As
filed with the Securities and Exchange Commission on February 9, 2021
File
No. 333-252663
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-1/A
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
QUANTA,
INC.
Nevada
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7373
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81-2749032
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(State
or jurisdiction of
Incorporation
or organization)
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(Primary
Standard Industrial
Classification
Code)
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(I.R.S.
Employer
Identification
No.)
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3606
W. Magnolia Blvd.,
Burbank,
CA 91505
(818)
659-8052
(Address,
including zip code, and telephone number, including area code,
of
registrant’s principle executive offices)
(Name,
address, including zip code, and telephone number, including area code,
of
agent for service)
Approximate
date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.
If
any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933 check the following box: [ ]
If
this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration statement number of the earlier effective registration statement
for the same offering. [ ]
If
this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If
this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
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. (Check one):
Large
accelerated filer [ ]
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Accelerated
filer [ ]
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Non-accelerated
filer [X]
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Smaller
reporting company [X]
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Emerging
growth company [X]
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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 7(a)(2)(B) of the Securities Act.
[ ]
Calculation
of Registration Fee
Title
of each Class of Securities
To
be Registered
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Amount
to
be
registered(1)
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Proposed
maximum
Offering
price
per
share
(2)(3)(4)(5)
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Proposed
maximum
aggregate
Offering
price
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Amount
of
registration
fee
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Common Stock, par value
$0.001 per share,
to be offered by the Registrant
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50,000,000
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$
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0.04
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2,000,000
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$
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218.20
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Total
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50,000,000
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$
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0.04
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2,000,000
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$
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218.20
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(1)
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In
the event of a stock split, stock dividend or similar transaction involving our common stock, the number of shares registered
shall automatically be increased to cover the additional shares of common stock issuable pursuant to Rule 416 under the Securities
Act of 1933, as amended.
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(2)
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Estimated
solely for the purpose of computing the registration fee pursuant to Rule 457 of the Securities Act.
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(3)
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Offering
price has been arbitrarily determined by the Board of Directors.
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(4)
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The
offering price has been estimated solely for the purpose of computing the amount of the registration fee in accordance with
Rule 457(o).
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The
Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until
the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective
on such date as the Commission, acting pursuant to said Section 8(a), may determine.
REGISTRATION
STATEMENT PRELIMINARY PROSPECTUS
PRELIMINARY
PROSPECTUS
DATED
FEBRUARY 9, 2021
QUANTA,
INC.
50,000,000
Shares of Common Stock
3606
W. Magnolia Blvd.
Burbank,
CA 91505
(818)
659-8052
www.buyquanta.com
We
are offering (the “Offering”) up to 50,000,000 (the “Maximum Offering”) shares (the “Shares”)
of our Common Stock, par value $0.001 per share (the “Common Stock”) on a “best efforts” basis at a fixed
offering price of $0.04 per share. The minimum purchase requirement per investor is $1,000 (25,000 shares); however,
we can waive the minimum purchase requirement on a case-by-case basis in our sole discretion. See “Securities Being
Offered” beginning on page 28.
Investing
in our Common Stock involves a high degree of risk. These are speculative securities. You should purchase these securities only
if you can afford a complete loss of your investment. See “Risk Factors” starting on page 3 for a discussion
of certain risks that you should consider in connection with an investment in our Common Stock.
Our
Common Stock currently trades on the OTC Market’s Pinks under the symbol “QNTA” and the closing price of our
common stock on February 5, 2021 was $0.10. Our common stock currently trades on a sporadic and limited basis. Our
Board of Directors used its business judgment in setting the $0.04 purchase price per share to the Company as consideration
for the stock to be issued in this offering. The purchase price per share bears no relationship to our book value or any other
measure of our current value or worth.
We
expect to commence the sale of the Shares as soon as practicable after the Registration Statement of which this Prospectus is
a part (the “Registration Statement”) is declared effective by the United States Securities and Exchange Commission
(the “SEC”). The Offering will terminate on the earlier of (i) 365 days after the Registration Statement is declared
effective by the SEC, (ii) the date on which the Maximum Offering is sold, or (iii) when the Company elects to terminate the offering
for any reason (in each such case, the “Termination Date”).
There
is no minimum offering amount that we must sell before we close. We have made no arrangements to place subscription proceeds in
escrow, trust or a similar account, which means that we have the right, subject to applicable securities laws, to begin applying
“dollar one” of the proceeds from the Offering towards our business strategy, including, without limitation, research
and development expenses, offering expenses, working capital and general corporate purposes and other uses, as more specifically
set forth in the “Use of Proceeds to Issuer” section of this S-1. We will hold closings, from time to time until the
Termination Date, upon the receipt of investors’ subscriptions and acceptance of such subscriptions by the Company. Subscriptions
made by investors pursuant to subscription agreements in this Offering are irrevocable.
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Price
to Public
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Underwriting
Discount and Commissions(1)
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Proceeds
to
the
Company(2)
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Per Share
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$
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0.04
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-
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$
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0.04
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Maximum Offering(3)
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$
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2,000,000
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-
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$
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2,000,000
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(1)
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The
minimum investment amount for each subscription is 25,000 shares or $1,000. The Offering may be made, in management’s
discretion, directly to investors by the management of the Company on a “best efforts” basis. We do not intend
to use commissioned sales agents or underwriters; however, we reserve the right to offer the Shares through broker-dealers
who are registered with the Financial Industry Regulatory Authority (“FINRA”). We may be required to retain a
broker-dealer or register as an issuer-dealer and/or agent under the blue sky laws of certain states in order to make offers
to sell our Shares in those states. There can be no guarantee that we will be approved as an issuer-dealer and/or agent in
any or all of the states which we determine require such registration. If we do not engage a broker-dealer or register as
an issuer-dealer and/or agent in the foregoing states, we will not offer and sell the Shares in such states.
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(2)
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The
amounts shown are before deducting offering costs to us, which include legal, accounting, printing, due diligence, marketing,
consulting, selling and other costs incurred in this offering, estimated to be $22,500. No proceeds of the Offering will be
provided to other persons, except as set forth herein.
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(3)
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The
Shares are being offered pursuant to The Securities Act of 1933. The Company is following the “Form S-1 Registration
Statement” format of disclosure under the Securities Act of 1933. We have the option in our sole discretion to accept
less than the minimum investment.
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TABLE
OF CONTENTS
IMPORTANT
INFORMATION ABOUT THIS PROSPECTUS
We
are offering to sell, and seeking offers to buy, our securities only in jurisdictions where such offers and sales are permitted.
Please carefully read the information in this Prospectus and any accompanying Prospectus supplements, which we refer to collectively
as the “S-1.” This S-1 contains all of the representations by us concerning this Offering, and no person shall
make different or broader statements than those contained herein. You should rely only on the information contained in the S-1.
We have not authorized anyone to provide you with any information other than the information contained in this S-1. The information
contained in this S-1 is accurate only as of its date or as of the respective dates of any documents or other information incorporated
herein by reference, regardless of the time of its delivery or of any sale or delivery of our securities. Neither the delivery
of this S-1 nor any sale or delivery of our securities shall, under any circumstances, imply that there has been no change in
our affairs since the date of this S-1. This S-1 will be updated and made available for delivery to the extent required by the
federal securities laws.
This
Prospectus is part of the Registration Statement that we filed with the SEC using a continuous offering process. Periodically,
we may provide a Prospectus supplement that would add, update or change information contained in this S-1. Any statement that
we make in this S-1 will be modified or superseded by any inconsistent statement made by us in a subsequent Prospectus supplement.
The Registration Statement we filed with the SEC includes exhibits that provide more detailed descriptions of the matters discussed
in this S-1. You should read this S-1 and the related exhibits filed with the SEC and any Prospectus supplement, together with
additional information contained in our annual reports, semi-annual reports and other reports and information statements that
we will file periodically with the SEC. The Registration Statement and all supplements and reports that we have filed or will
file in the future can be read at the SEC website, www.sec.gov.
Unless
otherwise indicated, data contained in this S-1 concerning the business of the Company is based on information from various public
sources. Although we believe that such data is generally reliable, such information is inherently imprecise, and our estimates
and expectations based on this data involve a number of assumptions and limitations. As a result, you are cautioned not to give
undue weight to such data, estimates or expectations.
In
this S-1, unless the context indicates otherwise, references to the “Company,” “we,” “our,”
and “us” refer to the activities of and the assets and liabilities of the business and operations of Quanta, Inc.,
a Nevada corporation.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
S-1 includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding
future events or future results and therefore are, or may be deemed to be, “forward-looking statements.” All statements
other than statements of historical facts contained in this S-1 may be forward-looking statements. These forward-looking statements
can generally be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,”
“continues,” “anticipates,” “expects,” “seeks,” “projects,” “intends,”
“plans,” “may,” “will,” “would” or “should” or, in each case, their
negative or other variations or comparable terminology. They appear in a number of places throughout this S-1, and include statements
regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial
condition, liquidity, prospects, growth, strategies, future acquisitions and the industry in which we operate.
By
their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances
that may or may not occur in the future. We believe that these risks and uncertainties include, but are not limited to, those
described in the “Risk Factors” section of this S-1. Those factors should not be construed as exhaustive and should
be read with the other cautionary statements in this S-1.
Although
we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking
statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity,
and industry developments may differ materially from statements made in or suggested by the forward-looking statements contained
in this S-1. The matters summarized under “Summary,” “Risk Factors,” “Management’s Discussion
and Analysis of Financial Condition and Results of Operations,” “Description of Business” and elsewhere in this
S-1 constitute forward-looking statements and our actual results may differ significantly from those contained in our forward-looking
statements. In addition, even if our results of operations, financial condition and liquidity, and industry developments are consistent
with the forward-looking statements contained in this S-1, those results or developments may not be indicative of results or developments
in subsequent periods.
In
light of these risks and uncertainties, we caution you not to place undue reliance on these forward-looking statements. Any forward-looking
statement that we make in this S-1 speaks only as of the date of such statement, and we undertake no obligation to update any
forward-looking statement or to publicly announce the results of any revision to any of those statements to reflect future events
or developments, except as required by applicable law. Comparisons of results for current and any prior periods are not intended
to express any future trends or indications of future performance, unless specifically expressed as such, and should only be viewed
as historical data.
SUMMARY
This
summary highlights selected information contained elsewhere in this S-1. This summary is not complete and does not contain all
the information that you should consider before deciding whether to invest in our Common Stock. You should carefully read the
entire S-1, including the risks associated with an investment in the Company discussed in the “Risk Factors”
section of this S-1, before making an investment decision. Some of the statements in this S-1 are forward-looking statements.
See the section entitled “Cautionary Note Regarding Forward-Looking Statements” above.
Business
Overview
We
are an applied science company founded in 2016, focusing 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.
Company
Information
Our
principal executive offices and mailing address is Quanta, Inc., 3606 W. Magnolia Blvd., Burbank, CA 91505, and our telephone
number is (818) 659-8052. Our website address is www.buyquanta.com. The information contained therein or accessible thereby
shall not be deemed to be incorporated into this Prospectus.
An
investment in our securities involves a high degree of risk. Our business and our ability to execute our business strategy are
subject to a number of risks as more fully described in the section titled “Risk Factors” beginning
on page 3. These risks include, among others:
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We
have incurred operating losses since we began operations and may not be profitable in the future. We will require additional
financing to support our on-going operations;
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The
Company’s independent registered public accounting firm, in their report on the Company’s December 31, 2019 audited
financial statements, raised substantial doubt about the Company’s ability to continue as a going concern;
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We
will likely incur significant costs and obligations in relation to our on-going and anticipated business operations;
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We
are reliant on key employees in the management of our business and loss of their services could materially adversely affect
our business;
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Our
business is heavily regulated which could have a material adverse effect on our results of operations and financial condition;
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We
have identified material weaknesses in our internal control over financial reporting that, if not properly remediated, could
result in material misstatements in our financial statements in future periods;
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Our
directors and officers control a large portion of our Common Stock and other voting securities;
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Because
our common stock is deemed a low-priced “Penny” stock, an investment in our common stock should be considered
high risk and subject to marketability restrictions;
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Our
stock price may be volatile and you may not be able to sell your shares for more than what you paid; and
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The
other factors described in “Risk Factors.”
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THE
OFFERING
Issuer:
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Quanta,
Inc., a Nevada corporation.
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Shares
Offered:
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A
maximum of 50,000,000 Shares of our Common Stock at an offering price of $0.04 per Share.
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Number
of shares of Common Stock Outstanding before the Offering:
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47,256,970
shares of Common Stock.
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Number
of shares of Common Stock to be Outstanding after the Offering:
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97,256,970
shares of Common Stock if the Maximum Offering is sold.
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Price
per Share:
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$0.04
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Maximum
Offering:
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50,000,000
Shares of our Common Stock, at an offering price of $0.04 per Share, for total gross proceeds of $2,000,000.
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Minimum
Purchase:
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$1,000
(25,000 shares) although we reserve the right to accept subscriptions for lesser amounts
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Voting
Rights:
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Common
Stock – one vote per share
Series
A Preferred Stock – as a class has voting power equal to 51% of the total votes of the Common and Preferred Stock
that is outstanding
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Use
of Proceeds:
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If
we sell all of the 50,000,000 Shares being offered, our net proceeds (after estimated Offering expenses) will be approximately
$1,977,500. We will use these net proceeds for research and development expenses, offering expenses, working capital
and general corporate purposes, and such other purposes described in the “Use of Proceeds to Issuer”
section of this S-1.
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Risk
Factors:
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Investing
in our Common Stock involves a high degree of risk. See “Risk Factors” starting on page 3.
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Dividends:
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The
Company has not declared or paid a cash dividend to stockholders since it was organized and does not intend to pay dividends
in the foreseeable future. The Board of Directors presently intends to retain any earnings to finance our operations and does
not expect to authorize cash dividends in the foreseeable future. Any payment of cash dividends in the future will depend
upon the Company’s earnings, capital requirements and other factors
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OTC
Markets trading symbol:
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Our
common stock is quoted on the OTC under the symbol “QNTA.”
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RISK
FACTORS
An
investment in our Common Stock involves a high degree of risk. You should carefully consider the risks described below, together
with all of the other information included in this S-1, before making an investment decision. If any of the following risks actually
occurs, our business, financial condition or results of operations could suffer. In that case, the price of our shares of Common
Stock could decline and you may lose all or part of your investment. See “Cautionary Note Regarding Forward-Looking Statements”
above for a discussion of forward-looking statements and the significance of such statements in the context of this S-1.
Risks
Related to our Business
We
will require additional financing to support our on-going operations.
We
will require equity and/or debt financing to support on-going operations, to undertake capital expenditures or to undertake acquisitions
or other business combination transactions. A number of factors could cause us to incur higher borrowing costs and experience
greater difficulty accessing public and private markets for debt. These factors include disruptions or declines in the global
capital markets and/or a decline in our financial performance, outlook, or credit ratings. There can be no assurance that additional
financing will be available to us when needed or on terms which are acceptable. Our inability to raise financing to fund on-going
operations, capital expenditures or acquisitions may adversely affect our ability to fund our operations, meet contractual commitments,
make future investments or desirable acquisitions, or respond to competitive challenges and may have a material adverse effect
upon our business, results of operations, financial condition or prospects.
If
additional funds are raised through further issuances of equity or convertible debt securities, existing shareholders could suffer
significant dilution, and any new equity securities issued could have rights, preferences and privileges superior to those of
holders of Common Stock. Any debt financing secured in the future could involve restrictive covenants relating to capital raising
activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and
to pursue business opportunities, including potential acquisitions.
There
is substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.
We
have yet to establish any history of profitable operations. For the nine months ended September 30, 2020, the Company incurred
a net loss of $5,931,000 and used cash in operating activities of $1,804,000, and at September 30, 2020, the Company had a stockholders’
deficit of $1,850,000. 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. In addition, the Company’s independent registered
public accounting firm, in their report on the Company’s December 31, 2019 audited financial statements, raised substantial
doubt about the Company’s ability to continue as a going concern. 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
September 30, 2020, the Company had cash on hand in the amount of $11,000. Subsequent to September 30, 2020, the Company received
$1,634,000 from the issuance of notes payable. 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.
We
have identified material weaknesses in our disclosure controls and procedures and internal control over financial reporting.
Maintaining
effective internal control over financial reporting and effective disclosure controls and procedures are necessary for us to produce
reliable financial statements. We have evaluated our internal control over financial reporting and our disclosure controls and
procedures and concluded that they were not effective as of December 31, 2019. See “Item 9A – Controls and Procedures”
of our Annual Report on Form 10-K/A for the year ended December 31, 2019 filed with the Securities and Exchange Commission on
April 9, 2019.
A
material weakness is defined as 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 annual or interim financial statements will not be
prevented or detected on a timely basis. The material weaknesses we identified are (i) We do 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; and (ii) The Company
did not maintain effective policies to ensure adequate segregation of duties within its accounting processes. Specifically, due
to the size of the Company and the smaller nature of department teams, opportunities are limited to segregate duties, resulting
in inabilities to soundly manage segregation of job responsibilities.
The
Company is committed to remediating its material weaknesses as promptly as possible. Implementation of the Company’s remediation
plans has commenced and is being overseen by the board. However, there can be no assurance as to when these material weaknesses
will be remediated or that additional material weaknesses will not arise in the future. Even effective internal control can provide
only reasonable assurance with respect to the preparation and fair presentation of financial statements. Any failure to remediate
the material weaknesses, or the development of new material weaknesses in our internal control over financial reporting, could
result in material misstatements in our financial statements, which in turn could have a material adverse effect on our financial
condition and the trading price of our common stock and we could fail to meet our financial reporting obligations. We have identified
weaknesses in our internal controls, and we cannot provide assurances that these weaknesses will be effectively remediated or
that additional material weaknesses will not occur in the future.
If
not remediated, our failure to establish and maintain effective disclosure controls and procedures and internal control over financial
reporting could result in material misstatements in our financial statements and a failure to meet our reporting and financial
obligations, each of which could have a material adverse effect on our financial condition and the trading price of our common
stock.
The
recent global coronavirus outbreak could harm our business and results of operations.
The
adverse public health developments and economic effects of the COVID-19 outbreak in the United States could adversely affect the
Company’s operations as a result of quarantines, facility closures and logistics restrictions in connection with the outbreak.
More broadly, the outbreak could potentially lead to an economic downturn, which would likely decrease spending, adversely affecting
our business, results of operations and financial condition. The Company cannot accurately predict the effect the COVID-19 outbreak
will have on the Company.
We
may experience difficulties in generating profits.
We
may experience difficulties in our development process, such as capacity constraints, quality control problems or other disruptions,
which would make it more difficult to generate profits. Our failure to achieve a low-cost structure through economies of scale
or improvements in manufacturing processes and design could have a material adverse effect on our business, prospects, results
of operations and financial condition.
We
will likely incur significant costs and obligations in relation to our ongoing and anticipated business operations.
We
expect to incur significant ongoing costs and obligations related to our investment in infrastructure and growth and for regulatory
compliance, which could have a material adverse impact on our results of operations, financial condition and cash flows. In addition,
future changes in regulations, more vigorous enforcement thereof or other unanticipated events could require extensive changes
to our operations, increased compliance costs or give rise to material liabilities, which could have a material adverse effect
on the business, results of operations and financial condition of the company.
We
are reliant on key employees in the management of our business and loss of their services could materially adversely affect our
business.
Our
success is dependent upon the ability, expertise, judgment, discretion and good faith of our senior management. While employment
agreements or management agreements are customarily used as a primary method of retaining the services of key employees, these
agreements cannot assure the continued services of such employees. Any loss of the services of such individuals could have a material
adverse effect on our business, operating results, financial condition or prospects.
Public
company compliance may make it more difficult to attract and retain officers and directors.
The
Sarbanes-Oxley Act and rules implemented by the SEC required changes in corporate governance practices of public companies. As
a public company, these rules and regulations increase our compliance costs and make certain activities more time consuming and
costly. As a public company, these rules and regulations also make it more difficult and expensive for us to obtain director and
officer liability insurance and we may at times be required to accept reduced policy limits and coverage or incur substantially
higher costs to obtain the same or similar coverage. Thus, it may be more difficult for us to attract and retain qualified persons
to serve on our board of directors or as executive officers, and to maintain insurance at reasonable rates, or at all.
Our
business is heavily regulated which could have a material adverse effect on our results of operations and financial condition.
