NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED DECEMBER 31, 2018
AND
THE YEAR ENDED MARCH 31, 2018
NOTE
1 – DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Quanta,
Inc (“the Company”) was incorporated as Freight Solution, Inc. on April 28, 2016 in the State of Nevada.
Effective June 6, 2018, Freights Solution
and Bioanomaly, Inc. (“Bioanomaly”) entered in a merger agreement. 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. Immediately following the merger, the Board of Directors consisted of three members appointed
by Bioanomaly and all former members of Freight Solution’s Board and former officers resigned.
The merger agreement contains customary
representation and warranties of Freight Solution and, as applicable, Bioanomaly for like transactions. As a result of the merger,
a change in control occurred. The merger will be treated as a reverse merger and recapitalization for financial reporting purposes
with Bioanomaly deemed to be the accounting acquirer and Freight Solution deemed to be the legal acquirer. The historical financial
statements of Freight Solution before the merger have been replaced with the historical financial statements of Bioanomaly before
the merger in all future filings with the Securities and Exchange Commission (the “SEC”).
The
Company incurred $495,760 of finders, legal, and advisory fees related to the merger. As the merger is considered a capital transaction
in substance, these costs were charged directly to additional paid-in capital as a cost of the merger.
On
July 11, 2018, the Company changed its name to Quanta, Inc. The Company is an applied science business focused on increasing energy
levels of plant matter and increasing performance within the human body.
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 nine months ended December 31, 2018, the Company incurred a net loss of $1,613,972 and used cash in operating activities
of $1,028,501, and at December 31, 2018, the Company had a had a working capital deficiency of $134,236. 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, 2018, the Company had cash on hand in the amount of $35,820. Subsequent to the December 31, 2018 the Company received
$230,365 for subscriptions for shares of common stock to be issued in a private placement. 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 stock
holders, in the case of equity financing
Basis
of presentation and change in fiscal year
The
accompanying consolidated financial statements have been prepared in accordance with accounting standards generally accepted in
the United States of America, In December 2018, the Board of Directors of the Company approved a change in the Company’s
fiscal year end from March 31 to December 31. The Company’s fiscal year now begins on January 1 and ends on December 31
of each year, starting on January 1, 2019. The required transition period of April 1, 2018 to December 31, 2018 is included in
the consolidated financial statements. For comparative purposes, the unaudited consolidated statements of operations and consolidated
statements of cash flows for the nine months ended December 31, 2017 are also presented.
The
accompanying unaudited consolidated statements of operations and consolidated statements of cash flows for the nine months ended
December 31, 2017 have been prepared in accordance with accounting principles generally accepted in the United States of America
(“U.S. GAAP”) for interim financial information and with the rules and regulations of the United States Securities
and Exchange Commission (the “SEC”) to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position,
results of operations and cash flows for the interim periods have been included. The results of operations for the nine months
ended December 31, 2017 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending
March 31, 2018. These financial statements should be read in conjunction with the financial statements of the Company for the
year ended March 31, 2018 and notes thereto contained within this Form 10-KT.
Principles
of Consolidation
The
consolidated financial statements include the accounts of Quanta Inc, and its wholly-owned subsidiary, Bioanomaly, Inc. Intercompany
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, impairment analysis of long-term assets, valuation
allowance on deferred income taxes, assumptions used in valuing stock instruments issued for services, and the accrual of potential
liabilities. Actual results may differ from these estimates.
Cash
and Cash Equivalents
The
Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents.
Equipment
Equipment
is stated at cost less accumulated depreciation and amortization. Expenditures for major additions and improvements are capitalized
and minor replacements, maintenance, and repairs 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. Depreciation is provided over the estimated useful lives of the related assets using
the straight-line method for financial statement purposes.
Equipment
under construction includes equipment which is not ready for its intended use. No depreciation is applied to equipment under construction.
Once construction is complete and the equipment is ready for its intended use and placed into service, the equipment will begin
to be depreciated.
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 nine months ended December 31, 2018
and the year ended March 31, 2018, the Company determined there were no indicators of impairment of its property and equipment.
Revenue
Prior
to April 1, 2018, the Company recognized its revenue in accordance with Accounting Standards Codification (ASC) 605
Revenue
Recognition
, upon the delivery of its services or products when: (1) delivery had occurred or services rendered; (2) persuasive
evidence of an arrangement existed; (3) there are no continuing obligations to the customer; and (4) the collection of related
accounts receivable was probable
Effective
April 1, 2018, the Company adopted the guidance of Accounting Standards Codification (“ASC”) 606,
Revenue from
Contracts.
