deferred charges-related party     (134,704 )     -  
Inventories     103,299       (122,519 )
Prepaid expenses     7,500       (7,500 )
Security deposits     16,769
         
Accounts payable and accrued liabilities     749,166       63,981  
Operating lease liabilities     -       (82,659 )
Net cash used in operating activities     (2,118,172 )     (2,221,320 )
                 
CASH FLOW FROM INVESTING ACTIVITIES:                
Purchase of equipment     (103,741 )     (114,500 )
Payment of security deposit     -       (16,882 )
Net cash used in investment activities     (103,741 )     (131,382 )
                 
CASH FLOW FROM FINANCING ACTIVITIES:                
Proceeds from shares issued for cash     125,000       2,090,375  
Proceeds from shares to be issued     50,000       530,000  
Proceeds from convertibles notes payable     1,098,840       326,800  
Proceeds from notes payable     922,000       -  
Principal payments of notes payable     (118,800 )     (124,150 )
Principal payment of convertible notes payable     (282,000 )     (73,000 )
Net cash provided by financing activities     1,795,040       2,750,025  
Increase (decrease) in cash     (426,873 )     397,323  
Cash, beginning of year     433,143       35,820  
Cash, end of year   $ 6,270     $ 433,143  
                 
Supplemental Disclosures of Cash Flow Information:                
Cash paid for taxes   $ -     $ 800  
Cash paid for Interest   $ 17,000     $ 15,080  
                 
Non-cash investing and financing activities                
Derivative liabilities allocated to convertible note discount   $ -     $ 326,800  
Original issue discount   $ 43,000     $ 28,200  
Fair value of shares issued for loan fee   $ 76,000     $ 54,990  
Shares issued for cashless exercise of warrant   $ -     $ 2,590  
Recognition of right-of-use asset and liability   $ 432,000     $ 410,000  
Convertible notes issued for fees   $ 30,000     $ -  
Recognition of beneficial conversion feature   $ 2,556,602     $ -  
Shares issued for fee discount   $ 88,000     $ -  
Derivative allocated to discount   $ 183,000     $ -  
Issuance of shares to be issued   $ 535,000     $ -  
Fair value of shares to be issued for loan fee   $

11,280

    $ -  

 

See notes to consolidated financial statements

 

F- 6

 

 

QUANTA, INC. AND SUBSIDIARY

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.

 

F- 7

 

 

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,

 

F- 8

 

 

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:

 

F- 9

 

 

   

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.

 

F- 10

 

 

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.

 

F- 11

 

 

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:

 

F- 12

 

 

   

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.

 

F- 13

 

 

  (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.

 

F- 14

 

 

   

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  

 

F- 15

 

 

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.

 

F- 16

 

 

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.

 

F- 17

 

 

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.

 

F- 18

 

 

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     -     $ -       -  

 

F- 19

 

 

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.

 

F- 20

 

 

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.

 

F- 21

 

 

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.

 

F- 22

 

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