The
business and activities of the company are heavily regulated in all jurisdictions where it carries on business. Our operations
are subject to various laws, regulations and guidelines by governmental authorities, relating to the manufacture, marketing, management,
transportation, storage, sale, pricing and disposal of marijuana and cannabis oil, and also including laws and regulations relating
to health and safety, insurance coverage, the conduct of operations and the protection of the environment. Laws and regulations,
applied generally, grant government agencies and self-regulatory bodies broad administrative discretion over the activities of
the company, including the power to limit or restrict business activities as well as impose additional disclosure requirements
on our products and services. Achievement of our business objectives is contingent, in part, upon compliance with regulatory requirements
enacted by governmental authorities and obtaining all regulatory approvals, where necessary, for the sale of our products. Similarly,
we cannot predict the time required to secure all appropriate regulatory approvals for its products, or the extent of testing
and documentation that may be required by governmental authorities. Any delays in obtaining, or failure to obtain regulatory approvals
would significantly delay the development of markets and products and could have a material adverse effect on the business, results
of operations and financial condition of the company.
We
will incur ongoing costs and obligations related to regulatory compliance. Failure to comply with regulations may lead to possible
sanctions including the revocation or imposition of additional conditions on licenses to operate our business, the suspension
or expulsion from a particular market or jurisdiction or of our key personnel, and the imposition of fines and censures. In addition,
changes in regulations, more vigorous enforcement thereof or other unanticipated events could require extensive changes to our
operations, increased compliance costs or give rise to material liabilities, which could have a material adverse effect on the
business, results of operations and financial condition of the company.
Our
industry is subject to intense competition.
There
is potential that we will face intense competition from other companies, some of which can be expected to have longer operating
histories and more financial resources and experience than the company. Increased competition by larger and better-financed competitors
could materially and adversely affect the business, financial condition, results of operations or prospects of the company. If
we are unable to compete effectively, it could decrease our customer traffic, sales and profit margins, which could adversely
affect our business, financial condition, and results of operations.
Because
of the early stage of the industry in which we operate, we expect to face additional competition from new entrants. To become
and remain competitive, we will require research and development, marketing, sales and support. We may not have sufficient resources
to maintain research and development, marketing, sales and support efforts on a competitive basis which could materially and adversely
affect the business, financial condition, results of operations or prospects of the company.
We
have a limited operating history.
The
Company and its subsidiaries have varying and limited operating histories, which can make it difficult for investors to evaluate
our operations and prospects and may increase the risks associated with investment into the company.
We
are reliant on key inputs and changes in their costs could negatively impact our profitability.
The
manufacturing business is dependent on a number of key inputs and their related costs including raw materials and supplies related
to product development and manufacturing operations. Any significant interruption or negative change in the availability or economics
of the supply chain for key inputs could materially impact the business, financial condition, results of operations or prospects
of the company. Some of these inputs may only be available from a single supplier or a limited group of suppliers. If a sole source
supplier was to go out of business, the company might be unable to find a replacement for such source in a timely manner or at
all. If a sole source supplier were to be acquired by a competitor, that competitor may elect not to sell to the company in the
future. Any inability to secure required supplies and services or to do so on appropriate terms could have a materially adverse
impact on the business, financial condition, results of operations or prospects of the company.
We
are subject to environmental regulations.
Our
operations are subject to environmental regulations in the various jurisdictions in which we operate. These regulations mandate,
among other things, the maintenance of air and water quality standards and land reclamation. They also set forth limitations on
the generation, transportation, storage and disposal of solid and hazardous waste. Environmental legislation is evolving in a
manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent
environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors
and employees. There is no assurance that future changes in environmental regulations, if any, will not adversely affect our operations.
Failure
to comply with applicable environmental laws, regulations and permitting requirements may result in enforcement actions thereunder,
including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective
measures requiring capital expenditures, installation of additional equipment, or remedial actions. We may be required to compensate
those suffering loss or damage due to our operations and may have civil or criminal fines or penalties imposed for violations
of applicable laws or regulations.
The
market for our products is difficult to forecast and our forecasts may not be accurate which could negatively impact our results
of operations.
We
must rely largely on our own market research to forecast sales as detailed forecasts are not generally obtainable from other sources
at this early stage of the industry. A failure in the demand for our products to materialize as a result of competition, technological
change or other factors could have a material adverse effect on the business, results of operations, financial condition or prospects
of the company.
We
are subject to certain risks regarding the management of our growth.
We
may be subject to growth-related risks including capacity constraints and pressure on our internal systems and controls. The ability
of the company to manage growth effectively will require it to continue to implement and improve its operational and financial
systems and to expand, train and manage its employee base. The inability of the company to deal with this growth may have a material
adverse effect on our business, financial condition, results of operations or prospects.
We
are subject to product liability regarding our products, which could result in costly litigation and settlements.
As
a distributor of products designed to be ingested by humans, the company faces an inherent risk of exposure to product liability
claims, regulatory action and litigation if its products are alleged to have caused significant loss or injury. In addition, the
sale of our products involves the risk of injury to consumers due to tampering by unauthorized third parties or product contamination.
Previously unknown adverse reactions resulting from human consumption of our products alone or in combination with other medications
or substances could occur. We may be subject to various product liability claims, including, among others, that our products caused
injury or illness, include inadequate instructions for use or include inadequate warnings concerning possible side effects or
interactions with other substances.
A
product liability claim or regulatory action against the company could result in increased costs, could adversely affect our reputation
with our clients and consumers generally, and could have a material adverse effect on our results of operations and financial
condition of the company. Although we have secured product liability insurance, and strictly enforce a quality standard within
the operations, there can be no assurances that we will be able to maintain our product liability insurance on acceptable terms
or with adequate coverage against potential liabilities. This scenario could prevent or inhibit the commercialization of our potential
products. To date, there have been no product related issues.
We
may have uninsured or uninsurable risk.
We
may be subject to liability for risks against which we cannot insure or against which we may elect not to insure due to the high
cost of insurance premiums or other factors. The payment of any such liabilities would reduce the funds available for our normal
business activities. Payment of liabilities for which the company does not carry insurance may have a material adverse effect
on our financial position and operations.
Certain
remedies shareholders may seek against our officers and directors may be limited and such officers and directors may be entitled
to indemnification by the company.
Our
governing documents provide that the liability of our board of directors and officers is eliminated to the fullest extent allowed
under the laws of the State of Nevada. Thus, the company and the shareholders of the company may be prevented from recovering
damages for alleged errors or omissions made by the members of our board of directors and officers. Our governing documents also
provide that the company will, to the fullest extent permitted by law, indemnify members of our board of directors and officers
for certain liabilities incurred by them by virtue of their acts on behalf of the company.
Breaches
in our security, cyber-attacks or other cyber-risks could expose us to significant liability and cause our business and reputation
to suffer.
Our
operations involve transmission and processing of our customers’ confidential, proprietary and sensitive information. We
have legal and contractual obligations to protect the confidentiality and appropriate use of customer data. Despite our security
measures, our information technology and infrastructure may be vulnerable to attacks as a result of third-party action, employee
error or misconduct. Security risks, including, but not limited to, unauthorized use or disclosure of customer data, theft of
proprietary information, loss or corruption of customer data and computer hacking attacks or other cyber-attacks, could expose
us to substantial litigation expenses and damages, indemnity and other contractual obligations, government fines and penalties,
mitigation expenses and other liabilities. We are continuously working to improve our information technology systems, together
with creating security boundaries around our critical and sensitive assets. We provide advance security awareness training to
our employees and contractors that focuses on various aspects of the cyber security world. Because techniques used to obtain unauthorized
access or to sabotage systems change frequently and generally are not recognized until successfully launched against a target,
we may be unable to anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach
of our security occurs, the market perception of the effectiveness of our security measures and our products could be harmed,
we could lose potential sales and existing customers, our ability to operate our business could be impaired, and we may incur
significant liabilities.
Risks
related to this Offering and the Ownership of our Common Stock
For
the foreseeable future, Phil Sands or his affiliates will be able to control the selection of all members of our board of directors,
as well as virtually every other matter that requires stockholder approval, which will severely limit the ability of other stockholders
to influence corporate matters.
As
of the date of this S-1, Phil Sands owned 100% of our Series A preferred stock. Under the terms of the Certificate of Designation
for our Series A preferred stock, holders of Series A preferred stock have, as a class, voting rights equal to 51% of the total
votes of all outstanding common and preferred stock entitled to vote. Because of this dual class structure, Phil Sands, his affiliates,
his family members and descendants will, for the foreseeable future, have control over our management and affairs, and will be
able to control virtually all matters requiring stockholder approval, including the election of directors and significant corporate
transactions such as mergers or sales of our company or assets. Moreover, these persons may take actions in their own interests
that you or our other stockholders do not view as beneficial. The holders of the outstanding shares of Series A Preferred Stock
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 our Articles of Incorporation. Accordingly, for any matters with
respect to which a majority vote of our Common Stock may be required by law, our directors and officers (and Mr. Rice, in particular)
have the ability to control such matters. Because of this voting control, investors may find it difficult or impossible to replace
our directors if they disagree with the way our business is being operated.
Because
our common stock is deemed a low-priced “Penny” stock, an investment in our common stock should be considered high
risk and subject to marketability restrictions.
Since
our common stock is a penny stock, as defined in Rule 3a51-1 under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), it will be more difficult for investors to liquidate their investment. The SEC defines “penny stock”
to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00
per share, subject to certain exceptions. The shares of Common Stock are covered by the penny stock rules pursuant to Rule 15g-9
under the Exchange Act, which impose additional sales practice requirements on broker-dealers who sell to persons other than established
customers and “accredited investors”. The term “accredited investor” refers generally to institutions
with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000
or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock
not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides
information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide
the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson
in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account.
The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally
or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s
confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from
these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the
purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for the securities of the company that are captured by the penny
stock rules. Consequently, the penny stock rules may affect the ability of broker-dealers to trade our securities. Management
believes that the penny stock rules could discourage investor interest in and limit the marketability of our Common Stock.
Financial
Industry Regulatory Authority sales practice requirements may also limit a stockholder’s ability to buy and sell our common
stock, which could depress the price of our common stock.
In
addition to the “penny stock” rules described above, the U.S. Financial Industry Regulatory Authority (“FINRA”)
has adopted rules that require a broker-dealer to have reasonable grounds for believing that an investment is suitable for a customer
before recommending an investment to a customer. Prior to recommending speculative, low priced securities to non-institutional
customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax
status, investment objectives, and other information. Pursuant to the interpretation of these rules, FINRA believes that there
is a high probability that speculative, low priced securities will not be suitable for at least some customers. Thus, the FINRA
requirements make it more difficult for broker-dealers to recommend our Common Stock to customers which may limit an investor’s
ability to buy and sell our Common Stock, have an adverse effect on the market for our Common Stock, and thereby negatively impact
the price of our Common Stock.
Our
Common Stock is subject to liquidity risks.
Our
Common Stock is quoted on the OTC in the United States. The OTC is an over-the-counter market that provides significantly less
liquidity than national or regional exchanges. Securities quoted on the OTC are usually thinly traded, highly volatile, have fewer
market makers and are not followed by analysts. The SEC’s order handling rules, which apply to NASDAQ-listed securities,
do not apply to securities quoted on the OTC. Prices for securities quoted solely on the OTC may be difficult to obtain and holders
of our securities may be unable to resell their securities at or near their original acquisition price, or at any price. We cannot
predict at what prices our Common Stock will trade and there can be no assurance that an active trading market will develop or
be sustained.
Sales
of a substantial number of shares of our common stock in the public market, or the perception that such sales could occur, could
cause our stock price to fall.
If
our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market
after the contractual restrictions on resale of such common stock lapse, or after those shares become registered for resale pursuant
to an effective registration statement, the trading price of our common stock could decline. The majority of the outstanding shares
of our Common Stock are currently without restriction. Upon the effectiveness of any registration statement we could elect to
file with respect to any outstanding shares of common stock, any sales of those shares or any perception in the market that such
sales may occur could cause the trading price of our common stock to decline.
The
shares of our Common Stock we may issue in the future and the options we may issue in the future may have an adverse effect on
the market price of our Common Stock and cause dilution to investors.
We
may issue shares of Common Stock and warrants to purchase Common Stock pursuant to private offerings and we may issue options
to purchase Common Stock to our executive officers pursuant to their employment agreements. The sale, or even the possibility
of sale, of shares pursuant to a separate offering or to executive officers could have an adverse effect on the market price of
our Common Stock or on our ability to obtain future financing.
Our
stock price may be volatile and you may not be able to sell your shares for more than what you paid.
Our
stock price may be subject to significant volatility, and you may not be able to sell shares of Common Stock at or above the price
you paid for them. The trading price of our Common Stock has been subject to fluctuations in the past and the market price of
our Common Stock could continue to fluctuate in the future in response to various factors, including, but not limited to: quarterly
variations in operating results; our ability to control costs and improve cash flow; announcements of innovations or new products
by us or by our competitors; changes in investor perceptions; and new products or product enhancements by us or our competitors.
An investment in our common stock is speculative and there is no assurance that investors will obtain any return on their investment.
Investors will be subject to substantial risks involved in an investment in us, including the risk of losing their entire investment.
There
is no minimum offering.
We
do not have a minimum offering requirement, and we may use the proceeds from this Offering immediately following our acceptance
of the corresponding subscription agreements. We do not have any track record for self-underwritten offerings, and there can be
no assurance we will sell the Maximum Offering or any other amount in this Offering. There is no assurance that we will raise
sufficient capital from this Offering to implement our business plan, potentially resulting in greater operating losses unless
we are able to raise the required capital from alternative sources. There is no assurance that alternative capital, if needed,
would be available on terms acceptable to us, or at all.
Investors
may pay less than the then-prevailing market price for our common stock which may reduce the market price for our common stock.
The
common stock to be issued to the investors pursuant to this S-1 will be purchased at a fixed price of $0.04 per share.
If the then-prevailing market price exceeds such amount, investors have a financial incentive to sell our common stock quickly
to realize the profit equal to the difference between the discounted price and the market price. If the investors sell the shares,
the price of our common stock could decrease.
We
have broad discretion in how we use the proceeds of this Offering, and may not use these proceeds effectively, which could affect
our results of operations and cause the price of our Common Stock to decline.
We
will have considerable discretion in the application of the net proceeds of this Offering. We intend to use the net proceeds from
this Offering to fund our business strategy, including without limitation, new and ongoing research and development expenses,
offering expenses, working capital and other general corporate purposes, which may include funding for the hiring of additional
personnel. As a result, investors will be relying upon management’s judgment with only limited information about our specific
intentions for the use of the balance of the net proceeds of this Offering. We may use the net proceeds for purposes that do not
yield a significant return or any return at all for our stockholders. In addition, pending their use, we may invest the net proceeds
from this Offering in a manner that does not produce income or that loses value.
We
may terminate this Offering at any time.
We
reserve the right to terminate this Offering at any time, regardless of the number of shares of Common Stock sold. In the event
that we terminate this Offering at any time prior to the sale of all of the shares of Common Stock offered hereby, whatever amount
of capital that we have raised at that time will have already been utilized by the Company and no funds will be returned to subscribers.
DILUTION
As
of the date of this S-1, an aggregate of 47,256,970 shares of our Common Stock are issued and outstanding. If you purchase Shares
in this Offering, your ownership interest in our Common Stock may be diluted immediately, to the extent of the difference between
the price to the public charged for each Share in this Offering and the net tangible book value per share of our Common Stock
after this Offering.
Except
as otherwise indicted herein, the number of shares of our common stock to be outstanding after this offering is based on 47,256,970
shares of common stock issued and outstanding as of January 22, 2021. and excludes the following:
|
●
|
2,732,261
shares of common stock issuable upon the exercise of outstanding stock options as of that date having a weighted average exercise
price of $0.11 per share;
|
|
●
|
61,171,291
shares of common stock issuable upon the conversion of outstanding convertible notes having an exercise price of $0.01 per
share to $0.07 per share; and
|
|
●
|
4,750,000
shares of vested restricted common stock to be issued;
|
Net
Tangible Book Value
Our
net tangible book value as of September 30, 2020 was $(1,850,000) or $(0.04) per share based on 60,779,130 outstanding shares
of Common Stock as of such date. Net tangible book value per share equals the amount of our total tangible assets, less total
liabilities, divided by the total number of shares of our Common Stock outstanding, all as of the date specified. After giving
effect to our sale of the maximum Offering amount of $1,977,500 in securities, after deducting approximately $22,500 in
estimated offering expenses payable by us, and assuming no other changes since September 30, 2020, our as-adjusted net tangible
book value would be approximately $127,500, or $0.00 per share. At an Offering price of $0.04 per share,
this represents an immediate dilution in net tangible book value of $0.04 per share to investors of this Offering, as illustrated
in the following table:
Assumed Public Offering
price per share
|
|
|
|
|
|
$
|
0.04
|
|
Net tangible book value per share
|
|
$
|
(0.04
|
)
|
|
|
|
|
Change in
net tangible book value per share attributable to new investors in this offering
|
|
$
|
0.04
|
|
|
|
|
|
Adjusted net
tangible book value per share after this offering
|
|
|
|
|
|
$
|
0.00
|
|
Dilution per
share to new investors in the Offering
|
|
|
|
|
|
$
|
0.04
|
|
The
following table illustrates the per share dilution to new investors discussed above, assuming the sale of, respectively, 100%,
75%, 50% and 25% of the Shares offered for sale in this Offering (after deducting our estimated offering expenses of approximately
$22,500):
|
|
|
100%
|
|
|
|
75%
|
|
|
|
50%
|
|
|
|
25%
|
|
Funding
Level
|
|
$
|
1,977,500
|
|
|
$
|
1,477,500
|
|
|
$
|
977,500
|
|
|
$
|
477,500
|
|
Offering Price
|
|
$
|
0.04
|
|
|
$
|
0.04
|
|
|
$
|
0.04
|
|
|
$
|
0.04
|
|
Net tangible book value per share of
Common Stock before the Offering
|
|
$
|
(0.04
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.04
|
)
|
increase per
share attributable to investors in this Offering
|
|
$
|
0.04
|
|
|
$
|
0.03
|
|
|
$
|
0.03
|
|
|
$
|
0.02
|
|
Pro forma net tangible book value per
share of Common Stock after the Offering
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
Dilution to investors
in the Offering
|
|
$
|
0.04
|
|
|
$
|
0.04
|
|
|
$
|
0.05
|
|
|
$
|
0.06
|
|
PLAN
OF DISTRIBUTION
Plan
of Distribution for Quanta, Inc.’s Public Offering of 50,000,000 Shares of Common Stock
This
is a self-underwritten (“best-efforts”) offering. This prospectus is part of a registration statement that permits
our officers and directors to sell the shares being offered by the Company directly to the public, with no commission or other
remuneration payable to them for any shares they may sell. Presently, we expect that our officers and directors will personally
contact existing shareholders, friends, family members and business acquaintances and inform them about the offering. In addition,
we may market the offering to institutional investors through our officers and directors. We may also offer our shares of common
stock through brokers, dealers or agents, although we have no current plans or arrangements to do so. The company has been contacted
by multiple financial institutions, as well as fielded interest from existing shareholders that give the Company assurance as
to the marketability of its shares to these identified parties. This offering will terminate on the date which is 365 days from
the effective date of this prospectus, although we may close the offering on any date prior if the offering is fully subscribed
or upon the vote of our board of directors.
In
offering the securities on our behalf, our officers and directors will rely on the safe harbor from broker dealer registration
set forth in Rule 3a4-1 under the Exchange Act. The officers and directors will not register as broker-dealers pursuant to Section
15 of the Exchange Act, in reliance upon Rule 3a4-1, which sets forth those conditions under which a person associated with an
issuer may participate in the offering of the Issuer’s securities and not be deemed to be a broker-dealer. In that regard,
we confirm that:
|
a.
|
None
of our officers or directors are subject to a statutory disqualification, as that term is defined in Section 3(a)(39) of the
Exchange Act;
|
|
|
|
|
b.
|
None
of our officers or directors will be compensated in connection with their participation by the payment of commissions or other
remuneration based either directly or indirectly on transactions in the common stock;
|
|
|
|
|
c.
|
None
of our officers or directors is or will be, at the time of his participation in the offering, an associated person of a broker-dealer;
and
|
|
|
|
|
d.
|
Our
officers and directors meet the conditions of paragraph (a)(4)(ii) of Rule 3a4-1 of the Exchange Act, in that each (A) primarily
perform substantial duties for or on our behalf, other than in connection with transactions in securities, and (B) is not
a broker or dealer, or has been an associated person of a broker or dealer, within the preceding 12 months, and (C) has not
participated in selling and offering securities for any issuer more than once every 12 months other than in reliance on Paragraphs
(a)(4)(i) or (a)(4)(iii) of Rule 3a4-1.
|
None
of our officers or directors, control persons or affiliates intend to purchase any shares in this offering.