The implementation of ASC 606 did not have a material impact on the Company’s consolidated financial statements.
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.
The
Company’s revenue consists of revenue from sales of its CBD products. Generally, the Company’s performance obligations
are transferred to the customer at a point in time, typically upon delivery of products. The Company offers no discounts, rebates,
rights of return, or other allowances to clients which would result in the establishment of reserves against service revenue.
Additionally, to date, the Company has not incurred incremental costs in obtaining a client contract.
Cost
of revenue includes direct costs and fees related to the sale of our products.
Accounts
Receivable
Accounts
receivable are recorded at the invoiced amount less an allowance for any uncollectible accounts if deemed necessary, do not bear
interest, and payments are generally due within thirty to forty-five days of invoicing. The carrying value of accounts receivable
approximates their fair value. 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, 2018 and March 31, 2018, the Company did not record any allowance for uncollectible
accounts.
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
Compensation
The
Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions, and
for services and for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees
based on the authoritative guidance provided by the Financial Accounting Standards Board (FASB) whereas the value of the award
is measured on the date of grant and recognized as compensation expense on the straight-line basis over the vesting period. The
Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative
guidance of the FASB whereas the value of the stock compensation is based upon the measurement date as determined at either a)
the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity
instruments is complete. Options granted to non-employees are revalued each reporting period to determine the amount to be recorded
as an expense in the respective period. As the options vest, they are valued on each vesting date and an adjustment is recorded
for the difference between the value already recorded and the then current value on the date of vesting. In certain circumstances
where there are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based
compensation charge is recorded in the period of the measurement date.
The
fair value of the Company’s stock option and warrant grants are 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 warrants, 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.
Net
Loss per Share
Basic
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. 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.
At
December 31, 2018 and March 31, 2018, there were 3,000,000 and 3,771,000, respectively, of potentially dilutive shares outstanding
that have been excluded from calculation of weighted average shares as effect would have been anti-dilutive.
Advertising
costs
Advertising
costs are expensed as incurred. During the nine-month period ended December 31, 2018 and year ended March 31, 2018, advertising
costs totaled $27,529 and $21,628, respectively.
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 and cash equivalents, accounts receivable, accounts
payable and accrued liabilities, and notes payable, approximate their fair values because of the short-term nature of these financial
instruments
Concentrations
of risks
For
the nine months ended December 31, 2018 and year ended March 31, 2018, no customer accounted for 10% or more of revenue or accounts
receivable at period-end.
For
the nine months ended December 31, 2018 and year ended March 31, 2018, no vendor accounted for 10% or more of the Company’s
cost of revenues, 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. At December
31, 2018, the Company did not have cash deposits that exceeded the federally insured limit of $250,000. The Company believes that
no significant concentration of credit risk exists with respect to its cash balances because of its assessment of the creditworthiness
and financial viability of the financial institution.
Research
and Development Costs
Costs
incurred for research and development are expensed as incurred. The salaries, benefits, and overhead costs of personnel conducting
research and development of the Company’s products comprise research and development expenses. Purchased materials that
do not have an alternative future use are also expensed.
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 and President, who reviews operating results to make decisions about allocating resources and assessing performance for
the entire Company. Existing guidance, which is based on a management approach to segment reporting, establishes requirements
to report selected segment information quarterly and to report annually entity-wide disclosures about products and services, major
customers, and the countries in which the entity holds material assets and reports revenue. All material operating units qualify
for aggregation under “Segment Reporting” due to their similar customer base and similarities in economic characteristics;
nature of products and services; and procurement, manufacturing and distribution processes. Since the Company operates in one
segment, all financial information required by “Segment Reporting” can be found in the accompanying financial statements.
Recent
Accounting Pronouncements
In
February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02,
Leases
,
which was subsequently amended in 2018 by ASU 2018-10, ASU 2018-11 and ASU 2018-20 (collectively, Topic 842). Topic 842 will require
the recognition of a right-of-use asset and a corresponding lease liability, initially measured at the present value of the lease
payments, for all leases with terms longer than 12 months. For operating leases, the asset and liability will be expensed over
the lease term on a straight-line basis, with all cash flows included in the operating section of the statement of cash flows.
For finance leases, interest on the lease liability will be recognized separately from the amortization of the right-of-use asset
in the statement of comprehensive income and the repayment of the principal portion of the lease liability will be classified
as a financing activity while the interest component will be included in the operating section of the statement of cash flows.
Topic 842 is effective for annual and interim reporting periods beginning after December 15, 2018. Early adoption is permitted.
Upon adoption, leases will be recognized and measured at the beginning of the earliest period presented using a modified retrospective
approach. Topic 842 allows for a cumulative-effect adjustment in the period the new lease standard is adopted and will not require
restatement of prior periods. The Company is in the process of evaluating the impact of Topic 842 on the Company’s financial
statements and disclosures, though the adoption is expected to result in an increase in the assets and liabilities reflected on
the Company’s balance sheets.
In
June 2018, the FASB issued ASU 2018-07,
“Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee
Share-Based Payment Accounting.”
The ASU expands the scope of Topic 718 to include share-based payment transactions
for acquiring goods and services from nonemployees. The ASU also clarifies that Topic 718 does not apply to share-based payments
used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to
customers as part of a contract accounted for under Revenue from Contracts with Customers (Topic 606). The guidance is effective
for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted.
The Company is currently assessing the effect that the ASU will have on our financial position, results of operations, and disclosures.
Other
recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified
Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact
on the Company’s present or future consolidated financial statements.
NOTE
2 - EQUIPMENT
Equipment,
stated at cost, less accumulated depreciation consisted of the following:
|
|
December
31, 2018
|
|
|
March
31, 2018
|
|
|
|
|
|
|
|
|
Machinery-technology equipment
|
|
$
|
347,500
|
|
|
$
|
347,500
|
|
Machinery-technology
equipment under construction
|
|
|
175,000
|
|
|
|
-
|
|
|
|
|
522,500
|
|
|
|
347,500
|
|
Less
accumulated depreciation
|
|
|
(149,620
|
)
|
|
|
(62,745
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
372,880
|
|
|
$
|
284,755
|
|
Depreciation
expense for the nine months ended December 31, 2018 and year ended March 31, 2018 was $86,875 and $62,745, respectively. As of
December 31, 2018, the equipment under construction is approximately 50% complete, and is expected to be completed and placed
into service during the year ended December 31, 2019.
NOTE
3 – NOTES PAYABLE
|
|
As of
|
|
|
As of
|
|
|
|
December
31, 2018
|
|
|
March
31, 2018
|
|
|
|
|
|
|
|
|
Note payable, due January
13, 2019, interest at 8.3% per annum, secured by all the assets of the Company. The Company did not pay the note when due
and is currently working with the note holder to extend the due date.
|
|
$
|
80,000
|
|
|
$
|
80,000
|
|
|
|
|
|
|
|
|
|
|
Note payable,
unsecured, due January 6, 2019, interest at 10% per year. The Company did not pay the note when due and is currently working
with the note holder to extend the due date.
|
|
|
100,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total notes payable
(all current portion)
|
|
$
|
180,000
|
|
|
$
|
80,000
|
|
NOTE
4 – CONVERTIBLE NOTES PAYABLE
During
the year ended March 31, 2018, the Company issued nine convertible notes payable for an aggregate of $1,015,000. Each note payable
is unsecured, accrues interest at 5% compounded annually, and matures 24 months from the date issued. The conversion price for
each note is to be at the lower of (i) a 20% discount to the pricing of shares in a financing or (ii) at a price per share implied
by the valuation cap determined for each note. The Company reviewed the guidance of ASC 480-10-25-14, which requires liability
accounting for a financial instrument that embodies an unconditional obligation to transfer a variable number of equity shares
if the monetary value of the obligation at inception is based solely or predominantly on any of the following: (a) a fixed monetary
amount known at inception, (b) variations in something other than the fair value of the issuer’s equity shares or (c) variations
inversely related to changes in the fair value of the issuer’s equity shares.
Upon
issuance, the Company anticipated that the convertible notes will be predominately paid off by the issuance of the Company’s
equity shares. Accordingly, the Company determined that the Company’s obligation associated with the convertible notes payable
are monetary amounts fixed at inception to be settled by a variable number of equity shares for the convertible notes. The Company
determined that the fair value of the convertible notes was $1,181,250 which reflects the 20% discount to the conversion price.
The convertible notes were being accreted to this fair value over the respective two year terms of the notes. At March 31, 2018,
accretion of $41,000 was recorded and the balance of the convertible notes was $1,056,000.