Selling
Security Holders
No
securities are being sold for the account of security holders; all net proceeds of this Offering will go to the Company.
USE
OF PROCEEDS TO ISSUER
If
the Maximum Offering is sold, the maximum gross proceeds from the sale of our Common Stock in this Offering will be $2,000,000.
The net proceeds from the total Maximum Offering are expected to be approximately $1,977,500, after the payment of
offering costs (including filing fees, and legal, accounting, printing, due diligence, marketing, selling and other costs incurred
in the Offering of the Shares). The estimate of the budget for offering costs is an estimate only and the actual offering costs
may differ. We expressly reserve the right to change the anticipated use of proceeds if we, in our discretion, deem such change
to be necessary or appropriate. We expect from time to time to evaluate the acquisition of businesses, strategic partnership,
intellectual property, products and technologies for which a portion of the net proceeds may be used, although we currently are
not planning or negotiating any such transactions. The following table represents management’s best current estimate of
the uses of the net proceeds received from the sale of Common Stock in this Offering over the course of 12 months following completion
of the Offering, assuming the sale of, respectively, 100%, 75%, 50% and 25% of Shares of the Common Stock offered for sale in
this Offering, with the balance of the net proceeds reflected in the line item titled “Unallocated Proceeds for General
Corporate Purposes.” Management expects to use the unallocated proceeds from the sale of Common Stock in this Offering in
approximately the same proportions reflected in the following table for the purposes specified below on a going-forward basis
after the first 12 months following completion of the Offering.
|
|
Percentage
of Offering Sold
|
|
|
|
100%
|
|
|
75%
|
|
|
50%
|
|
|
25%
|
|
Cost of Goods
|
|
$
|
197,000
|
|
|
|
147,000
|
|
|
|
97,000
|
|
|
|
47,000
|
|
Marketing & Distribution
|
|
$
|
395,000
|
|
|
|
295,000
|
|
|
|
195,000
|
|
|
|
95,000
|
|
Research & Development
|
|
$
|
989,000
|
|
|
|
739,000
|
|
|
|
489,000
|
|
|
|
239,000
|
|
General & Administrative
|
|
$
|
396,500
|
|
|
|
296,500
|
|
|
|
196,500
|
|
|
|
96,500
|
|
Unallocated Proceeds
for General Corporate Purposes
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
TOTAL
|
|
$
|
1,977,500
|
|
|
$
|
1,477,500
|
|
|
$
|
977,500
|
|
|
$
|
477,500
|
|
This
expected use of the net proceeds from this Offering represents our intentions based upon our current financial condition, results
of operations, business plans and conditions. Our management has significant flexibility and broad discretion in applying the
net proceeds received in this Offering. We cannot assure you that our assumptions, expected costs and expenses and estimates will
prove to be accurate or that unforeseen events, problems or delays will not occur that would require us to seek additional debt
and/or equity funding, which may not be available on favorable terms, or at all. See “Risk Factors”
starting on page 3.
The
Company intends to use a portion of the proceeds raised in this Offering to fund the compensation payable to its executive officers,
as described under “Compensation of Directors and Executive Officers” below. In addition, the Company
may use a portion of the proceeds from the sale of Common Stock in this Offering to repay some of the outstanding balance under
the Company’s outstanding indebtedness.
We
believe that if we raise the Maximum Amount in this Offering, that we will have sufficient capital to finance our operations for
at least the next 12 months. However, if we do not sell the Maximum Amount or if our operating and development costs are higher
than expected, we will need to obtain additional financing prior to that time. Further, we expect that during or after such 12-month
period, we will be required to raise additional funds to finance our operations until such time that we can conduct profitable
revenue-generating activities.
DESCRIPTION
OF BUSINESS
Our
Company History
The
company was founded in Nevada as Freight Solution, Inc. in 2016.
On
June 5, 2018, we underwent a change of control. In connection with the change of control, our board of directors and officers
was reconstituted through the resignation of Shane Ludington as Chairman, Chief Executive Officer, Chief Financial Officer, Secretary
and Treasurer of the Registrant and the appointment of Mr. Eric Rice as Chairman, Chief Executive Officer and Chief Financial
Officer and Mr. Jeffrey Doiron as President and Chief Operations Officer.
On
June 6, 2018 we formed a wholly-owned subsidiary, Quanta Acquisition Corp. in the state of California, and executed an Agreement
of Merger and Plan of Reorganization, with Bioanomaly, Inc., a California corporation, d/b/a Quanta and Quanta Acquisition Corp.,
a California corporation and our wholly-owned subsidiary. Pursuant to the terms of the Merger Agreement, Quanta Acquisition Corp.
merged with and into Quanta in a statutory reverse triangular merger with Quanta surviving as a wholly-owned subsidiary. Following
the merger, we adopted our business plan.
On
June 6, 2018, we cancelled 15,000,000 shares of common stock acquired through the change in control transaction. As consideration
for the merger, we agreed to issue the shareholders of Quanta an aggregate of 21,908,810 shares of our common stock, par value
$0.001 per share. Freight Solution shareholders retained 6,500,000 shares of common stock, which represented 23% of our issued
and outstanding stock following the merger.
Simultaneously
with the merger, we accepted subscriptions for 6,500,000 shares of common stock in a private placement offering at a purchase
price of $0.20 per share for an aggregate offering amount of $1,300,000. We also issued two non-affiliated investors warrants
to purchase 3,000,000 shares of our common stock at an exercise price of $0.30 per share expiring in four years.
Following
the consummation of the merger, Quanta shareholders beneficially owned approximately 63% of our issued and outstanding common
stock.
On
July 11, 2018 the State of Nevada approved our name change from Freight Solution, Inc. to Quanta, Inc.
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 Phil 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 Phil Sands as our Chief Executive Officer. Phil Sands remains our
President and serves with 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
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.
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).
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:
|
●
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Development
of emerging products with cutting edge ingredients.
|
|
|
|
|
●
|
A
product line with a true point of differentiation.
|
|
|
|
|
●
|
New
SKUs with an increased margin.
|
|
|
|
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●
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Decreased
cost of goods sold.
|
Simultaneously
these partnerships will allow Quanta:
|
●
|
Greater
brand recognition.
|
|
|
|
|
●
|
Increased
revenue and in turn profitability.
|
|
|
|
|
●
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Quicker
timeline to more licensing opportunities because of a track record of success.
|
|
|
|
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●
|
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.
As
of the date of this S-1, 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.
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.
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 and other offices in Burbank, California
which lease expires in August 2023. The Company currently also leases a manufacturing, shipping and research facility which expires
in December 2024.
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 S-1, 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.
Item
4. Mine Safety Disclosures.
There
are no current mining activities at the date of this report.
Corporate
Information
Our
principal executive offices are located at 3606 W. Magnolia Blvd., Burbank, CA 91505, and our telephone number is (818) 659-8052.
Our website address is www.buyquanta.com. The information contained therein or accessible thereby shall not be deemed to be incorporated
into this S-1.
DESCRIPTION
OF PROPERTY
The
Company does not own any physical location. Quanta currently leases its corporate headquarters and other offices in Burbank, California
which lease expires in August 2023. The Company currently also leases a manufacturing, shipping and research facility which expires
in December 2024. The Company believes that these facilities are adequate for the Company’s operations and intended operations
for the foreseeable future.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis of our results of operations and financial condition should be read in conjunction with our
consolidated financial statements and the notes to those consolidated financial statements that are included elsewhere in this
S-1. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties,
such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from
those anticipated in these forward-looking statements as a result of a number of factors. See “Risk Factors”
and “Cautionary Note Regarding Forward-Looking Statements” in this S-1. Also, please see the notes to our Financial
Statements for information about our significant accounting policies.
Results
of Operations
Results
of Operations for three months ended September 30, 2020 compared to the three months ended September 30, 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 three months ended September 30, 2020, the Company recognized $315,000 in net sales. For the three months ended September
30, 2019, the Company recognized $393,000 in net sales.
Expenses
Operating
expenses for the three months ended September 30, 2020 was $1,528,000. The Company incurred $62,000 in research and development
costs, $840,000 in administrative and other costs associated with operations including legal and professional fees of $400,000,
and $370,000 of labor and related costs and charged $255,000 to operating expenses for the impairment lease right of use asset,
Operating
expenses for the three months ended September 30, 2019 was $1,237,000. The Company incurred $115,000 in research and development
costs, and $1,237,000 in administrative and other costs associated with operations, including legal and professional fees of $126,000,
and $307,000 of labor and related costs.
Other
Income (Expense)
For
the three months ended September 30, 2020, the Company recognized $1,450,000 of net other expense.
For
the three months ended September 30, 2019, the Company recognized $10,000 of net other expenses.
Net
Loss
Net
loss for the three months ended September 30, 2020 was $2,706,000. Net loss for the three months ended September 30, 2019 was
$928,000. We recorded no provision for federal income taxes for either period.
Results
of Operations for nine months ended September 30, 2020 compared to the nine months ended September 30, 2019
Revenue
For
the nine months ended September 30, 2020, the Company recognized $973,000 in net sales. For the nine months ended September 30,
2019, the Company recognized $914,000 in net sales.
Expenses
Operating
expenses for the nine months ended September 30, 2020 was $5,213,000. The Company incurred $306,000 in research and development
costs, and $3,494,000 in administrative and other costs associated with operations, including legal and professional fees of $805,000,
and $1,157,000 of labor and related costs and charged $255,000 to operating expenses for the impairment lease right of use asset.
Operating
expenses for the nine months ended September 30, 2019 was $3,685,000. The Company incurred $197,000 in research and development
costs, and $2,670,000 in administrative and other costs associated with operations, including legal and professional fees of $232,000,
and $832,000 of labor and related costs.
Other
Income (Expense)
For
the nine months ended September 30, 2020, the Company recognized $1,566,000 of net other expenses.
For
the nine months ended September 30, 2019, the Company recognized $20,000 of net other expenses.
Net
Loss
Net
loss for the nine months ended September 30, 2020 was $5,931,000. Net loss for the nine months ended September 30, 2019 was $2,099,000.
We recorded no provision for federal income taxes for either period.
Liquidity
We
have yet to establish any history of profitable operations. For the nine months ended September 30, 2020, the Company incurred
a net loss of $5,031,000 and used cash in operating activities of $1,804,000, and at September 30, 2020, the Company had a stockholders’
deficit of $1,850,000. 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. In addition, the Company’s independent registered public accounting
firm, in their report on the Company’s December 31, 2019 audited financial statements, raised substantial doubt about the
Company’s ability to continue as a going concern. 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
September 30, 2020, the Company had cash on hand in the amount of $11,000. Subsequent to September 30, 2020 the Company received
$119,000 from the issuance of six notes payable. 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 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 can 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
Results
of Operations for year ended December 31, 2019 compared to the nine months ended December 31, 2018
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, 2019, the Company recognized $1,268,988 in net sales. For the nine-month transition period ended December
31, 2018, the Company recognized $225,254 in net sales. The increase in sales is due to an increase in our customers for a full
year of operations in 2019 compared to four months of full operations in the transition period.
By
Geographic Territory:
|
|
Year
ended
December 31, 2019
|
|
|
Transition
period
ended
December 31, 2018
|
|
California
|
|
$
|
766,469
|
|
|
$
|
156,974
|
|
Other states
|
|
|
477,139
|
|
|
|
68,280
|
|
International
|
|
|
25,380
|
|
|
|
-
|
|
|
|
$
|
1,268,988
|
|
|
$
|
225,254
|
|
|
|
|
|
|
|
|
|
|
By
Sales Channel:
|
|
|
|
|
|
|
|
|
Direct to consumer
|
|
$
|
443,916
|
|
|
$
|
67,806
|
|
Wholesale
|
|
|
793,284
|
|
|
|
157,448
|
|
License Revenue
|
|
|
31,788
|
|
|
|
-
|
|
|
|
$
|
1,268,988
|
|
|
$
|
225,254
|
|
Expenses
Operating
expenses for the year ended December 31, 2019 were $6,453,091. The Company incurred $351,670 in research and development costs,
and $4,799,030 in administrative and other costs associated with operations, including legal and professional fees of $651,764,
and $1,302,391 of labor and related costs. These costs were not associated with our direct public offering efforts and therefor
expensed as incurred.
Operating
expenses for the nine-month transition period ended December 31, 2018 were $1,717,584. The Company incurred $207,600 in research
and development costs, and $1,055,805 in administrative and other costs associated with operations, including legal and professional
fees of $128,289, and $454,179 of labor and related costs. These costs were not associated with our direct public offering efforts
and therefor expensed as incurred.
Other
Income (Expense)
For
the year ended December 31, 2019, the Company recognized $299,541 of net other expenses, including interest expense of $226,239,
private placement costs of $238,395 and $145,565 of extinguishment of derivative liabilities.
For
the nine-month transition period ended December 31, 2018, the Company recognized $41,000 as gain on extinguishment of debt and
$21,000 as gain on forgiveness of accrued interest.
Net
Loss
Net
loss for the year ended December 31, 2019 was $5,787,364. Net loss for the nine-months transition period ended December 31, 2018
was $1,613,972. We recorded no provision for federal income taxes for either period. We recorded $800 in minimum franchise tax
for the state of California for the year ended December 31, 2019 and nine-month transition period ended December 31, 2018, respectively,
which are included in administrative expenses.
Basic
and diluted loss per share - 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 40,528,456 for 2019. Basic and diluted loss per share for the transition period ended
December 31, 2018 was $.05 per share. Basic and diluted number of shares outstanding was 35,100,108 for 2018.
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:
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 recognizes revenue when risk of loss transfers to our customers and collection of the receivable is reasonably assured,
typically upon delivery of products. 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. 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.
Stock
Compensation
The
Company periodically issues stock options and restricted stock awards to employees and non-employees in non-capital raising transactions
for services and financing costs. The Company accounts for such grants issued and vesting based on ASC 718, whereby 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 recognizes the fair value of stock-based compensation within its Statements of Operations with classification
depending on the nature of the services rendered.
The
fair value of the Company’s stock options is estimated using a 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.
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 March
31, 2020, reporting date. The classification of derivative instruments, including whether such instruments should be recorded
as liabilities or as equity, is evaluated at the end of each reporting period.
Convertible
Notes with Fixed Rate Conversion Options
The
Company may enter into convertible notes, some of which contain, predominantly, fixed rate conversion features, whereby the outstanding
principal and accrued interest may be converted by the holder, into common shares at a fixed discount to the market price of the
common stock at the time of conversion. This results in a fair value of the convertible note being equal to a fixed monetary amount.
The Company records the convertible note liability at its fixed monetary amount by measuring and recording a premium, as applicable,
on the Note date with a charge to interest expense in accordance with ASC 480 - “Distinguishing Liabilities from Equity”.
DIRECTORS,
EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
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 of directors,
or his successor is elected and qualified.
Name
|
|
Position
|
|
Age
|
Arthur
Mikaelian, PhD
|
|
Chief
Executive Officer and Chief Financial Officer, Director
|
|
58
|
|
|
|
|
|
Phil
Sands
|
|
President
and Director
|
|
59
|
On
November 13, 2020 Mr. Phil Sands was appointed to serve as Chief Executive Officer.
On
December 21, 2020 Mr. Phil 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 Phil 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, PhD. Dr. 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/
Phil
Sands, President and Director. Mr. Phil Sands, age 59, brings over 20 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 developed
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 to the board of directors 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 our board of directors 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, we will reimburse all directors for expenses incurred in attending directors’ meetings provided that we
have sufficient resources to pay these expenses. We will consider in applying for officers and directors liability insurance at
such time that we have the financial resources to do so.
Currently,
our Board of Directors consists of two members: our CEO Dr. Arthur Mikaelian, and our President, Phil Sands.
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.
Potential
Conflicts
The
OTC Markets, on which we have our shares of common stock quoted, does not currently have any director independence requirements.
No
member of management will be required by us to work on a full-time basis. Accordingly, 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 only one director, Eric Rice, who is also our Chairman, Chief Executive Officer and Chief Financial Officer, 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:
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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;
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been
convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other
minor offences);
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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;
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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
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been
subject or a party to or any other disclosable event required by Item 401(f) of Regulation S-K.
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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:
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honest
and ethical conduct;
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full,
fair, accurate, timely and understandable disclosure in reports and documents that we will file with securities regulators
and in our other public communications;
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compliance
with applicable laws, rules and regulations, including insider trading compliance; and
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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.
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COMPENSATION
OF DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
Summary
Compensation Table
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, the transition period ended December 31, 2018 and the fiscal
year ended April 30, 2018:
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
|
|
|
-
|
|
|
|
-
|
|
|
|
1,238,667
|
|
|
|
1,238,667
|
|
Non-officer
|
|
Fiscal Year
ended December 31, 2019
|
|
|
-
|
|
|
|
-
|
|
|
|
2,317,868
|
|
|
|
2,317,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Phil
Sands
Formerly
Chief Executive Officer, currently President and member of the board of directors.
|
|
December 4,
through December 31, 2020
|
|
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8,000
|
|
|
|
-
|
|
|
|
465,000
|
|
|
|
473,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Eric Rice
|
|
Fiscal Year ended
December 31, 2020
|
|
|
113,900
|
|
|
|
-
|
|
|
|
-
|
|
|
|
113,900
|
|
|
|
Fiscal Year ended
December 31, 2019
|
|
|
103,044
|
|
|
|
—
|
|
|
|
—
|
|
|
|
103,044
|
|
Founder,
Former Chairman and Former Chief
|
|
Transition Period
ended December 31, 2018
|
|
|
14,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14,500
|
|
Executive
Officer
(Principal
Executive Officer) (1)
|
|
Fiscal Year ended
April 30, 2018
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
Transition Period
ended
December 31, 2018
|
|
|
—
|
|
|
|
—
|
|
|
|
59,027
|
|
|
|
59,027
|
|
|
|
Fiscal Year ended
April 30, 2018
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
Transition Period
ended
December 31, 2018
|
|
|
—
|
|
|
|
—
|
|
|
|
87,710
|
|
|
|
87,710
|
|
|
|
Fiscal Year ended
April 30, 2018
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blake Gillette (3)
|
|
Fiscal
Year ended December 31, 2020
|
|
|
72,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year ended
December 31, 2019
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
Transition Period
ended
December 31, 2018
|
|
|
38,332
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
Fiscal Year ended
April 30, 2018
|
|
|
25,800
|
|
|
|
-
|
|
|
|
-
|
|
|
|
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(1)
|
Appointed
June 6, 2018, resigned as Chief Executive Officer December 4, 2020.
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(2)
|
Appointed
June 6, 2018, resigned, officer position December 4, 2020.
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(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.
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(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, and 2,500,000 shares vested in 2020
and were valued at $1,238,667.
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(6)
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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 $465,000, based on the control features
of the shares.
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Employment
Agreements
The
Company entered into employment agreements with Mr. Rice, Doiron, Gillette and Westwood on September 4, 2019 pursuant to which
Mr. Rice agreed to serve as our Chief Executive Officer for annual compensation of $120,000, Mr. Doiron agreed to serve as our
President for annual compensation of $108,000, Mr. Gillette agreed to serve as Executive Vice President for $78,000, and Mr. Westwood
agreed to serve as our Vice President for annual compensation of $78,000. The aforementioned officers have resigned their positions
for personal reasons and were not as a result of any disagreements with the registrant relating the registrant’s operations,
policies or practices. In October of 2020, Mr. Rice, Doiron, Gillette and Westwood were furloughed and ceased to serve as employees
of the Company.
On
November 15, 2020, the Company entered into an interim compensation agreement with Mr. Phil Sands providing for monthly compensation
of $8,000 commencing December 1, 2020 until March 1, 2021. No other cash compensation agreements as of this filing
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 of directors 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.
SECURITY
OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS
The
following table sets forth the amount of Common Stock and Series A, B and C Preferred Stock beneficially owned by the listed persons
as of January22, 2021. On that date, there were issued and outstanding 47,286,970 of our shares of common stock and 2,500,000
shares of our Series A preferred stock outstanding. Unless otherwise noted, to our knowledge, these persons have sole investment
and voting power over the shares listed. As of January 22, 2021, no security holders (other than directors or executive officers)
beneficially owned more than 10% of any class of our voting securities.