On
May 17, 2018, the Company and the convertible note holders entered into a conversion and settlement agreement whereby each note
holder agreed to settle the outstanding principal of their note in exchange for shares of common stock of the Company. The amount
of shares issued was agreed upon separately by each shareholder and the Company. The convertible notes payable principal totaled
$1,015,000 and were converted into a total of 3,771,040 shares of common stock, at conversion prices ranging from $0.30 per share
to $1.04 per share. On May 17, 2018, the convertible notes and accreted balance totaled $1,056,000, and the shares
issued were measured at their fair value of $1,015,000. The difference of $41,000 was recorded as gain on settlement of
debt.
NOTE
5 – INCOME TAXES
On
December 22, 2017, the Tax Reform Act was signed into law which significantly changed U.S. tax law by, among other things, lowering
the corporate income tax rate from 35% to 21%, effective January 1, 2018; allowing for the acceleration of expensing for certain
business assets; requiring companies to pay a one-time transition tax on certain un-remitted earnings of foreign subsidiaries;
and eliminating U.S. federal income tax on dividends from foreign subsidiaries. The Company has no tax provision for any period
presented due to its history of operating losses. As of December 31, 2018, the Company had deferred tax assets of approximately
$498,000, resulting from certain temporary differences and net operating loss (“NOL”) carry-forwards of approximately
$2,370,000, which are available to offset future taxable income. Future tax benefits which may arise as a result of these losses
have not been recognized in these financial statements, as management has determined that their realization is not likely to occur
and accordingly, the Company has recorded a valuation allowance for the deferred tax asset relating to these tax loss carry-forwards.
Due to the change in control of the Company (see Note 1), there are significant limitations on the use of the NOLs in future periods.
The
income tax provision consists of the following for the nine months ended December 31, 2018 and the year ended March 31, 2018:
|
|
|
December
31, 2018
|
|
|
|
March
31, 2018
|
|
Federal
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
State
|
|
|
|
|
|
|
|
|
Current
|
|
|
-
|
|
|
|
-
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Income
tax provision
|
|
$
|
-
|
|
|
$
|
-
|
|
Components
of deferred tax assets as of December 31, 2018 and March 31, 2018 are as follows:
|
|
December
31, 2018
|
|
|
March
31, 2018
|
|
Net deferred tax assets – non-current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOL
carry-forwards
|
|
$
|
378,000
|
|
|
$
|
162,000
|
|
Share-based compensation
|
|
|
120,000
|
|
|
|
-
|
|
Less
valuation allowance
|
|
|
(498,000
|
)
|
|
|
(162,000
|
)
|
|
|
|
|
|
|
|
|
|
Deferred
tax assets, net of valuation allowance
|
|
$
|
-
|
|
|
$
|
-
|
|
A
reconciliation of the federal statutory income tax rate and the effective income tax rate as a percentage of income before income
tax provision is as follows:
|
|
For
the nine
months
ended
December
31, 2018
|
|
|
For
the year
ended
March
31, 2018
|
|
|
|
|
|
|
|
|
Federal statutory income
tax rate
|
|
|
21.0
|
%
|
|
|
30.0
|
%
|
|
|
|
|
|
|
|
|
|
Change in valuation
allowance
|
|
|
(21.0
|
)
|
|
|
(30.0
|
)
|
|
|
|
|
|
|
|
|
|
Effective income
tax rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
The
Company’s operations are based in California and it is subject to Federal and California state income tax. Tax years after
2014 are open to examination by United States and state tax authorities.
The
Company adopted accounting rules which address the determination of whether tax benefits claimed or expected to be claimed on
a tax return should be recorded in the financial statements. Under these rules, the Company may recognize the tax benefit from
an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing
authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such
a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate
settlement. These accounting rules also provide guidance on de-recognition, classification, interest and penalties on income taxes,
accounting in interim periods and requires increased disclosures. As of December 31, 2018 and March 31, 2018, no liability for
unrecognized tax benefits was required to be recorded.
NOTE
6 – STOCKHOLDERS’ EQUITY (DEFICIT)
The
Company’s authorized capital consists of 125,000,000 shares, of which 100,000,000 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.
No shares of preferred stock are currently outstanding. 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.
During
the nine months ended December 31, 2018
, the Company and convertible
note holders entered into conversion and settlement agreements whereby $1,015,000 of convertible notes were converted into a
total of 3,771,040 shares of common stock, at conversion prices ranging from $0.30 per share to $1.04 per share.
On
June 6, 2018, the Company sold a total of 6,500,090 shares of common stock in private placements at $0.20 per share, for aggregate
gross proceeds of $1,300,018.