Title
of Class
|
|
Name
and Address of beneficial owner (1)
|
|
Amount
and Nature of Beneficial
Ownership
|
|
|
Amount
and Nature of beneficial ownership acquirable(2)
|
|
|
Percentage
of Class Owned (3)
|
|
Common
Stock
|
|
Arthur Mikaelian, PhD
|
|
|
-
|
|
|
|
8,000,000
|
|
|
|
17
|
%
|
Common Stock
|
|
Phil Sands
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
%
|
Common Stock
|
|
All directors and
executive officers as a group (4)
|
|
|
-
|
|
|
|
8,000,000
|
|
|
|
17
|
%
|
Series A Preferred
Stock
|
|
Phil Sands
|
|
|
2,500,000
|
|
|
|
-
|
|
|
|
100
|
%
|
Series B Preferred
Stock
|
|
Arthur Mikaelian, PhD
|
|
|
9,000
|
|
|
|
-
|
|
|
|
100
|
%
|
Series C Preferred
Stock
|
|
Trillium Partners LP
|
|
|
500
|
|
|
|
-
|
|
|
|
50
|
%
|
|
|
Sagittarii Holdings, Inc.
|
|
|
500
|
|
|
|
-
|
|
|
|
50
|
%
|
(1)
|
The
address for all officers, directors and beneficial owners is c/o Quanta, Inc., 3606 W Magnolia Blvd, Burbank, CA 91505.
|
|
|
(2)
|
This
column reflects securities that a person has the right to acquire within 60 days.
|
|
|
(3)
|
Based
on number of issued and outstanding shares of common and Series A preferred stock outstanding as of set forth above.
|
|
|
(4)
|
Phil
Sands, our President and Director, owns 2,500,000 shares (100%) of our Series A preferred stock.
|
On
May 20, 2019, Arthur Mikaelian was awarded 8,000,000 shares of restricted common stock. As of the date of filing 4,745,000 of
those shares have vested.
On
January 14, 2021 Arthur Mikaelian was issued 9,000 shares of Series B Convertible Preferred Stock.
On
January 14, 2021, Trillium Partners LP and Sagittarii Holdings, Inc. were each issued 500 shares of Series C Convertible Preferred
Stock.
INTEREST
OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
Certain
Relationships and Related Transactions
Except
as set forth below, 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 involved in the transaction
or a series of similar transactions exceeded the lesser of $120,000 or 1% of the average of our total assets for the last two
fiscal years, including the transition period ended December 31, 2018.
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, in a private placement transaction in satisfaction of certain
accrued but unpaid compensation in the amount of $120,000 then owed to Mr. Rice.
On
November 16, 2020, the Company entered into a Control Block Transfer Agreement with Eric Rice and Phil 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 Phil 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.
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. Mr. Rice agreed to cancel and return to treasury 17,030,032 shares
in order to assist the Company with its plans to attract experienced management, reorganize into a holding company, while transitioning
the Company’s existing CBD business operations into a newly formed operating subsidiary, without requiring QNTA to further
dilute its stock through the issuance of new shares.
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.
Review,
Approval and Ratification of Related Party Transactions
Our
board of directors is responsible to approve all related party transactions. Given our small size and limited financial resources,
we have not adopted formal policies and procedures for the review, approval or ratification of transactions with our executive
officers, directors and significant stockholders. We intend to establish formal policies and procedures in the future, once we
have sufficient resources and have appointed additional directors, so that such transactions will be subject to the review, approval
or ratification of our board of directors, or an appropriate committee thereof.
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 our board of directors, would interfere with the exercise of independent judgment
in carrying out the responsibilities of a director.
Currently,
Eric Rice is our sole director. According to the NASDAQ definition, Mr. Rice is not an independent director because he currently
holds the title of an officer in the company.
SECURITIES
BEING OFFERED
The
following is a summary of the rights of our Common Stock as provided in our Certificate of Incorporation, and bylaws. For more
detailed information, please see our Certificate of Incorporation and bylaws which have been filed (or incorporated by reference)
as exhibits to the Registration Statement of which this Prospectus is a part.
This
Prospectus relates to the offer and sale of up to 50,000,000 Shares of our Common Stock.
Our
articles of incorporation authorize the issuance of 500,000,000 shares of Common Stock. The holders of our Common Stock:
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have
equal ratable rights to dividends from funds legally available for payment of dividends when, as and if declared by the board
of directors;
|
|
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|
|
●
|
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;
|
|
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|
|
●
|
do
not have preemptive, subscription or conversion rights, or redemption or access to any sinking fund; and
|
|
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|
|
●
|
are
entitled to one non-cumulative vote per share on all matters submitted to stockholders for a vote at any meeting of stockholders
|
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 laws 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 S-1, 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.
Series
A Preferred Stock
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. On April 14, 2020, our former Chairman, Chief
Executive Officer and Chief Financial Officer, Eric Rice, was issued all 2,500,000 shares of the Series A Preferred Stock, giving
him effective voting control over the Company’s affairs.
On
November 16, 2020, the Company entered into a Control Block Transfer Agreement with Eric Rice and Phil 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 Phil 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. Since November
16, 2020, Phil Sands has owned all 2,500,000 shares of our Series A Preferred Stock.
Series
B Preferred Stock
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.
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 as follows:
Dr.
Arthur Mikaelian
|
9,000
Shares of Series B Preferred Stock
|
Series
C Preferred Stock
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 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.
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
|
Selected
Provisions of the Nevada Revised Statutes
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.
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:
|
●
|
the
articles of incorporation, and all amendments thereto,
|
|
|
|
|
●
|
bylaws
and all amendments thereto; and
|
|
|
|
|
●
|
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
most recent annual report on Form 10-K. 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.
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 Exchange Act, unless the company’s articles of incorporation provide otherwise.
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.
EXPERTS
Weinberg
& Company, P.A., independent registered public accounting firm, has audited our consolidated financial statements at December
31, 2019 and 2018, and for the year ended December 31, 2019, and the nine-month transition period ended December 31, 2018, as
set forth in their report thereon (which contains an explanatory paragraph describing conditions that raise substantial doubt
about the Company’s ability to continue as a going concern) appearing elsewhere herein. We have included our financial statements
in this prospectus and elsewhere in the registration statement in reliance on Weinberg & Company, P.A’s report, given
on their authority as experts in accounting and auditing.
LEGAL
MATTERS
Stout
Law Group, P.A., of Baltimore, Maryland, will issue to Quanta, Inc. its opinion regarding the legality of the common stock being
offered hereby. Stout Law Group, P.A. has consented to the references in this prospectus to its opinion.
WHERE
YOU CAN FIND MORE INFORMATION
We
are subject to the information requirements of the Exchange Act and, in accordance therewith, file annual, quarterly and special
reports, proxy statements and other information with the SEC. These documents also may be accessed through the SEC’s electronic
data gathering, analysis and retrieval system, or EDGAR, via electronic means, including the SEC’s home page on the Internet
(www.sec.gov). At some point in the near future we intend to make our reports, amendments thereto, and other information available,
free of charge, on our website. At this time, we do not provide a link on its website to such filings, and there is no estimate
for when such a link on our website will be available.
We
also have filed with the SEC a Registration Statement on Form S-1 under the Securities Act, of which this Prospectus is a part,
with respect to the shares of Common Stock offered hereby. This Prospectus does not contain all of the information set forth in
the Registration Statement or the exhibits and schedules filed therewith. For further information about us and the Common Stock
offered hereby, we refer you to the Registration Statement and the exhibits and schedules filed therewith. Statements contained
in this S-1 regarding the contents of any contract or other document that is filed as an exhibit to the Registration Statement
are not necessarily complete, and each such statement is qualified in all respects by reference to the full text of such contract
or other document filed as an exhibit to the Registration Statement. The Registration Statement and all exhibits thereto also
may be found on the EDGAR system at the SEC’s website.
QUANTA,
INC.
INDEX
TO FINANCIAL STATEMENTS
Contents:
Interim
Financial Statements
Annual
Financial Statements
Report
of Independent Registered Public Accounting Firm
|
F-20
|
|
|
Consolidated
Balance Sheets as of December 31, 2019 and December 31, 2018
|
F-21
|
|
|
Consolidated
Statements of Operations for the year ended December 31, 2019 and for the Nine Months Ended December 31, 2018
|
F-22
|
|
|
Consolidated
Statements of Changes in Stockholders’ Equity for the Year ended December 31, 2019 and for the Nine Months Ended December
31, 2018
|
F-23
|
|
|
Consolidated
Statements of Cash Flows for the Year Ended December 31, 2019 and Nine Months Ended December 31, 2018
|
F-24
|
|
|
Notes
to Consolidated Financial Statements for the year ended December 31, 2019 and for the Nine Months Ended December 31, 2018
|
F-25
|
QUANTA,
INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED BALANCE SHEETS
(amounts
in thousands, except share amounts)
|
|
September
30, 2020
|
|
|
December
31, 2019
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
11
|
|
|
$
|
433
|
|
Accounts receivable
|
|
|
6
|
|
|
|
28
|
|
Inventories
|
|
|
157
|
|
|
|
123
|
|
Prepaid expenses
|
|
|
-
|
|
|
|
7
|
|
Total
current assets
|
|
|
174
|
|
|
|
591
|
|
|
|
|
|
|
|
|
|
|
Equipment, net
|
|
|
232
|
|
|
|
313
|
|
Operating lease right-of-use asset,
net
|
|
|
383
|
|
|
|
333
|
|
Deposits
|
|
|
17
|
|
|
|
3
4
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
806
|
|
|
$
|
1,271
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’
EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
460
|
|
|
$
|
74
|
|
Notes payable (net of discount of $25
and deferred finance charges of $89 at September 30, 2020)
|
|
|
420
|
|
|
|
56
|
|
Convertible note payable (net of premium
of $125 and $0 and discount of $497 and $255, respectively)
|
|
|
600
|
|
|
|
57
|
|
Deferred revenue, license agreement
|
|
|
43
|
|
|
|
33
|
|
Operating lease liabilities, short-term
|
|
|
99
|
|
|
|
86
|
|
Settlement Reserve
|
|
|
236
|
|
|
|
-
|
|
Derivative liabilities
|
|
|
-
|
|
|
|
400
|
|
Total
current liabilities
|
|
|
1,858
|
|
|
|
706
|
|
|
|
|
|
|
|
|
|
|
Long term liabilities
|
|
|
|
|
|
|
|
|
Deferred revenue, licenses agreement,
long-term
|
|
|
-
|
|
|
|
34
|
|
Notes payable, long term
|
|
|
483
|
|
|
|
|
|
Operating lease
liabilities, long-term
|
|
|
315
|
|
|
|
252
|
|
Total liabilities
|
|
|
2,656
|
|
|
|
992
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity (deficit):
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 25,000,000
shares authorized; 2,500,000 issued and outstanding
|
|
|
2
|
|
|
|
-
|
|
Common stock, $0.001 par value; 100,000,000 shares authorized;
60,779,130 and 49,087,255 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively
|
|
|
62
|
|
|
|
49
|
|
Shares to be issued (4,250,000 and 7,318,519 as of September
30, 2020 and December 31, 2019, respectively)
|
|
|
3,320
|
|
|
|
2,848
|
|
Additional paid-in capital
|
|
|
8,935
|
|
|
|
5,620
|
|
Accumulated deficit
|
|
|
(14,169
|
)
|
|
|
(8,238
|
)
|
Total
stockholders’ equity (deficit)
|
|
|
(1,850
|
)
|
|
|
279
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
and stockholders’ equity (deficit)
|
|
$
|
806
|
|
|
$
|
1,271
|
|
See
notes to condensed consolidated financial statements
QUANTA,
INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts
in thousands, except share and per share amounts)
(Unaudited)
|
|
Three
months ended
September 30, 2020
|
|
|
Three
months ended
September 30, 2019
|
|
|
Nine
months ended
September 30, 2020
|
|
|
Nine
months ended
September 30, 2019
|
|
|
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
Sales, net
|
|
$
|
315
|
|
|
$
|
384
|
|
|
$
|
973
|
|
|
$
|
914
|
|
Distributor license fees
|
|
|
9
|
|
|
|
9
|
|
|
|
26
|
|
|
|
17
|
|
Total revenue
|
|
|
324
|
|
|
|
393
|
|
|
|
999
|
|
|
|
931
|
|
Cost of goods sold
|
|
|
52
|
|
|
|
74
|
|
|
|
151
|
|
|
|
230
|
|
Gross profit
|
|
|
272
|
|
|
|
319
|
|
|
|
848
|
|
|
|
701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
|
371
|
|
|
|
338
|
|
|
|
1,157
|
|
|
|
832
|
|
Selling, general, and administrative
|
|
|
840
|
|
|
|
784
|
|
|
|
3,494
|
|
|
|
2,670
|
|
Research and development
|
|
|
62
|
|
|
|
115
|
|
|
|
307
|
|
|
|
196
|
|
Impairment of operating lease right
of use asset
|
|
|
255
|
|
|
|
-
|
|
|
|
255
|
|
|
|
-
|
|
Total operating expenses
|
|
|
1,528
|
|
|
|
1,237
|
|
|
|
5,213
|
|
|
|
3,698
|
|
Loss from operations
|
|
|
(1,256
|
)
|
|
|
(918
|
)
|
|
|
(4,365
|
)
|
|
|
(2,997
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivative liability
|
|
|
(182
|
)
|
|
|
-
|
|
|
|
101
|
|
|
|
-
|
|
Discount Amortization
|
|
|
(117
|
)
|
|
|
-
|
|
|
|
(396
|
)
|
|
|
-
|
|
Loss on debt extinguishment
|
|
|
(1,081
|
)
|
|
|
-
|
|
|
|
(795
|
)
|
|
|
|
|
Interest expense
|
|
|
(70
|
)
|
|
|
(10
|
)
|
|
|
(476
|
)
|
|
|
(20
|
)
|
Other income (expense), net
|
|
|
(1,450
|
)
|
|
|
(10
|
)
|
|
|
(1,566
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,706
|
)
|
|
$
|
(928
|
)
|
|
$
|
(5,931
|
)
|
|
$
|
(3,017
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
|
$
|
(0.05
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.08
|
)
|
Weighted average common shares outstanding
– basic and diluted
|
|
|
57,844,835
|
|
|
|
41,823,505
|
|
|
|
56,034,097
|
|
|
|
40,092,030
|
|
See
notes to condensed consolidated financial statements
QUANTA,
INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(amounts
in thousands, except share amounts)
(Unaudited)
|
|
Three
months ended September 30, 2020 (Unaudited)
|
|
|
|
Series
A Preferred stock, par value $0.001
|
|
|
Common
stock, par value $0.001
|
|
|
Additional
Paid-in
|
|
|
Shares
to be
|
|
|
Accumulated
|
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
issued
|
|
|
deficit
|
|
|
Deficit
|
|
Balance, June 30, 2020 (Unaudited)
|
|
|
2,500,000
|
|
|
$
|
2
|
|
|
|
56,900,978
|
|
|
$
|
57
|
|
|
$
|
7,474
|
|
|
$
|
3,116
|
|
|
$
|
(11,463
|
)
|
|
$
|
(814
|
)
|
Fair value of vested options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
68
|
|
|
|
-
|
|
|
|
-
|
|
|
|
68
|
|
Fair value of shares for services
|
|
|
-
|
|
|
|
-
|
|
|
|
(500,117
|
)
|
|
|
-
|
|
|
|
(162
|
)
|
|
|
184
|
|
|
|
-
|
|
|
|
22
|
|
Fair Value of shares issued to employees
and officers
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
54
|
|
|
|
-
|
|
|
|
-
|
|
|
|
55
|
|
Shares to be issued for cash
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20
|
|
|
|
-
|
|
|
|
20
|
|
Beneficial conversion feature of issued
convertible notes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,277
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,277
|
|
Issuance of shares due to conversion
|
|
|
-
|
|
|
|
-
|
|
|
|
3,955,747
|
|
|
|
3
|
|
|
|
208
|
|
|
|
-
|
|
|
|
-
|
|
|
|
211
|
|
Fair value of shares issued for loan
fees
|
|
|
-
|
|
|
|
-
|
|
|
|
422,522
|
|
|
|
1
|
|
|
|
16
|
|
|
|
|
|
|
|
-
|
|
|
|
17
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,706
|
)
|
|
|
(2,706
|
)
|
Balance, September 30, 2020 (Unaudited)
|
|
|
2,500,000
|
|
|
$
|
2
|
|
|
|
60,779,130
|
|
|
$
|
62
|
|
|
$
|
8,935
|
|
|
$
|
3,320
|
|
|
$
|
(14,169
|
)
|
|
$
|
(1,850
|
)
|
Nine
months ended September 30, 2020 (Unaudited)
|
|
|
Series
A Preferred stock, par value $0.001
|
|
|
Common
stock, par value $0.001
|
|
|
Additional
Paid-in
|
|
|
Shares
to be
|
|
|
Accumulated
|
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
issued
|
|
|
deficit
|
|
|
Deficit
|
|
Balance, December 31, 2019
|
|
|
-
|
|
|
$
|
-
|
|
|
|
49,087,255
|
|
|
$
|
49
|
|
|
$
|
5,620
|
|
|
$
|
2,848
|
|
|
$
|
(8,238
|
)
|
|
$
|
279
|
|
Issuance of shares
|
|
|
|
|
|
|
|
|
|
|
5,000,000
|
|
|
|
6
|
|
|
|
529
|
|
|
|
(535
|
)
|
|
|
|
|
|
|
-
|
|
Shares issued for cash
|
|
|
-
|
|
|
|
-
|
|
|
|
407,408
|
|
|
|
1
|
|
|
|
75
|
|
|
|
50
|
|
|
|
-
|
|
|
|
126
|
|
Fair value of vested options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
250
|
|
|
|
-
|
|
|
|
-
|
|
|
|
250
|
|
Fair value of shares issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
750,000
|
|
|
|
1
|
|
|
|
24
|
|
|
|
946
|
|
|
|
-
|
|
|
|
971
|
|
Fair value of shares issued to employees
and officer
|
|
|
-
|
|
|
|
-
|
|
|
|
451,198
|
|
|
|
1
|
|
|
|
105
|
|
|
|
-
|
|
|
|
-
|
|
|
|
106
|
|
Shares issued for conversion of Convertible
Notes
|
|
|
-
|
|
|
|
-
|
|
|
|
3,955,747
|
|
|
|
3
|
|
|
|
208
|
|
|
|
-
|
|
|
|
-
|
|
|
|
211
|
|
Fair value of preferred shares issued
to officer
|
|
|
2,500,000
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
463
|
|
|
|
-
|
|
|
|
-
|
|
|
|
465
|
|
Beneficial conversion feature of issued
convertible notes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,568
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,568
|
|
Fair value of shares issued for loan
fees
|
|
|
-
|
|
|
|
-
|
|
|
|
1,127,522
|
|
|
|
1
|
|
|
|
93
|
|
|
|
11
|
|
|
|
-
|
|
|
|
105
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,931
|
)
|
|
|
(5,931
|
)
|
Balance, September 30, 2020 (Unaudited)
|
|
|
2,500,000
|
|
|
$
|
2
|
|
|
|
60,779,130
|
|
|
$
|
62
|
|
|
$
|
8,935
|
|
|
$
|
3,320
|
|
|
$
|
(14,169
|
)
|
|
$
|
(1,850
|
)
|
Three
months ended September 30, 2019 (Unaudited)
|
|
|
Common
Stock, par
value $0.001
|
|
|
Additional
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
Number
of shares
|
|
|
Amount
|
|
|
paid-in
capital
|
|
|
to
be issued
|
|
|
Accumulated
deficit
|
|
|
Total
|
|
Balance, June 30, 2019
|
|
|
41,823,505
|
|
|
$
|
42
|
|
|
$
|
2,374
|
|
|
$
|
2,304
|
|
|
$
|
(4,540
|
)
|
|
$
|
180
|
|
Shares issued for cash
|
|
|
2,642,750
|
|
|
|
3
|
|
|
|
937
|
|
|
|
(454
|
)
|
|
|
-
|
|
|
|
486
|
|
Fair value of shares for services
|
|
|
180,000
|
|
|
|
-
|
|
|
|
467
|
|
|
|
-
|
|
|
|
-
|
|
|
|
467
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(928
|
)
|
|
|
(928
|
)
|
Balance, September 30, 2019 (Unaudited)
|
|
|
44,646,255
|
|
|
$
|
45
|
|
|
$
|
3,778
|
|
|
$
|
1,850
|
|
|
$
|
(5,468
|
)
|
|
$
|
205
|
|
Nine
months ended September 30, 2019 (Unaudited)
|
|
|
Common
Stock, par
value $0.001
|
|
|
Additional
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
Number
of shares
|
|
|
Amount
|
|
|
paid-in
capital
|
|
|
to
be issued
|
|
|
Accumulated
deficit
|
|
|
Total
|
|
Balance, December 31, 2018
|
|
|
39,200,090
|
|
|
$
|
39
|
|
|
$
|
2,360
|
|
|
$
|
306
|
|
|
$
|
(2,450
|
)
|
|
$
|
255
|
|
Shares issued for cash
|
|
|
2,642,750
|
|
|
|
3
|
|
|
|
1,315
|
|
|
|
(206
|
)
|
|
|
-
|
|
|
|
1,112
|
|
Shares for services
|
|
|
212,505
|
|
|
|
-
|
|
|
|
106
|
|
|
|
1,750
|
|
|
|
-
|
|
|
|
1,856
|
|
Shares issued for cashless exercise of warrants
|
|
|
2,590,910
|
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,018
|
)
|
|
|
(3,018
|
)
|
Balance, September 30, 2019 (Unaudited)
|
|
|
44,646,255
|
|
|
$
|
45
|
|
|
$
|
3,778
|
|
|
$
|
1,850
|
|
|
$
|
(5,468
|
)
|
|
$
|
205
|
|
See
notes to condensed consolidated financial statements
QUANTA,
INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts
in thousands)
(Unaudited)
|
|
Nine
Months Ended
September 30, 2020
|
|
|
Nine
Months Ended
September 30, 2019
|
|
|
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,931
|
)
|
|
$
|
(3,017
|
)
|
Adjustments to reconcile net loss to
net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
162
|
|
|
|
122
|
|
Fair value of vested options
|
|
|
250
|
|
|
|
-
|
|
Fair value of shares issued for services
|
|
|
1,068
|
|
|
|
1,856
|
|
Fair value of shares issued to employees
and officer
|
|
|
106
|
|
|
|
-
|
|
Fair value of preferred shares issued
to officer
|
|
|
465
|
|
|
|
-
|
|
Change in fair value of derivative
|
|
|
(101
|
)
|
|
|
-
|
|
Loss on debtextinguishment
|
|
|
795
|
|
|
|
-
|
|
Impairment of operating lease right
of use asset
|
|
|
255
|
|
|
|
-
|
|
Fee Notes Issued
|
|
|
60
|
|
|
|
-
|
|
Net Gain on Settlement of AP and Accrued
Expenses
|
|
|
(16
|
)
|
|
|
-
|
|
Accretion of Premium
|
|
|
226
|
|
|
|
-
|
|
Amortization of convertible note discount
|
|
|
396
|
|
|
|
-
|
|
Amortization of right-of-use asset
|
|
|
106
|
|
|
|
58
|
|
Interest accrual
|
|
|
-
|
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
22
|
|
|
|
(37
|
)
|
Inventories
|
|
|
(34
|
)
|
|
|
-
|
|
Prepaid Expenses
|
|
|
7
|
|
|
|
-
|
|
Accounts payable and accrued liabilities
|
|
|
386
|
|
|
|
29
|
|
Deferred revenue
|
|
|
(26
|
)
|
|
|
76
|
|
Net cash used
in operating activities
|
|
|
(1,804
|
)
|
|
|
(968
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of equipment
|
|
|
(80
|
)
|
|
|
(84
|
)
|
Net cash used
in investment activities
|
|
|
(80
|
)
|
|
|
(84
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from shares to be issued
|
|
|
50
|
|
|
|
|
|
Proceeds from shares issued for cash
|
|
|
125
|
|
|
|
1,110
|
|
Proceeds from convertibles notes payable
|
|
|
712
|
|
|
|
-
|
|
Proceeds from revenue sharing loan
|
|
|
250
|
|
|
|
-
|
|
Proceeds from PPP and EIDL loans
|
|
|
294
|
|
|
|
-
|
|
Proceeds from notes payable
|
|
|
378
|
|
|
|
-
|
|
Principal payments of convertible notes
|
|
|
(282
|
)
|
|
|
-
|
|
Principal payments of notes payable
|
|
|
(65
|
)
|
|
|
(59
|
)
|
Costs of recapitalization
|
|
|
-
|
|
|
|
-
|
|
Net cash provided
by financing activities
|
|
|
1,462
|
|
|
|
1,051
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash
|
|
|
(422
|
)
|
|
|
(1
|
)
|
Cash and cash
equivalents, beginning of period
|
|
|
433
|
|
|
|
36
|
|
Cash and cash
equivalents, end of period
|
|
$
|
11
|
|
|
$
|
29
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures
of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Cash paid for taxes
|
|
|
-
|
|
|
|
-
|
|
Cash paid for Interest
|
|
|
17
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing
and financing activities
|
|
|
|
|
|
|
|
|
Recognition of right-of-use asset and
liability
|
|
$
|
92
|
|
|
$
|
410
|
|
Reclass to long term Convertible Notes
payable
|
|
|
(52
|
)
|
|
|
-
|
|
Premium on Convertible notes Payable
|
|
|
(70
|
)
|
|
|
-
|
|
Discount on Convertible Notes Payable
|
|
|
(725
|
)
|
|
|
-
|
|
Reclass to Settlement Payable
|
|
|
7
|
|
|
|
-
|
|
Original issuance discount
|
|
|
(131
|
)
|
|
|
-
|
|
Discount revenue loan
|
|
|
(28
|
)
|
|
|
-
|
|
Conversions
|
|
|
186
|
|
|
|
|
|
Recognition of beneficial conversion
feature
|
|
|
353
|
|
|
|
-
|
|
Shared to be issued
|
|
|
(535
|
)
|
|
|
|
|
Derivative allocated to discount
|
|
|
173
|
|
|
|
-
|
|
Common Stock for services
|
|
|
(6
|
)
|
|
|
-
|
|
Fair Value of Options
|
|
|
529
|
|
|
|
-
|
|
See
notes to condensed consolidated financial statements
QUANTA,
INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE
AND NINE MONTHS ENDED September 30, 2020 AND 2019 (UNAUDITED)
(Amounts
in thousands, except share and per share amounts)
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.