During
the nine months ended December 31, 2018, the Company issued 520,150 shares of common stock to two individuals for services. The
shares were valued based on contemporaneous sales of the Company’s common stock at prices ranging from $0.20 to $0.50 per
share for total fair value of $194,030. During the nine months ended December 31, 2018, the Company recognized compensation costs
of $194,030 related to these shares, which is included in selling, general, and administrative expense on the accompanying consolidated
statement of operations. There were no shares of common stock issued for services during the year ended March 31, 2018.
During
the nine months ended December 31, 2018, the Company received $306,000 for subscriptions to purchase 612,000 shares of its common
stock in a private placement at a price of $0.50 per share. Subsequent to December 31, 2018 the Company received an additional
$230,365 in subscriptions for an additional 467,730 shares of common stock to be issued. As of December 31, 2018, and through
the date of the financial statements, the shares had not been issued. The private placement offering is expected to terminate
upon the sale of 3,000,000 shares of common stock and the Company is obligated to issue the shares once the private placement
offering is completed.
NOTE
7 – WARRANTS
On
June 6, 2018, the Company issued warrants to purchase 3,000,000 shares of its common stock to two consultants for services with
a total fair value of $376,510 determined using the Black-Scholes-Merton Option Pricing model. The options are exercisable at
$0.30 per share, were vested immediately, and expire in June 2022. During the nine months ended December 31, 2018, the Company
recognized compensation costs of $376,510 related to these warrants which is included in selling, general, and administrative
expense on the accompanying consolidated statement of operations. There were no warrants issued during the year ended March 31,
2018.
The
Black-Scholes-Merton inputs used were as follows: risk free interest rate of 1.7%, expected volatility of 100%, expected term
of 4.0 years, and expected dividend rate of 0%. The risk-free interest rate was based on rates established by the Federal Reserve
Bank. The expected volatility is based on other companies that with similar operations and size. The expected life of the warrants
was based on the remaining terms of the warrants. 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.
There
were no warrants outstanding at March 31, 2018. The table below summarizes the Company’s warrant activities for the nine
months ended December 31, 2018:
|
|
Number
of
warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Contractual
Life
in
Years
|
|
|
|
|
|
|
|
|
|
|
|
Warrants Outstanding and Exercisable as of March 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
Granted
|
|
|
3,000,000
|
|
|
$
|
0.30
|
|
|
|
4.00
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
Warrants Outstanding and Exercisable
as of December 31, 2018
|
|
|
3,000,000
|
|
|
$
|
0.30
|
|
|
|
4.00
|
|
The
following table summarizes information concerning the Company’s stock warrants as of December 31, 2018:
|
|
Warrants
Outstanding
|
|
|
Warrants
Exercisable
|
|
Exercise Prices
|
|
Number
Outstanding
|
|
|
Average
Remaining
Contractual Life
(in years)
|
|
|
Weighted
Average
Exercise Price
|
|
|
Number
Exercisable
|
|
|
Average
Remaining
Contractual Life
(in years)
|
|
|
Weighted
Average
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.30
|
|
|
3,000,000
|
|
|
|
4.00
|
|
|
$
|
0.30
|
|
|
|
3,000,000
|
|
|
|
4.00
|
|
|
$
|
0.30
|
|
At
December 31, 2018, intrinsic value of the warrants was approximately $600,000. There were no warrants outstanding at March 31,
2018.
NOTE
8 – COMMITMENTS AND CONTINGENCIES
The
Company has a profit sharing agreement with an individual in consideration of the Company’s exclusive use of patented technology
developed by the individual. Pursuant to the agreement, profits (as defined) from the Company’s operations will be allocated
50% to the Company and 50% to the individual. For the nine months ended December 31, 2018 and the year ended March 31, 2018, the
Company incurred net losses and therefore no allocation of profit is due.
On
June 6, 2018, the Company entered into a noncancelable operating lease for its headquarters office requiring payments of $8,385
per month, with lease payments increasing 5% each year, and ending on July 31, 2023. As of December 31, 2018, the Company’s
future minimum rental payments for its headquarters office are as follows:
Year ending December 31:
|
|
|
|
2019
|
|
$
|
102,716
|
|
2020
|
|
|
108,292
|
|
2021
|
|
|
113,707
|
|
2022
|
|
|
119,392
|
|
2023
|
|
|
61,152
|
|
|
|
|
|
|
Total
|
|
$
|
505,259
|
|