Subsequent
to September 30, 2020, the Company experienced a change in control and appointment of a new Chief Executive Officer, among other
corporate actions, and commenced a transition into a holding company. During the transition phase, the Company furloughed most
of its employees, and has continued to sell its products online (see Note 12).
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 September 30, 2020, the Company incurred a net loss of $5,931 and used cash in operating activities
of $1,804, and at September 30, 2020, the Company had a stockholders’ deficit of $1,850. 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. In addition, the Company’s independent registered public accounting firm, in their report on the Company’s
December 31, 2019 audited financial statements, raised substantial doubt about the Company’s ability to continue as a going
concern. 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
September 30, 2020, the Company had cash on hand in the amount of $11. Subsequent to September 30, 2020, the Company received
$1,643 from the issuance of notes payable. Management estimates that the current funds on hand will be sufficient to continue
operations through the next three 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 unaudited condensed consolidated financial statements as of and for the three and nine months ended September 30,
2020 and 2019, 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 September 30, 2020 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending
December 31, 2020. The Condensed Consolidated Balance Sheet information as of December 31, 2019 was derived from the Company’s
audited Consolidated Financial Statements as of and for year ended December 31, 2019, included in the Company’s Annual Report
on Form 10-K/A filed with the SEC on April 10, 2020. These financial statements should be read in conjunction with that report.
The
consolidated financial statements include the accounts of Quanta Inc, and its wholly-owned subsidiary, Bioanomaly, Inc. Intercompany
transactions have been eliminated in consolidation.
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 quarter ended June 30, 2020 and September
30, 2020, we believe the COVID-19 pandemic did impact our operating results as shipments to customers in the second quarter and
third quarter were down 13% and 10% 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.
Use
of estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
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
The
Company follows the guidance of Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers.
ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contracts, which includes
(1) identifying the contracts or agreements with a customer, (2) identifying our performance obligations in the contract or agreement,
(3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing
revenue as each performance obligation is satisfied. The Company only applies the five-step model to contracts when it is probable
that the Company will collect the consideration it is entitled to in exchange for the services it transfers to its clients.
Product
Sales—Revenue from sales of the Company’s CBD products is recognized at the point in time when the Company’s
performance obligations with the applicable customers have been satisfied. Revenue is recorded at the transaction price, which
is the amount of consideration the Company expects to receive in exchange for transferring products to a customer. Generally,
the Company’s performance obligations are transferred to the customer at a point in time, typically upon delivery of products.
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. The Company sells its products (i) directly to customers (“DTC”)
through online orders from our websites, and DTC sales at conventions and events; and (ii) through wholesalers, including physicians,
pharmacies, fitness studios, grocery stores, and other organizations.
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.
Leases
Effective
January 1, 2019, the Company adopted the guidance of ASC 842, Leases, which requires an entity to recognize a right-of-use asset
and a lease liability for virtually all leases. The Company determines if an arrangement contains a lease at the inception of
the contract. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease
term while lease liabilities represent our obligation to make lease payments arising from the lease. All leases with terms greater
than twelve months result in the recognition of a ROU asset and a liability at the lease commencement date based on the present
value of the lease payments over the lease term. Leases with terms of twelve months or less at the commencement date are expensed
on a straight-line basis over the lease term and do not result in the recognition of an asset or liability (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 September
30, 2020, reporting date. The classification of derivative instruments, including whether such instruments should be recorded
as liabilities or as equity, is evaluated at the end of each reporting period
Convertible
Notes with Fixed Rate Conversion Options
The
Company may enter into convertible notes, some of which contain, predominantly, fixed rate conversion features, whereby the outstanding
principal and accrued interest may be converted by the holder, into common shares at a fixed discount to the market price of the
common stock at the time of conversion. This results in a fair value of the convertible note being equal to a fixed monetary amount.
The Company records the convertible note liability at its fixed monetary amount by measuring and recording a premium, as applicable,
on the Note date with a charge to interest expense in accordance with ASC 480 - “Distinguishing Liabilities from Equity”.
Stock
Compensation
The
Company periodically issues stock options and restricted stock awards to employees and non-employees in non-capital raising transactions
for services and for financing costs. The Company accounts for such grants issued and vesting based on ASC 718, whereby 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 recognizes the fair value of stock-based compensation within its Statements of Operations with classification
depending on the nature of the services rendered.
The
fair value of the Company’s stock options is estimated using a 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 nine months ended September 30, 2020 and 2019, advertising costs totaled $53 and $58,
respectively.
Research
and Development Costs
Costs
incurred for research and development are expensed as incurred. During the nine months ended September 30, 2020 and 2019, research
and development costs totaled $307 and $197, 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 by the weighted average number of common shares outstanding for the period,
excluding shares of unvested restricted common stock. Shares of restricted stock are included in the basic weighted average number
of common shares outstanding from the time they vest. At September 30, 2020, shares used in the calculation of basic net loss
per common share include 4,125,000 of vested but unissued shares underlying awards of restricted common stock. Diluted earnings
per share is computed by dividing the net income applicable to common stockholders by the weighted average number of common shares
outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares
had been issued, using the treasury stock method. Shares of restricted stock are included in the diluted weighted average number
of common shares outstanding from the date they are granted. Potential common shares are excluded from the computation when their
effect is anti-dilutive.
For
the nine months ended September 30, 2020, the dilutive impact of stock options exercisable into 2,732,261 shares of common stock,
convertible notes convertible into 61,171,291 shares of common stock, and 4,500,000 shares of unvested restricted common stock
have been excluded from calculation of weighted average shares because their impact on the loss per share is anti-dilutive. It
should be noted that under the contractual terms of the convertible notes; one note holder is limited no more than 4.99% of outstanding
shares; the other note holders are limited to no more than 9.99% of the outstanding shares at any time within 61 days of conversion.
Therefore at September 30, 2020, the note holders could not convert their respective notes into more than 20,361,669 common shares.
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 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 September 30, 2020, the Company’s balance sheet includes Level 2 liabilities comprised of the fair value of embedded
derivative liabilities of $179 (see Note 8).
Concentrations
of risks
For
the nine months ended September 30, 2020 and 2019, one customer accounted for 15% or more of revenue. No other customer accounted
for 10% or more of revenue. As of September 30, 2020, one customer accounted for 17% of accounts receivable, and one accounted
for 10% of accounts receivable. No other customer accounted for 10% or more of accounts receivable. As of December 31, 2019, two
customers accounted for 19% and 12% of accounts receivable, respectively. No other customer accounted for 10% or more of accounts
receivable.
As
of September 30, 2020, four vendors accounted for 11% and 17% and 14% and 14% of accounts payable, respectively, and no other
vendor accounted for 10% or more of accounts payable. As of September 30, 2020 no vendor accounted for 10% or more of accounts
payable.
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 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
June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326). ASU 2016-13 requires
entities to use a forward-looking approach based on current expected credit losses (“CECL”) to estimate credit losses
on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances
for losses. ASU 2016-13 is effective for the Company beginning January 1, 2023, and early adoption is permitted. The Company does
not believe the potential impact of the new guidance and related codification improvements will be material to its financial position,
results of operations and cash flows.
Other
recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified
Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact
on the Company’s present or future consolidated financial statements.
NOTE
2 – LICENSE AGREEMENT
Effective
January 22, 2019, the Company entered into an agreement with a wholesaler for the exclusive rights to distribute the Company’s
products in the state of Colorado for three years. In consideration, the Company received an up-front payment of $100. 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 three and nine months ended September 30,
2020 the Company recognized revenue related to this agreement in the amount of $9 and $25, respectively. For the three and nine
months ended September 30, 2019 the Company recognized revenue related to this agreement in the amount of $9 and $17, respectively.
NOTE
3 – INVENTORIES
Inventories
are valued at the lower of cost (first-in, first-out) or net realizable value, and consisted of the following:
|
|
September
30, 2020
|
|
|
December
31, 2019
|
|
|
|
|
|
Raw materials and packaging
|
|
$
|
120
|
|
|
$
|
103
|
|
Finished goods
|
|
|
37
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
157
|
|
|
$
|
123
|
|
NOTE
4 - EQUIPMENT
Equipment,
stated at cost, less accumulated depreciation consisted of the following:
|
|
September
30, 2020
|
|
|
December
31, 2019
|
|
|
|
|
|
|
|
|
Machinery-technology equipment
|
|
$
|
705
|
|
|
$
|
607
|
|
Machinery-technology
equipment under construction
|
|
|
12
|
|
|
|
30
|
|
|
|
|
717
|
|
|
|
637
|
|
Less
accumulated depreciation
|
|
|
(485
|
)
|
|
|
(324
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
232
|
|
|
$
|
313
|
|
Depreciation
expense for the three and nine months ended September 30, 2020 was $55 and $162, respectively. Depreciation expense for the three
and nine months ended September 30, 2019 was $50 and $122, respectively. As of September 30, 2020, the equipment under construction
is approximately 80% complete, and is expected to be completed and placed into service during the year ended December 31, 2020.
NOTE
5 - OPERATING LEASES
At
December 31, 2019, the Company had one operating lease for its headquarters office space in Burbank, California. 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 lease commenced on January 1, 2020, and has a term for 5 years, with annual fixed rental payments ranging from
$90 to $101. The aggregate total fixed rent is approximately $478 and resulted in the recognition of an operating lease right-of-use
(“ROU”) asset and of corresponding lease liability of approximately $432 each. The Company also paid a security deposit
of $17. At September 30, 2020, the Company did not have any other leases.
During
the nine months ended September 30, 2020, the Company consolidated it operations into one space located in Burbank, California.
In connection with one lease that is no longer utilized, the Company recorded an impairment of the related net right of use asset
of $255, and wrote of a deposit of $17 with the lessor. The total due to the lessor is $236 and is recorded as settlement reserve
at September 30, 2020.
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:
|
|
Nine
months ended
September
30, 2020
|
|
|
|
|
(in
thousands)
|
|
Lease Cost
|
|
|
|
|
Operating lease cost (included
in selling, general, and administrative expense in the Company’s statement of operations)
|
|
$
|
171,332
|
|
|
|
|
|
|
Other Information
|
|
|
|
|
Cash paid for amounts included in the
measurement of lease liabilities for 2020
|
|
$
|
92
|
|
Weighted average remaining lease term
– operating leases (in years)
|
|
|
3.25
|
|
Average discount rate – operating
leases
|
|
|
4
|
%
|
The
supplemental balance sheet information related to leases for the period is as follows:
|
|
At
September 30, 2020
|
|
Operating
leases
|
|
|
|
|
Long-term
right-of-use assets
|
|
$
|
382
|
|
|
|
|
|
|
Short-term operating lease liabilities
|
|
$
|
99
|
|
Long-term operating
lease liabilities
|
|
|
315
|
|
Total operating
lease liabilities
|
|
$
|
414
|
|
Maturities
of the Company’s lease liabilities are as follows:
Year
Ending
|
|
Operating
Leases
|
|
2020
|
|
$
|
23
|
|
2021
|
|
|
94
|
|
2022
|
|
|
96
|
|
2023
|
|
|
99
|
|
2024
|
|
|
102
|
|
Total lease payments
|
|
|
414
|
|
Less:
Imputed interest/present value discount
|
|
|
(-
)
|
|
Present value of lease liabilities
|
|
|
414
|
|
Less
current portion
|
|
|
(99
|
)
|
Operating
lease liabilities, long-term
|
|
$
|
315
|
|
Lease
expenses were $72 and $171 during the three and nine months ended September 30, 2020, respectively. Lease expenses were $20 and
$81 during the three and nine months ended September 30, 2019, respectively.
NOTE
6 – NOTES PAYABLE
|
|
September
30, 2020
|
|
|
December
31, 2019
|
|
Secured
|
|
|
|
|
|
|
|
|
(a) Notes payable secured
by equipment
|
|
$
|
440
|
|
|
$
|
-
|
|
(a) Deferred finance charges on notes
payable secured by equipment
|
|
|
(89
|
)
|
|
|
-
|
|
(b) Note payable secured by assets
|
|
|
33
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
Unsecured
|
|
|
|
|
|
|
|
|
(c) Note payable-Payroll Protection
Loan
|
|
|
134
|
|
|
|
-
|
|
(d) Note payable- Economic Injury
Disaster Loan
|
|
|
160
|
|
|
|
-
|
|
(e) Revenue sharing agreement
|
|
|
250
|
|
|
|
-
|
|
(e) Deferred
finance charges, revenue sharing
|
|
|
(25
|
)
|
|
|
-
|
|
Total notes payable outstanding
|
|
|
903
|
|
|
|
56
|
|
Current portion
|
|
|
420
|
|
|
|
-
|
|
Long-term
portion
|
|
$
|
483
|
|
|
$
|
56
|
|
|
(a)
|
In
April 2020 and May 2020, the Company entered into two financing agreements aggregating $506. 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, and mature in April 2022 and May 2022. During the nine months ended September
30, 2020, the Company made payments of $67 and at September 30, 2020, the balance due on these notes was $439.
|
|
(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. At December 31, 2019, the balance of this Note was
$56, During the nine months ended September 30, 2020, the company made principal payments of $22, and at September 30, 2020,
the balance due on this note was $33.
|
|
|
|
|
(c)
|
On
May 7, 2020, the Company was granted a loan (the “PPP loan”) from Bank of America in the aggregate amount of $134,
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 September 30, 2020.
|
|
|
|
|
(d)
|
On
September 5, 2020, the Company received a $150 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 September 30,
2020.
|
|
|
|
|
(e)
|
Between
July 7, 2020, and July 29, 2020, the Company issued notes payable to a third-party investors totaling $250. 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, of discount which is being amortized
to interest expense over the expected term of the arrangement.
|
NOTE
7 – CONVERTIBLE NOTES PAYABLE
Convertible
notes payable consisted of the following:
|
|
September
30, 2020
|
|
|
December
31, 2019
|
|
Unsecured
|
|
|
|
|
|
|
|
|
(a) Convertible notes
with fixed discount percentage conversion prices
|
|
|
223
|
|
|
|
282
|
|
(b) Convertible notes with fixed
conversion prices
|
|
|
497
|
|
|
|
-
|
|
Default penalty principal added,
charged to loss on debt extinguishment
|
|
|
315
|
|
|
|
-
|
|
Put premiums
on stock settled debt
|
|
|
155
|
|
|
|
-
|
|
Total convertible notes principal
outstanding
|
|
|
1,035
|
|
|
|
282
|
|
Debt discount
|
|
|
(590
|
)
|
|
|
(225
|
)
|
|
|
|
|
|
|
|
|
|
Convertible notes, net of discount
and premium
|
|
$
|
600
|
|
|
$
|
57
|
|
Current portion
|
|
|
600
|
|
|
|
57
|
|
Long-term
portion
|
|
$
|
-
|
|
|
$
|
-
|
|
|
(a)
|
At
December 31, 2019, there were $282 of convertible notes with adjustable conversion prices outstanding. During the nine months
ended September 30, 2020, the Company issued one unsecured convertible promissory note for $153, bearing interest at 22% per
annum, and maturing in February 2021. Also during the nine months ended September 30, 2020, the Company also issued two unsecured
convertible notes payable for $30, bearing interest at 10% per annum, and maturing on December 31, 2020, that were issued
as loan commitment fees for notes payable. 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 $226 which were charged to interest expense at the dates of the note issuance.
During the nine months ended September 30, 2020, one convertible note payable for $282 was paid off and another was partially
converted into common stock. At September 30, 2020, the balance of these convertible notes was $223.
|
|
(b)
|
At
December 31, 2019, the Company had no convertible notes outstanding with fixed conversion
prices. During the nine months ended September 30, 2020, the Company issued seven convertible
notes with fixed conversion prices aggregating $497. 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 of $531 to account for loan fees, beneficial
conversion features ($323), and original issue discounts. The debt discounts are amortized
over the life of the notes or are amortized in full upon the conversion of the corresponding
notes to common stock.
On
September 2, 2020, the Company issued a convertible note (see paragraph a above) having a conversion price less than $0.05
which triggered a term common to all notes in paragraph b, which changed the conversion terms to be the lower of $0.05
or 61% of the lowest traded price during the 15 days prior to the conversion. This event is also considered a default
for which a penalty is charged equal to 150% of the accrued interest, default interest and principal, totaling $315. On
December 9, 2020, the Company executed amendments to these notes effective September 30, 2020 (as further discussed at
Note 12), which extended the maturity dates and fixed the conversion price at $0.015. Due to the change in conversion
terms the notes now require the recognition of the beneficial conversion feature of the increased principal and lowering
of the conversion price resulting in recognition of additional charges of $1,215. Loss on debt extinguishment was charged
$901 and debt discounts were charged $315 with a credit to additional paid in capital for the debt discounts which will
be amortized to interest expense over the extended term of the amended notes. At September 30, 2020 the new principal
totaled $812.
|
At
December 31, 2019, the balance of unamortized discount on convertible notes was $225. During the nine months ended September 30,
2020, debt discount of $761 was recorded, and debt discount amortization of $396 was recorded. At September 30, 2020, the balance
of the unamortized discount was $590.
Note
8 – DERIVATIVE FINANCIAL INSTRUMENTS
At
December 31, 2019, the balance of the derivative liabilities was $400, which was fully extinguished upon pay-off of the related
convertible note with a decrease of fair value of $114 and gain on debt extinguishment of $286 during the nine months ended September
30, 2020. The Company also recorded additions of $101 related to the conversion features of a note issued during the period (see
Note 7), and recorded a gain on extinguishment of $101 upon conversion of the related convertible note. At September 30, 2020,
the Company had no convertible notes outstanding that are considered to have embedded derivative liabilities that require bifurcation
per the note agreements.
The
derivative liabilities were valued at the following dates using a binomial model with the following assumptions:
|
|
September
30, 2020
|
|
|
December
31, 2019
|
|
Conversion feature:
|
|
|
|
|
|
|
|
|
Risk-free
interest rate
|
|
|
0.17
|
%
|
|
|
1.8
|
%
|
Expected volatility
|
|
|
182
|
%
|
|
|
222
|
%
|
Expected life (in
years)
|
|
|
3
– 12 months
|
|
|
|
1
year
|
|
Expected dividend
yield
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Fair Value:
|
|
|
-
|
|
|
|
-
|
|
Conversion
feature
|
|
$
|
-
|
|
|
$
|
400
|
|
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 – STOCKHOLDERS’ EQUITY
Series
A Preferred Stock
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.
On
April 14, 2020, The Company issued 2,500,000 shares of a newly created class of preferred stock, Series A Preferred Stock to the
Company’s Chief Executive Officer in a private placement transaction. The fair value of the was determined to be $465 and
was recorded as stock compensation.
Common
Stock
During
the nine months ended September 30, 2020, the Company issued 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.
The
Company issued 3,955,747 common shares of stock to two holders of convertible notes at contracted prices. The fair value of the
shares was $211 and the conversions reduced the convertible note principal due by $140.
The
Company issued 1,127,522 common shares of stock to secure financing for total fair value of $105.
During
the nine months ended September 30, 2020, the Company recognized beneficial conversion features totaling $1,569, as additional
paid in capital for the difference between the conversion price of the convertible notes payable and the fair value as of the
date of the amendments to the related convertible notes.
NOTE
10 – STOCK BASED COMPENSATION
The
total charged to stock-based compensation for the nine months ended September 30, 2020, was $1,542. The total included the following:
Preferred
stock
On
April 14, 2020, The Company issued 2,500,000 shares of a newly created class of preferred stock, Series A Preferred Stock to the
Company’s Chief Executive Officer in a private placement transaction. The fair value of the Series A Preferred shares was
determined to be $465 and was recorded as stock compensation in selling, general and administrative expense during the nine months
ended September 30, 2020. The Company determined the fair value of the Series A Preferred shares by obtaining an independent valuation
of the fair value of the Company’s Series A Preferred shares.
Common
stock
During
the nine months ended September 30, 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 $106 based on the closing price of the Company’s common stock on the dates
shares were granted, and recorded as stock compensation in selling, general and administrative expense during the nine months
ended September 30, 2020.
During
the nine months ended September 30, 2020, the Company recorded $929 to stock-based compensation as accretion of the expense related
to grants of restricted stock (see below).
During
the nine months ended September 30, 2020, the Company issued 750,000 common shares of stock to service vendors for a total fair
value of $42.
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 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. 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 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 nine months ended September
30, 2020, total share-based expense recognized related to vested restricted shares totaled $929. At September 30, 2020, there
was $753 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 nine months ended September 30, 2020:
|
|
Number
of shares
|
|
|
Fair
value of shares
(in thousands)
|
|
Non-vested shares, December 31, 2019
|
|
|
5,750,000
|
|
|
$
|
1,682
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Vested
|
|
|
(1,875,000
|
)
|
|
|
(929
|
)
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Non-vested shares, September 30,
2020
|
|
|
3,875,000
|
|
|
$
|
753
|
|
As
of September 30, 2020, no shares have been issued and 4,125,000 vested shares are included in shares to be issued on the accompanying
financial statements
Stock
Options
During
the year ended December 31, 2019, the Company issued options exercisable into 3,290,000 shares of common stock. The options initially
had an exercise price of $0.23 per share, and this was amended in May 2020 to $0.10 per share. The Company used the Black-Scholes-Merton
option pricing model to estimate the fair value of the modified option grants immediately before and immediately after the modification
and determined the change in fair value related to the modification was de minimis.
During
the nine months ended September 30, 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, 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 nine months ended September 30, 2020, the Company recognized $250 of compensation expense relating to vested stock options.
As of September 30, 2020, the amount of unvested compensation related to stock options was approximately $346 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 three months ended September 30, 2020:
|
|
Number
of options
|
|
|
Weighted
Average
Exercise Price
|
|
|
Contractual
Life in Years
|
|
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 September
30, 2020
|
|
|
4,130,000
|
|
|
|
0.11
|
|
|
|
6.5
|
|
Options Exercisable as of September
30, 2020
|
|
|
2,732,261
|
|
|
$
|
0.10
|
|
|
|
5.5
|
|
At
September 30, 2020, the options outstanding had no intrinsic value.
NOTE
11 – COMMITMENTS AND CONTINGENCIES
The
Company has an agreement with an individual in consideration of the Company’s exclusive use of patented technology developed
by the individual. 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 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 three and nine months ended September 30, 2020, the Company paid $62 and $296 to the individual.
The
Company entered into agreements to share revenue for a product to be designed and produced with several investors. The agreements
specify payments of 50% of the net revenues from the specified new product sales. The investors advanced $250 for the right to
receive the payments specified. The Company has not produced the specified product. The Company has recorded the advances as liabilities
under notes payable. In addition, the Company issued 280,000 shares of common stock to the related investors and the recognized
the fair value of $28 as a discount. The discount is being amortized to interest expense over the expected life of the agreement.
The Company has determined that there is the potential for litigation under these agreements however no estimate of liability
can be calculated as of September 30, 2020.
NOTE
12 – SUBSEQUENT EVENTS
Change
in Control, Appointment of New Board Member and Chief Executive Officer and Other Corporate Actions
On
November 13, 2020, Mr. Phil Sands was appointed as a member of the Board of Directors of the Company, and to serve as our new
Chief Executive Officer, a role which he assumed following the ten-day period after the mailing of a Schedule 14F to our shareholders
of record, Eric Rice has resigned from all officer and director positions with the Company.
On
November 15, 2020, the Company entered into an interim compensation agreement with Mr. Phil Sands providing for monthly compensation
of $8 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 Phil 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 Phil 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.
During
the transition phase, the Company has furloughed most of its employees, and formulation of product has been intermittent while
fulfilling orders has continued. Finished goods inventory is been replenished by packaging and labeling inventory classified as
raw materials. Management believes that order fulfilment can continue into the first quarter of 2021, while any organizational
and staffing changes are being evaluated.
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, and to retain ownership of 1,000,000 shares of Common
Stock. Mr. Rice agreed to cancel and return to treasury 17,030,032 shares in order to assist the Company with its plans to attract
experienced management, reorganize into a holding company, while transitioning the Company’s existing CBD business operations
into a newly formed operating subsidiary, without requiring QNTA to further dilute its stock through the issuance of new shares.
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 in order to provide the Company with sufficient shares to adequately pay down
its debt, to allow for compensation to vendors and executives for ongoing services being rendered to the Company, and to accommodate
for future financings and acquisitions. On November 20, 2020, the Board Received the Majority Shareholder’s Consent from
Phil Sands, holder of 2,500,000 shares of our Series A Preferred Stock, approving the increase in our authorized shares of Common
Stock to 500,000,000. No changes to our Preferred Stock are being made. The Secretary of the state of Nevada approved the amendment
to the articles of incorporation and approved the share increase.
Issuances
of Common Stock
In
October 2020, the Company issued 2,509,217 shares of common stock for conversion of $43 of principal and $9 of accrued interest
at contracted prices. Following the conversion, the principal and accrued interest of the related note were fully liquidated.
On
December 3, 2020, the Company issued 420,055 shares of common stock for conversion of $40 of principal and $2 of accrued interest
at contracted prices. Following the conversion, the principal and accrued interest of the related note were fully liquidated.
On
January 4, 2021, the Company issued 500,000 shares of common stock to an individual for services. The shares were valued on the
issuance date at $30,000, which will be charged to compensation expense.
Cancellation of Shares Issued for Compensation
On
December 29, 16,951,432 shares of common stock previously issued to the former CEO were cancelled in accordance with the November
16, 2020 Share Cancellation Agreement.
Convertible
Notes Issued
In
November 2020, the Company issued four notes payable for aggregate proceeds of $85,000 and received $77 in cash. The notes are
convertible into common shares of stock at the fixed price of $0.015 per share. The notes mature in April 2021 and bear interest
at 10%. The note holders were issued 155,000 of restricted shares of common stock at $0.0365 for total of $6 of fair value. The
Company defaulted on these notes due to a failure to file the September 30, 2020 Form 10Q on a timely basis and therefore is subject
default penalties of 150% of accrued interest and principal.
Between November 10 and December 17, 2020,
the company issued 4 convertible notes to three third parties having total principal of $335,000. The notes have OID and BCF discounts
totaling $335,000, to be amortized over the six month terms of the notes. The notes carry 10% interest and convert into common
shares at a fixed price of $0.015.
On
December 9, 2020, the Company issued a convertible promissory note to Trillium Partners LP for $25. The note: carries $3 of original
issue discount (OID), may be converted into the Company’s common stock at $0.015 per share, bears interest at 10% and matures
on June 30, 2021. The OID will be amortized to interest expense over the term of the note and the beneficial conversion feature
will be recognized as a debt discount and additional paid in capital.
On
December 16, 2020, the Company issued a convertible promissory note to Trillium Partners LP for $23. The note: carries $3 of original
issue discount (OID), may be converted into the Company’s common stock at $0.015 per share, bears interest at 10% and matures
on June 30, 2021. The OID will be amortized to interest expense over the term of the note and the beneficial conversion feature
will be credited to additional paid in capital and $20,000 will be recognized as a debt discount and amortized to interest expense
over the term of the note.
Amendments
to Convertible Notes effective September 30, 2020 to Cure Defaults
On
December 9, 2020, the Company executed an amendment to its convertible note payable issued to Livingston Asset Management LLC
on April 27, 2020, curing the defaults under the terms of the original note. The maturity was extended to June 30, 2021, the conversion
terms were changed from fixed percentage discount to a fixed price of $0.015. Additionally, the investor is now entitled to deduct
$1,000 for each conversion to cover related costs.
On
December 9, 2020, the Company executed an amendment to its convertible note payable issued to Alpha Capital Anstalt on April 27,
2020, curing the defaults under the terms of the original note. The principal was restated under the default terms to be $160,
the maturity was extended to June 30, 2021, the conversion terms were changed from fixed percentage discount to a fixed price
of $0.015. Additionally, the investor is now entitled to deduct $1,000 for each conversion to cover related costs.
On
December 9, 2020, the Company executed an amendment to its convertible note payable issued to Trillium Partners LP on April 27,
2020, curing the defaults under the terms of the original note. The principal was restated under the default terms to be $160,
the maturity was extended to June 30, 2021, the conversion terms were changed from fixed percentage discount to a fixed price
of $0.015. Additionally, the investor is now entitled to deduct $1,000 for each conversion to cover related costs.
On
December 9, 2020, the Company executed an amendment to its convertible note payable issued to an individual on April 27, 2020,
curing the defaults under the terms of the original note. The principal was restated under the default terms to be $36, the maturity
was extended to June 30, 2021, the conversion terms were changed from fixed percentage discount to a fixed price of $0.015. Additionally,
the investor is now entitled to deduct $1,000 for each conversion to cover related costs.
On
December 9, 2020, the Company executed an amendment to its convertible note payable issued to Trillium Partners LP on May 27,
2020, curing the defaults under the terms of the original note. The principal was restated under the default terms to be $18,
the maturity was extended to June 30, 2021, the conversion terms were changed from fixed percentage discount to a fixed price
of $0.015. Additionally, the investor is now entitled to deduct $1,000 for each conversion to cover related costs.
On
December 9, 2020, the Company executed an amendment to its convertible note payable issued to Alpha Capital Anstalt on May 27,
2020, curing the defaults under the terms of the original note. The principal was restated under the default terms to be $9, the
maturity was extended to June 30, 2021, the conversion terms were changed from fixed percentage discount to a fixed price of $0.015.
Additionally, the investor is now entitled to deduct $1,000 for each conversion to cover related costs.
On
December 9, 2020, the Company executed an amendment to its convertible note payable issued to Trillium Partners LP on June 26,
2020, curing the defaults under the terms of the original note. The principal was restated under the default terms to be $154,
the maturity was extended to June 30, 2021, the conversion terms were changed from fixed percentage discount to a fixed price
of $0.015. Additionally, the investor is now entitled to deduct $1,000 for each conversion to cover related costs.
On
December 9, 2020, the Company executed an amendment to its convertible note payable issued to Trillium Partners LP on August 27,
2020, curing the defaults under the terms of the original note. The principal was restated under the default terms to be $71,
the maturity was extended to June 30, 2021, the conversion terms were changed from fixed percentage discount to a fixed price
of $0.015. Additionally, the investor is now entitled to deduct $1,000 for each conversion to cover related costs.
The
amendments to the notes above have been recognized in the financial statements as of September 30, 2020, as loss on debt extinguishment
(for changes in principal amount of $315) the beneficial conversion features recorded as additional paid in capital and were charged
to loss on debt extinguishment ($901) and debt discount of $315 which will be amortized with periodic charges to interest expense
over the amended terms of the notes.
Amendments
to Convertible Notes Issued Subsequent to September 30, 2020 to Cure Defaults
On
December 9, 2020, the Company executed an amendment to its convertible note payable issued to Alpha Capital Anstalt on November
3, 2020, curing the defaults under the terms of the original note. The principal was restated under the default terms to be $35,
the maturity was extended to June 30, 2021, the conversion terms were changed from fixed percentage discount to a fixed price
of $0.015. Additionally, the investor is now entitled to deduct $1,000 for each conversion to cover related costs.
On
December 9, 2020, the Company executed an amendment to its convertible note payable issued to an individual on November 3, 2020,
curing the defaults under the terms of the original note. The principal was restated under the default terms to be $26, the maturity
was extended to June 30, 2021, the conversion terms were changed from fixed percentage discount to a fixed price of $0.015. Additionally,
investor is now entitled to deduct $1,000 for each conversion to cover related costs.
On
December 9, 2020, the Company executed an amendment to its convertible note payable issued to another individual on November 3,
2020, curing the defaults under the terms of the original note. The principal was restated under the default terms to be $26,
the maturity was extended to June 30, 2021, the conversion terms were changed from fixed percentage discount to a fixed price
of $0.015. Additionally, the investor is now entitled to deduct $1,000 for each conversion to cover related costs.
On
December 9, 2020, the Company executed an amendment to its convertible note payable issued to Trillium Partners LP on November
3, 2020, curing the defaults under the terms of the original note. The principal was restated under the default terms to be $43,
the maturity was extended to June 30, 2021, the conversion terms were changed from fixed percentage discount to a fixed price
of $0.015. Additionally, the investor is now entitled to deduct $1,000 for each conversion to cover related costs.
Report
of Independent Registered Public Accounting Firm
The
Stockholders 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, 2019 and 2018, the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash
flows for the year ended December 31, 2019 and the nine-month transition period ended December 31, 2018, 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, 2019 and 2018, and the results of its operations
and its cash flows for the year ended December 31, 2019, and for the nine-month transition period ended December 31, 2018, 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, 2019, the Company incurred a net loss and utilized cash
in operations, and at December 31, 2019, had a working capital deficiency. 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
3, 2020
|
|
QUANTA,
INC. AND SUBSIDIARY
CONSOLIDATED
BALANCE SHEETS
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
433,143
|
|
|
$
|
35,820
|
|
Accounts receivable
|
|
|
28,260
|
|
|
|
19,561
|
|
Inventories
|
|
|
122,519
|
|
|
|
-
|
|
Prepaid expenses
|
|
|
7,500
|
|
|
|
-
|
|
Total
current assets
|
|
|
591,422
|
|
|
|
55,381
|
|
|
|
|
|
|
|
|
|
|
Equipment, net
|
|
|
313,478
|
|
|
|
372,880
|
|
Operating lease right-of-use asset
|
|
|
332,980
|
|
|
|
-
|
|
Security deposits
|
|
|
33,652
|
|
|
|
16,770
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,271,532
|
|
|
$
|
445,031
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’
EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
73,598
|
|
|
$
|
9,617
|
|
Notes payable ($55,850 in default at
December 31, 2019)
|
|
|
55,850
|
|
|
|
180,000
|
|
Deferred revenue, license agreement
|
|
|
32,742
|
|
|
|
-
|
|
Operating lease liabilities
|
|
|
85,662
|
|
|
|
-
|
|
Convertible note payable (net of discount
of $224,660)
|
|
|
57,340
|
|
|
|
-
|
|
Derivative liabilities
|
|
|
400,139
|
|
|
|
-
|
|
Total
current liabilities
|
|
|
705,331
|
|
|
|
189,617
|
|
|
|
|
|
|
|
|
|
|
Long term liabilities
|
|
|
|
|
|
|
|
|
Deferred revenue, licenses agreement,
long-term
|
|
|
35,470
|
|
|
|
-
|
|
Operating lease
liabilities, long-term
|
|
|
251,791
|
|
|
|
-
|
|
Total liabilities
|
|
|
992,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 25,000,000
shares authorized; none issued or outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.001 par value; 100,000,000 shares authorized;
49,087,255 and 39,200,090 shares issued and outstanding as of December 31, 2019 and December 31, 2018, respectively
|
|
|
49,087
|
|
|
|
39,200
|
|
Shares to be issued (7,318,519 and 612,000
shares to be issued as of December 31, 2019 and December 31, 2018, respectively)
|
|
|
2,847,868
|
|
|
|
306,000
|
|
Additional paid-in capital
|
|
|
5,619,733
|
|
|
|
2,360,598
|
|
Accumulated deficit
|
|
|
(8,237,748
|
)
|
|
|
(2,450,384
|
)
|
Total
stockholders’ equity
|
|
|
278,940
|
|
|
|
255,414
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
and stockholders’ equity
|
|
$
|
1,271,532
|
|
|
$
|
445,031
|
|
See
notes to consolidated financial statements
QUANTA,
INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
Year
ended
December 31, 2019
|
|
|
Nine
months ended
December 31, 2018
|
|
|
|
|
|
|
|
|
Sale of products, net
|
|
$
|
1,237,200
|
|
|
$
|
225,254
|
|
License revenue
|
|
|
31,788
|
|
|
|
-
|
|
Total revenue
|
|
|
1,268,988
|
|
|
|
225,254
|
|
Cost of goods
sold
|
|
|
303,720
|
|
|
|
183,681
|
|
Gross profit
|
|
|
965,268
|
|
|
|
41,573
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Labor and related
|
|
|
1,302,391
|
|
|
|
454,179
|
|
Research and development
|
|
|
351,670
|
|
|
|
207,600
|
|
Selling, general,
and administrative
|
|
|
4,799,030
|
|
|
|
1,055,805
|
|
Total
operating expenses
|
|
|
6,453,091
|
|
|
|
1,717,584
|
|
Loss from operations
|
|
|
(5,487,823
|
)
|
|
|
(1,676,011
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(226,239
|
)
|
|
|
-
|
|
Interest income
|
|
|
37
|
|
|
|
39
|
|
Extinguishment of derivative liabilities
|
|
|
145,565
|
|
|
|
-
|
|
Change in fair value of derivative liabilities
|
|
|
19,491
|
|
|
|
-
|
|
Private placement costs
|
|
|
(238,395
|
)
|
|
|
-
|
|
Gain on forgiveness of accrued interest
|
|
|
-
|
|
|
|
21,000
|
|
Gain on extinguishment
of debt
|
|
|
-
|
|
|
|
41,000
|
|
Other income
and expense, net
|
|
|
(299,541
|
)
|
|
|
62,039
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,787,364
|
)
|
|
$
|
(1,613,972
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per
share, basic and diluted
|
|
$
|
(0.14
|
)
|
|
$
|
(0.05
|
)
|
Weighted average
common shares outstanding – basic and diluted
|
|
|
42,808,603
|
|
|
|
35,100,108
|
|
See
notes to consolidated financial statements.
QUANTA,
INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR
THE YEAR ENDED DECEMBER 31, 2019
AND
THE NINE MONTHS ENDED DECEMBER 31, 2018
|
|
Common
Stock, par value
$0.001
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
shares
|
|
|
Amount
|
|
|
paid-in
capital
|
|
|
Shares
to be
issued
|
|
|
Accumulated
deficit
|
|
|
Total
|
|
Balance, March 31, 2018
|
|
|
21,908,810
|
|
|
$
|
21,909
|
|
|
$
|
(11,909
|
)
|
|
$
|
-
|
|
|
$
|
(836,412
|
)
|
|
$
|
(826,412
|
)
|
Shares issued for recapitalization
|
|
|
6,500,000
|
|
|
|
6,500
|
|
|
|
(6,500
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Costs of recapitalization
|
|
|
-
|
|
|
|
-
|
|
|
|
(495,760
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(495,760
|
)
|
Shares issued for cash
|
|
|
6,500,090
|
|
|
|
6,500
|
|
|
|
1,293,518
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,300,018
|
|
Fair value of shares issued for settlement
of convertible notes payable
|
|
|
3,771,040
|
|
|
|
3,771
|
|
|
|
1,011,229
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,015,000
|
|
Fair value of shares issued for services
|
|
|
520,150
|
|
|
|
520
|
|
|
|
193,510
|
|
|
|
-
|
|
|
|
-
|
|
|
|
194,030
|
|
Fair value of warrants issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
376,510
|
|
|
|
-
|
|
|
|
-
|
|
|
|
376,510
|
|
Cash received for shares to be issued
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
306,000
|
|
|
|
-
|
|
|
|
306,000
|
|
Net loss for the nine months ended
December 31, 2018
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,613,972
|
)
|
|
|
(1,613,972
|
)
|
Balance, December 31, 2018
|
|
|
39,200,090
|
|
|
|
39,200
|
|
|
|
2,360,598
|
|
|
|
306,000
|
|
|
|
(2,450,384
|
)
|
|
|
255,414
|
|
Issuance of shares
|
|
|
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
|
|
See
accompanying notes to financial statements
QUANTA,
INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
Year
Ended
December 31, 2019
|
|
|
Nine
Months Ended
December 31, 2018
|
|
CASH FLOW FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,787,364
|
)
|
|
$
|
(1,613,972
|
)
|
Adjustments to reconcile net loss to
net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
173,902
|
|
|
|
86,875
|
|
Fair value of shares issued for services
|
|
|
2,424,121
|
|
|
|
194,030
|
|
Fair value of vested options
|
|
|
711,404
|
|
|
|
-
|
|
Fair value of warrants issued for services
|
|
|
-
|
|
|
|
376,510
|
|
Extinguishment of derivative liabilities
|
|
|
(145,565
|
)
|
|
|
-
|
|
Change in fair value of derivatives
|
|
|
(19,491
|
)
|
|
|
-
|
|
Private placement costs
|
|
|
238,395
|
|
|
|
-
|
|
Amortization of convertible note discount
|
|
|
185,330
|
|
|
|
-
|
|
Gain on forgiveness of accrued interest
|
|
|
-
|
|
|
|
(21,000
|
)
|
Gain on extinguishment of debt
|
|
|
-
|
|
|
|
(41,000
|
)
|
Amortization of operating lease right-of-use
asset
|
|
|
87,132
|
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(8,699
|
)
|
|
|
(19,561
|
)
|
Inventories
|
|
|
(122,519
|
)
|
|
|
-
|
|
Prepaid expenses
|
|
|
(7,500
|
)
|
|
|
-
|
|
Accounts payable and accrued liabilities
|
|
|
63,981
|
|
|
|
9,617
|
|
Deferred revenue, license agreement
|
|
|
68,212
|
|
|
|
-
|
|
Operating lease
liabilities
|
|
|
(82,659
|
)
|
|
|
-
|
|
Net cash used
in operating activities
|
|
|
(2,221,320
|
)
|
|
|
(1,028,501
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of equipment
|
|
|
(114,500
|
)
|
|
|
(175,000
|
)
|
Payment of security
deposit
|
|
|
(16,882
|
)
|
|
|
(16,770
|
)
|
Net cash used
in investment activities
|
|
|
(131,382
|
)
|
|
|
(191,770
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from shares issued for cash
|
|
|
2,090,375
|
|
|
|
1,300,018
|
|
Proceeds from shares to be issued
|
|
|
530,000
|
|
|
|
306,000
|
|
Proceeds from convertibles notes payable
|
|
|
326,800
|
|
|
|
-
|
|
Proceeds from notes payable
|
|
|
-
|
|
|
|
100,000
|
|
Principal payments of notes payable
|
|
|
(124,150
|
)
|
|
|
-
|
|
Principal payment of convertible note
payable
|
|
|
(73,000
|
)
|
|
|
|
|
Costs of recapitalization
|
|
|
-
|
|
|
|
(495,760
|
)
|
Net cash provided
by financing activities
|
|
|
2,750,025
|
|
|
|
1,210,258
|
|
Decrease in cash
|
|
|
397,323
|
|
|
|
(10,013
|
)
|
Cash and cash
equivalents, beginning of period
|
|
|
35,820
|
|
|
|
45,833
|
|
Cash and cash
equivalents, end of period
|
|
$
|
433,143
|
|
|
$
|
35,820
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow
Information:
|
|
|
|
|
|
|
|
|
Cash paid for taxes
|
|
$
|
800
|
|
|
$
|
1,600
|
|
Cash paid for Interest
|
|
|
15,080
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities
|
|
|
|
|
|
|
|
|
Derivative liabilities allocated to
convertible note discount
|
|
$
|
326,800
|
|
|
$
|
-
|
|
Original issue discount
|
|
|
28,200
|
|
|
|
-
|
|
Fair value of shares issued for loan
fee
|
|
|
54,990
|
|
|
|
-
|
|
Shares issued for cashless exercise of warrant
|
|
|
2,590
|
|
|
|
-
|
|
Fair value of shares issued for settlement
of convertible notes payable
|
|
|
-
|
|
|
|
1,015,000
|
|
See
notes to consolidated financial statements
QUANTA,
INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2019 AND
THE
NINE MONTHS ENDED DECEMBER 31, 2018
NOTE
1 – DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Quanta,
Inc (“the Company”) was incorporated as Freight Solution, Inc. (“Freight Solution”) on April 28, 2016
in the State of Nevada. Effective June 6, 2018, Bioanomaly Inc. (“Bioanomaly”) was acquired by Freight Solution pursuant
to a merger agreement in which the shareholders of Bioanomaly exchanged all of the outstanding shares of Bioanomaly for 21,908,810
newly issued shares of Freight Solution’s common stock. Freight Solution shareholders retained 6,500,000 shares of common
stock, which represented 23% of the issued and outstanding stock following the merger. The acquisition was accounted for as a
reverse merger transaction. In connection with the closing of the merger, Freight Solution’s management was replaced by
Bioanomaly’s management. On July 11, 2018, the Company changed its name to 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.
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, 2019, the Company incurred a net loss of $5,787,364 and used cash in operating activities of $2,221,320,
and at December 31, 2019, the Company had a had a working capital deficiency of $113,909. 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, 2019, the Company had cash on hand in the amount of $433,143. Subsequent to December 31, 2019 the Company received
$153,000 from the issuance of a convertible note payable and $30,000 for subscriptions to purchase 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.
In
December 2018, the Company its fiscal year end from March 31 to December 31. The transition period covering the nine-month period
from April 1, 2018 to December 31, 2018 is included in the accompany consolidated financial statements.
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.
Accounts
Receivable
Accounts
receivable are recorded at the invoiced amount less 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, 2019 and December 31, 2018, the Company
did not record any allowance for uncollectible accounts.
Inventories
Inventories
are stated at the lower of cost or net realizable value. 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, 2019 and 2018, the Company had no reserve for inventory obsolescence.
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 year ended December 31, 2019 and for
the nine-months period ended December 31, 2018, the Company determined there were no indicators of impairment of its property
and equipment.
Revenue
The
Company follows the guidance of Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers.
ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contracts, which
includes (1) identifying the contracts or agreements with a customer, (2) identifying our performance obligations in the contract
or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations,
and (5) recognizing revenue as each performance obligation is satisfied. The Company only applies the five-step model to contracts
when it is probable that the Company will collect the consideration it is entitled to in exchange for the services it transfers
to its clients.
Product
Sales—Revenue from sales of the Company’s CBD products is recognized at the point in time when the Company’s
performance obligations with the applicable customers have been satisfied. At contract inception, the Company determines if the
contract is within the scope of ASC Topic 606 and then evaluates the contract using the following five steps: (1) identify the
contract with the customer; (2) identify the performance obligations; (3) determine the transaction price; (4) allocate the transaction
price to the performance obligations; and (5) recognize revenue at the point in time when the entity satisfies a performance obligation.
Revenue
is recorded at the transaction price, which is the amount of consideration the Company expects to receive in exchange for transferring
products to a customer. Generally, the Company’s performance obligations are transferred to the customer at a point in time,
typically upon delivery of products. 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.
The
Company sells its products (i) directly to customers (“DTC”) through online orders from our websites, and DTC sales
at conventions and events; and (ii) through wholesalers, including physicians, pharmacies, fitness studios, grocery stores, and
other organizations.
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.
Disaggregated
Revenue
The
composition of the Company’s net revenues recognized during the year ended December 31, 2019 and the nine-month period ended
December 31, 2018, disaggregated by source and nature, are as follows:
|
|
Year
ended
December 31, 2019
|
|
|
Nine-months
ended
December 31, 2018
|
|
By
Sales Channel:
|
|
|
|
|
|
|
|
|
Direct to consumer
|
|
$
|
443,916
|
|
|
$
|
67,806
|
|
Wholesale
|
|
|
793,284
|
|
|
|
157,448
|
|
License Revenue
|
|
|
31,788
|
|
|
|
-
|
|
|
|
$
|
1,268,988
|
|
|
$
|
225,254
|
|
|
|
|
|
|
|
|
|
|
By
Geographic Territory:
|
|
|
|
|
|
|
|
|
California
|
|
$
|
766,469
|
|
|
$
|
156,974
|
|
Other states
|
|
|
477,139
|
|
|
|
68,280
|
|
International
|
|
|
25,380
|
|
|
|
-
|
|
|
|
$
|
1,268,988
|
|
|
$
|
225,254
|
|
Leases
Prior
to January 1, 2019, the Company accounted for leases under ASC 840, Accounting for Leases. Effective January 1, 2019, the Company
adopted the guidance of ASC 842, Leases, which requires an entity to recognize a right-of-use asset and a lease liability for
virtually all leases. The Company adopted ASC 842 using a modified retrospective approach. As a result, the comparative financial
information has not been updated and the required disclosures prior to the date of adoption have not been updated and continue
to be reported under the accounting standard in effect for those periods. The adoption of ASC 842 on January 1, 2019 resulted
in the recognition of operating lease right-of-use assets and lease liabilities of $420,112 and did not result in a 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, 2019, 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
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 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 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.
In
periods through December 31, 2018, the Company accounted for share-based compensation issued to non-employees and consultants
in accordance with the provisions of FASB ASC 505-50, Equity - Based Payments to Non-Employees. Measurement of share-based
payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or
services received; or (b) the equity instruments issued. The final fair value of the share-based payment transaction is determined
at the performance completion date. For interim periods, the fair value is estimated, and the percentage of completion is applied
to that estimate to determine the cumulative expense recorded.
On
January 1, 2019, the Company adopted ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee
Share-Based Payment Accounting. ASU 2018-07 simplifies the accounting for share-based transactions by expanding the scope
of Topic 718 from only being applicable to share-based payments to employees to also include share-based payment transactions
for acquiring goods and services from nonemployees. As a result, nonemployee share-based transactions are measured by estimating
the fair value of the equity instruments at the grant date, taking into consideration the probability of satisfying performance
conditions. The adoption of ASU 2018-07 did not have a material impact on the Company’s financial statements.
Advertising
costs
Advertising
costs are expensed as incurred. During the year ended December 31, 2019 and the nine-month period ended December 31, 2018, advertising
costs totaled $103,401 and $27,529, respectively.
Research
and Development Costs
Costs
incurred for research and development are expensed as incurred. During the year ended December 31, 2019 and the nine-month period
ended December 31, 2018, research and development costs totaled $351,670 and 207,600, 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, 2019, the dilutive impact of stock options exercisable into 3,290,000 shares of common stock, 8,000,000
shares of restricted stock to be issued, and convertible notes payable that can convert into 889,469 shares of common stock have
been excluded from calculation of weighted average shares because their impact on the loss per share is anti-dilutive. For the
year ended December 31, 2019, the dilutive impact of stock warrants exercisable into 3,000,000 shares of common stock have been
excluded because their impact on the loss per share is anti-dilutive.
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 (see Note 8).
Concentrations
of risks
For
the year ended December 31, 2019 and the nine-month period ended December 31, 2018, no customer accounted for 10% or more of revenue.
As of December 31, 2019, two customers accounted for 19% and 12% of accounts receivable, respectively, and no other customer accounted
for 10% or more of accounts receivable. As of December 31, 2018, no customer accounted for more than 10% 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 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
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.
Other
recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified
Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact
on the Company’s present or future consolidated financial statements.
NOTE
2 – LICENSE AGREEMENT
Effective
January 22, 2019, the Company entered into an agreement with a wholesaler for the exclusive rights to distribute the Company’s
products in the state of Colorado for three years. In consideration, the Company received an up-front payment of $100,000. The
Company determined that the exclusive distribution agreement was a distinct agreement for the license of symbolic IP and thus
should be recognized on a straight-line basis over the three-year life of the agreement. For the year ended December 31, 2019,
the Company recognized revenue related to this agreement of $31,788. For the nine month period ended December 31, 2018, no distribution
fee revenue was recorded.
NOTE
3 – INVENTORIES
Inventories
are valued at the lower of cost (first-in, first-out) or net realizable value, and consisted of the following:
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
|
|
|
|
|
|
|
Raw materials and packaging
|
|
$
|
102,428
|
|
|
$
|
-
|
|
Finished goods
|
|
|
20,091
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
122,519
|
|
|
$
|
-
|
|
NOTE
4 - EQUIPMENT
Equipment,
stated at cost, less accumulated depreciation consisted of the following:
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
|
|
|
|
|
|
|
Machinery-technology equipment
|
|
$
|
607,000
|
|
|
$
|
347,500
|
|
Machinery-technology
equipment under construction
|
|
|
30,000
|
|
|
|
175,000
|
|
|
|
|
637,000
|
|
|
|
522,500
|
|
Less
accumulated depreciation
|
|
|
(323,522
|
)
|
|
|
(149,620
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
313,478
|
|
|
$
|
372,880
|
|
Depreciation
expense for the year ended December 31, 2019 and transition period ended December 31, 2018 was $173,903 and $185,835, respectively.
As of December 31, 2019, the equipment under construction is approximately 33% complete, and is expected to be completed and placed
into service during the year ended December 31, 2020.
NOTE
5 - OPERATING LEASE
The
Company leases its headquarters office space in Burbank, California under an operating lease that expires on July 31, 2023. At
December 31, 2019, the Company did not have any other leases.
Operating
lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of
lease payments over the lease term. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities
represent our obligation to make lease payments arising from the lease. 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.
Prior
to January 1, 2019, the Company accounted for leases under ASC 840, Accounting for Leases. Effective January 1, 2019, the Company
adopted the guidance of ASC 842, Leases (“ASC 842”), which requires an entity to recognize a right-of-use asset and
a lease liability for certain leases. The Company adopted ASC 842 using a modified retrospective approach. As a result, the comparative
financial information has not been updated and the required disclosures prior to the date of adoption have not been updated and
continue to be reported under the accounting standards in effect for those periods. The adoption of ASC 842 on January 1, 2019,
resulted in the recognition of operating lease right-of-use assets of $420,112 and corresponding lease liabilities of approximately
the same amount. There was no cumulative-effect adjustment to accumulated deficit. As of December 31, 2019, the unamortized right
of use asset was $332,980 and total lease liabilities were $337,453, of which $85,662 was current.
The
components of lease expense and supplemental cash flow information related to leases for the period are as follows:
|
|
Year
ended
December
31, 2019
|
|
Lease Cost
|
|
|
|
|
Operating lease cost (included
in selling, general, and administrative expense in the Company’s statement of operations)
|
|
$
|
107,588
|
|
|
|
|
|
|
Other Information
|
|
|
|
|
Cash paid for amounts included in the
measurement of lease liabilities for 2019
|
|
$
|
98,375
|
|
Weighted average remaining lease term
– operating leases (in years)
|
|
|
3.5
|
|
Average discount rate – operating
leases
|
|
|
4
|
%
|
The
supplemental balance sheet information related to leases for the period is as follows:
|
|
At
December 31, 2019
|
|
Operating
leases
|
|
|
|
|
Long-term
right-of-use assets
|
|
$
|
332,980
|
|
|
|
|
|
|
Short-term operating lease liabilities
|
|
$
|
85,662
|
|
Long-term operating
lease liabilities
|
|
|
251,791
|
|
Total operating
lease liabilities
|
|
$
|
337,453
|
|
Maturities
of the Company’s lease liabilities are as follows:
Year Ending
|
|
Operating
Leases
|
|
2020
|
|
$
|
97,625
|
|
2021
|
|
|
102,506
|
|
2022
|
|
|
107,632
|
|
2023
|
|
|
55,126
|
|
Total lease payments
|
|
|
362,889
|
|
Less:
Imputed interest/present value discount
|
|
|
(25,436
|
)
|
Present value of lease liabilities
|
|
|
337,453
|
|
Less
current portion
|
|
|
(85,662
|
)
|
Operating
lease liabilities, long-term
|
|
$
|
251,791
|
|
Lease
expense were $107,588 and $42,040 during the year ended December 31, 2019 and the nine-month period ended December 31, 2018, respectively.
Subsequent
to December 31, 2019, the Company commenced leasing a second facility in addition to its headquarters facility described above
(See Note 13).
NOTE
6 – NOTES PAYABLE
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
|
|
|
|
|
|
|
Note payable, in default,
due January 13, 2019, interest at 8.3% per annum, secured by all the assets of the Company. As of the date of the financial
statements, the note has not been fully paid, and the Company is in negotiations with the lender to cure this default.
|
|
$
|
55,850
|
|
|
$
|
80,000
|
|
|
|
|
|
|
|
|
|
|
Note payable,
unsecured, due January 6, 2019, interest at 10% per year. The note was paid off in 2019.
|
|
|
-
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
Total notes payable
(all current portion)
|
|
$
|
55,850
|
|
|
$
|
180,000
|
|
NOTE
7 – CONVERTIBLE NOTES PAYABLE
At
December 31, 2018, there was no balance of convertible notes payable. During 2019, the Company issued two convertible promissory
notes for the principal sum of $355,000, of which $326,800 was received as proceeds, and $28,200 was recorded as original issue
discount (OID). During 2019, one convertible note for $73,000 was repaid. At December 31, 2019, one convertible note for $282,000
was outstanding. The outstanding note is unsecured, bears interest at 12%, and is due April 29, 2020.
At
the option of the holders, the notes issued in 2019 are convertible into shares of the Company’s common stock at a price
per share discount of 39% to 40% of the average market price of the Company’s common stock, as defined. As a result, the
Company determined that the conversion option of the convertible notes were not considered indexed to the Company’s own
stock and characterized the fair value of the conversion features as derivative liabilities upon issuance. The Company determined
that upon issuance of the convertible notes in October 2019, the initial fair value of the embedded conversion features totaled
$565,195 (see Note 8), of which $326,800 was recorded as debt discount offsetting the face amount of the convertible notes, and
the remainder of $238,395 was recorded as private placement costs.
At
December 31, 2018, there was no balance of discount on convertible notes payable. During 2019, note discount of $355,000 was recorded,
made up of $28,200 OID and $326,800 of discount related to derivative liabilities. In addition, $54,990 of loan costs recorded
on one convertible note (see below) are included with the discount. The discount and loan costs are amortized over the term of
the related note payable. During 2019, total debt discount and loan costs amortization was $185,330, and at December 31, 2019,
the unamortized debt discount and loan fee totaled $224,660.
In
connection with the issuance of one convertible note with the principal balance of $282,000, the Company issued as a commitment
fee 141,000 shares of its common stock (the “Non-Returnable Shares”) as well as 705,000 shares of its common stock
(the “Returnable Shares”). The Company recorded the fair value of the Non-Returnable fees of $54,990 as a loan cost.
The Returnable Shares are an own-share lending arrangement issued in contemplation of a debt offering and such shares will be
returned to the Company if no event of default has occurred prior to April 29, 2020, the maturity date of the note. At issuance,
the fair value of the share lending arrangement was determined to be immaterial. In accordance with ASC 470-20, the shares are
not deemed issued until it becomes more likely than not that they will not be returned and at such point the shares should be
measured at fair value and such value recognized as a financing cost. At December 31, 2019, management determined that it is probable
that the Company will pay the note in full when due, and meet all other conditions in the note agreement. Accordingly, management
feels that it is more likely than not that the returnable shares will be returned to the Company and therefore the 705,000 Returnable
Shares have not been recorded as being issued as of December 31, 2019, nor are they included in basic net loss per share or as
potentially dilutive shares in calculating the diluted net loss per share.
NOTE
8 – DERIVATIVE FINANCIAL INSTRUMENTS
During
2019, the Company had convertible promissory notes outstanding that are convertible into shares of common stock of the Company
at the option of the holder at price per share discounts ranging from 39% to 40% of the Company’s common stock market price,
as defined in the note agreements. As the ultimate determination of shares to be issued upon conversion of these notes could exceed
the current number of available authorized shares, the Company determined that the conversion features of the convertible notes
were not considered indexed to the Company’s own stock and characterized the fair value of the conversion features as derivative
liabilities. Accordingly, the conversion features of the notes were separated from the host contracts (i.e. the notes) and characterized
as derivative liabilities to be re-measured at the end of every reporting period with the change in value reported in the statement
of operations.
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 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.
The
derivative liabilities were valued at the following dates using a probability weighted Black-Scholes-Merton model with the following
assumptions:
|
|
December
31, 2019
|
|
|
October
2019
(dates of inception)
|
|
Conversion feature:
|
|
|
|
|
|
|
|
|
Risk-free
interest rate
|
|
|
1.77
|
%
|
|
|
1.75
|
%
|
Expected volatility
|
|
|
222
|
%
|
|
|
223
|
%
|
Expected life
(in years)
|
|
|
1
year
|
|
|
|
1
year
|
|
Expected dividend
yield
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Fair Value:
|
|
|
|
|
|
|
|
|
Conversion
feature
|
|
$
|
400,139
|
|
|
$
|
565,195
|
|
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 year ended December 31, 2019 and the nine-month period ended December 31, 2018. The
following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate:
|
|
Year
ended
December 31, 2019
|
|
|
Nine-months
ended
December 31, 2018
|
|
|
|
|
|
|
|
|
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, 2019
|
|
|
December
31, 2018
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
$
|
1,039,000
|
|
|
$
|
160,000
|
|
Operating lease liability
|
|
|
94,000
|
|
|
|
-
|
|
Derivative expenses
|
|
|
67,000
|
|
|
|
-
|
|
Net operating
loss carryforwards
|
|
|
1,132,000
|
|
|
|
425,000
|
|
Gross deferred tax assets
|
|
|
2,332,000
|
|
|
|
585,000
|
|
Less: valuation
allowance
|
|
|
(2,103,000
|
)
|
|
|
(540,000
|
)
|
Total deferred tax assets
|
|
|
229,000
|
|
|
|
45,000
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
90,000
|
|
|
|
45,000
|
|
Derivative gain
|
|
|
46,000
|
|
|
|
-
|
|
Operating lease
right-of-use asset
|
|
|
93,000
|
|
|
|
-
|
|
Total deferred
tax liabilities
|
|
|
229,000
|
|
|
|
45,000
|
|
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, 2019 and the nine-month
period ended December 31, 2018, 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, 2019 and the nine-month period ended December 31, 2018, the valuation allowance increased by $1.5 million
and $0.5 million, respectively.
At
December 31, 2019 and 2018, 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 $4.3 million and $1.6 million,
respectively. For state purposes approximately $3.1 million and $1.1 was available at December 31, 2019 and 2018, respectively.
The Federal carryforwards expire on various dates through 2039 and the state carryforwards expire through 2036. 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, 2019 and December 31, 2018, no liability for unrecognized tax benefits
was required to be recorded or disclosed.
NOTE
10 – STOCKHOLDERS’ EQUITY
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.
Common
stock issued for cash
During
the year ended December 31, 2019 and the nine-month period ended December 31, 2018, the Company completed private placements 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 in 2018 for shares issued in 2019.
The
Company agreed to issue a total 12,011,269 shares in the private placements, of which 6,942,750 shares were issued through December
31, 2019, and 5,068,519 shares are included in shares to be issued on the accompanying financial statements.
NOTE
11 – SHARE-BASED PAYMENTS
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 a consultant
for services (see Note 12). 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. 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, 2019, total share-based expense recognized related to vested restricted shares totaled $2,317,868. At December 31, 2019, there
was $1,628,132 of unvested compensation related to these awards that will be amortized over a remaining vesting period of 2.3
years.
The
following table summarizes restricted common stock activity for the year ended December 31, 2019:
|
|
Number
of shares
|
|
|
Fair
value of shares
|
|
Non-vested shares, January 1, 2019
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
8,000,000
|
|
|
|
4,000,000
|
|
Vested
|
|
|
(2,250,000
|
)
|
|
|
(2,317,868
|
)
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Non-vested shares, December 31,
2019
|
|
|
5,750,000
|
|
|
$
|
1,682,132
|
|
As
of December 31, 2019, no shares have been issued and 2,250,000 vested shares are included in shares to be issued on the accompanying
financial statements
Common
stock issued for services
During
the year ended December 31, 2019, the Company issued 212,505 shares of common stock to a consultant for services rendered. The
shares were valued at $106,253 based on the price per share of a contemporaneous private placement of the Company’s common
stock on the date granted and included in selling, general, and administrative expense on the accompanying financial statements.
Stock
Options
During
the year ended December 31, 2019, the Company issued options exercisable into 3,290,000 shares of common stock. 1,800,000 options
vested immediately, and the balance of 1,490,000 options vest over various periods up to four years. The options have an exercise
price of $0.23 per share, and expire in ten years. Total fair value of these options at grant date was approximately $1,179,000,
which was determined using the Black-Scholes-Merton option pricing model with the following average assumption: stock price ranging
from $0.23 to $0.38 per share, expected term ranging from five to seven years, volatility ranging from 213% to 218%, dividend
rate of 0% and risk-free interest rate of 1.77%. During the year ended December 31, 2019, the Company recognized $711,404 of compensation
expense relating to vested stock options. As of December 31, 2019, the amount of unvested compensation related to stock options
was approximately $468,000 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 year ended December 31, 2019 and the nine-month period ended December 31, 2018 is
as follows:
|
|
Number
of
warrants
|
|
|
Weighted
Average
Exercise Price
|
|
|
Contractual
Life in Years
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding and Exercisable as of March 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Options Outstanding and Exercisable as of December 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
Granted
|
|
|
3,290,000
|
|
|
|
0.23
|
|
|
|
6.0
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Options Outstanding as of December
31, 2019
|
|
|
3,290,000
|
|
|
|
0.23
|
|
|
|
6.0
|
|
Options Exercisable as of December
31, 2019
|
|
|
1,800,000
|
|
|
$
|
0.23
|
|
|
|
5.8
|
|
At
December 31, 2019, the aggregate intrinsic value of the stock options was $322,749.
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, which was determined using the Black-Scholes-Merton option pricing model with the following average assumption: stock
price of $0.05 per share, expected term of four years, volatility of 170%, dividend rate of 0% and risk-free interest rate of
1.76%. 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.
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, 2019 and the nine-month period ended December 31, 2018 is as follows:
|
|
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
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(3,000,000
|
)
|
|
$
|
0.30
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Warrants Outstanding and Exercisable
as of December 31, 2019
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
NOTE
12 – COMMITMENTS AND CONTINGENCIES
The
Company has an agreement with an individual in consideration of the Company’s exclusive use of patented technology developed
by the individual. 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 11). During the year ended December 31, 2019, the Company paid $343,300 to the individual.
NOTE
13 – SUBSEQUENT EVENTS
In
February 2020, the Company issued one unsecured convertible promissory note for $153,000, bearing interest at 22% per annum, and
maturing in August 2020. The note is convertible at a 39% discount to the price of the Company’s common stock, as defined.
In
February 2020, the Company received $30,000 for subscriptions for shares of common stock to be issued in a private placement.
On
December 19, 2019, the Company entered into a non-cancelable real property lease agreement for approximately 3096 square feet
of office, research, and production space in Burbank, California. The Company took possession of the space in February 2020. The
lease term is for 60 months with an option to extend the term for an additional five years thereafter. The lease has with the
annual fixed rental payments escalating from $7,500 to $8,441 during the original term. The aggregate total fixed rent is approximately
$478,000 and will result in the recognition of an operating lease right-of-use asset of approximately $430,000 and corresponding
lease liabilities of approximately the same amount. The Company also paid a security deposit of $16,883.
In
March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which
has continued to spread, and any related adverse public health developments, have adversely affected workforces, customers, economies,
and financial markets globally, likely leading to an economic downturn. It has also disrupted the normal operations of many businesses.
This outbreak could decrease spending, adversely affect demand for our product and harm our business and results of operations.
It is not possible for us to predict the duration or magnitude of the adverse results of the outbreak and its effects on our business
or results of operations at this time.
In
March 2020, the Company issued approximately 241,000 shares of common stock with a fair value of approximately $28,000 to employees
for services.
PART
II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item
13. Other Expenses of Issuance and Distribution
The
Registrant estimates that expenses in connection with the distribution described in this Registration Statement will be as shown
below. All expenses incurred with respect to the distribution will be paid by the Company.
Expense
|
|
|
|
|
|
|
|
Legal fees and expenses:
|
|
$
|
15,000
|
|
Accounting fees and expenses:
|
|
$
|
7,500
|
|
Total:
|
|
$
|
22,500
|
|
Item
14. Indemnification of Directors and Officers
See
the Bylaws of the Company as shown on Exhibit 3.2 herein.
Agreements
We
intend to modify the compensation agreements with selected officers and directors, pursuant to which we will agree, to the maximum
extent permitted by law, to defend, indemnify and hold harmless the officers and directors against any costs, losses, claims,
suits, proceedings, damages or liabilities to which our officers and directors become subject to which arise out of or are based
upon or relate to our officers and directors engagement by the Company.
Recent
Sales of Unregistered Securities
During
the nine months ended September 30, 2020, the year ended December 31, 2019, and the nine months ended December 31, 2018 we have
issued the following securities, which were not registered under the Securities Act, some of which were not previously disclosed
in the Company’s Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
Common
stock issued for cash
During
the year ended December 31, 2019 and the nine-month period ended December 31, 2018, the Company completed private placements 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 in 2018 for shares issued in 2019.
The
Company agreed to issue a total 12,011,269 shares in the private placements, of which 6,942,750 shares were issued through December
31, 2019, and 5,068,519 shares are included in shares to be issued on the accompanying financial statements.
On
May 20, 2019, the Company agreed to issue 8,000,000 restricted shares of the Company’s common stock with vesting terms to
a consultant for services (see Note 12). 1,000,000 shares vested immediately, and the balance of 7,000,000 shares will vest 625,000
shares per quarter over 2 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. As of September 30, 2020, 4,125,000 of the restricted shares are vested leaving 3,875,000
unvested.
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, 2019, total share-based expense recognized related to vested restricted shares totaled $2,317,868. At December 31, 2019, there
was $1,628,132 of unvested compensation related to these awards that will be amortized over a remaining vesting period of 2.3
years.
During
the nine months ended September 30, 2020, the Company issued 407,408 shares of common stock in a private placement of shares at
a price of $0.31 per share for total proceeds of $126.
During
the nine months ended September 30, 2019, the Company received $625 for subscriptions to purchase 1,250,750 shares of common stock
in a private placement of shares at a price of $0.50 per share.
Common
Stock Issued in Conversion of Convertible Notes Payable
During
the nine months ending December 31, 2018, the Company issued 3,771,040 shares of common stock in settlement of convertible notes
payable. The value of the shares issued totaled $1,015,000 based the contractual conversion prices of each note.
During
the nine months ended September 30, 2019, the Company issued 3,955,747 shares of common stock in settlement of convertible notes
payable. The value of the shares issued totaled $211,000 based on the contractual conversion prices of each note.
In
October 2020, the Company issued 2,509,217 shares of common stock for conversion of $43 of principal and $9 of accrued interest
at contracted prices. Following the conversion, the principal and accrued interest of the related note were fully liquidated.
On December 3, 2020, the Company issued
420,055 shares of common stock for conversion of $40 of principal and $2 of accrued interest at contracted prices. Following the
conversion, the principal and accrued interest of the related note were fully liquidated.
Common Stock
Issued for Services/Compensation
During
the year ended December 31, 2019, the Company issued 212,505 shares of common stock to a consultant for services rendered. The
shares were valued at $106,253 based on the price per share of a contemporaneous private placement of the Company’s common
stock on the date granted and included in selling, general, and administrative expense on the accompanying financial statements.
During
the nine months ended September 30, 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 $106,000 based on the closing price of the Company’s common stock on the
dates shares were granted, and recorded as stock compensation in selling, general and administrative expense during the nine months
ended September 30, 2020.
On January 4, 2021, the Company issued 500,000 shares of common
stock to an individual for services. The shares were valued on the issuance date at $30,000, which will be charged to compensation
expense.
Cancellation of Shares of Common Stock
Issued for Compensation
On December 29, 16,951,432 shares of common
stock previously issued to the former CEO were cancelled in accordance with the November 16, 2020 Share Cancellation Agreement.
Common Stock Issued for Banking and
Loan Fees
During
the nine months ended September 30, 2020, the Company issued 750,000 shares of common stock to consultants and convertible note
holders for services. The fair value of the shares was determined to be $946,000 based on the higher of the amount due for service
or closing price of the Company’s common stock on the dates shares were granted, and recorded as stock compensation in selling,
general and administrative expense during the nine months ended September 30, 2020.
During
the nine months ended September 30, 2020, the Company issued 1,127,522 shares of common stock to convertible note holders for
loan fees. The fair value of the shares was determined to be $105,000 based on the closing price of the Company’s common
stock on the dates shares were granted, and was recorded as debt discount to be amortized over the term of the related convertible
notes payable. During the six months ended June 30, 2020, amortization of $53 was recoded.
Options
Issued on Common Stock – Employee Compensation
During
the year ended December 31, 2019, the Company issued 3,290,000 options having a weighted average exercise price of $0.23
and a contractual life of 6 years, to employees. 1,800,000 of the options were exercisable at December 31, 2019.
During
the nine months ended September 31, 2020, the company issued 900,000 options having a weighted average exercise price of $0.11
and a contractual life of 10 years, to employees. Total options outstanding at September 30, 2020 was 4,130,000 having a weighted
average exercise price of $0.11 with a weighted average contractual life of 6.5 years. A total of 2,732,261 of the options were
exercisable at December 31, 2019, with a weighted average exercise price of $0.10 and a weighted average contractual life of 5.5
years.
Preferred
Stock Issued
On
April 14, 2020, The Company issued 2,500,000 shares of a newly created class of preferred stock, Series A Preferred Stock to the
Company’s Chief Executive Officer in a private placement transaction. The fair value of the Series A Preferred shares was
determined to be $465 and was recorded as stock compensation in selling, general and administrative expense during the six months
ended June 30, 2020. The Company determined the fair value of the Series A Preferred shares by obtaining an independent valuation
of the fair value of the Company’s Series A Preferred shares.
Convertible
Notes Issued
On
February 25, 2020, we issued a convertible note in the principal balance of $153,000. The convertible note bears interest at a
rate of 10% and matures on February 25, 2021. The holder may, at its option, convert the convertible note into shares of our common
stock at a per share conversion price equal to 61% of the lowest trading price for our common stock during the 15 trading days
preceding the conversion date.
On
March 31, 2020, we issued convertible notes in the principal balance of $357,000. The convertible notes bear interest at a rate
of 10% and matures on December 31, 2020. The holders may, at its option, convert the convertible note into shares of our common
stock at a per share conversion price equal to $0.05 per share.
On
April 27, 2020, we issued convertible notes in the principal balance of $341,000. The convertible notes bear interest at a rate
of 10% and matures on December 31, 2020. The holders may, at its option, convert the convertible note into shares of our common
stock at a per share conversion price equal to $0.05 per share. In connection with the issuance of the Convertible Notes, the
Company issued an aggregate of 705,000 shares of the Company’s common stock as a commitment fee.
In
November 2020, the Company issued four notes payable for aggregate proceeds of $85,000 and received $77,000 in cash. The notes
are convertible into common shares of stock at the fixed price of $0.015 per share. The notes mature in April 2021 and bear interest
at 10%. The note holders were issued 155,000 of restricted shares of common stock at $0.0365 for total of $6,000 of fair value.
The Company defaulted on these notes due to a failure to file the September 30, 2020 Form 10Q on a timely basis and therefore
is subject default penalties of 150% of accrued interest and principal.
On
December 9, 2020, the Company issued a convertible promissory note to Trillium Partners LP for $55,000. The note: carries $5,000
of original issue discount (OID), may be converted into the Company’s common stock at $0.015 per share, bears interest at
10% and matures on June 30, 2021. The OID and the beneficial conversion feature of $50,000 will be amortized to interest expense
over the term of the note and the beneficial conversion feature will be recognized as a debt discount and additional paid in capital.
On
December 16, 2020, the Company issued a convertible promissory note to Trillium Partners LP for $5,000. The note may be converted
into the Company’s common stock at $0.015 per share, bears interest at 10% and matures on June 30, 2021. The beneficial
conversion feature will be credited to additional paid in capital and $4,807 will be recognized as a debt discount and amortized
to interest expense over the term of the note.
On
December 16, 2020, The Company issued a convertible promissory note to Alpha Capital Anstalt for $165,000. The note: carries $15,000
of original issue discount (OID), may be converted into the Company’s common stock at $0.015 per share, bears interest at
10% and matures on June 30, 2021. The OID and the beneficial conversion feature of $150,000 will be amortized to interest expense
over the term of the note and the beneficial conversion feature will be recognized as a debt discount and additional paid in capital.
On
December 16, 2020, The Company issued a convertible promissory note to New York Farms Group for $1105,000. The note: carries $10,000
of original issue discount (OID), may be converted into the Company’s common stock at $0.015 per share, bears interest at
10% and matures on June 30, 2021. The OID and the beneficial conversion feature of $100,000 will be amortized to interest expense
over the term of the note and the beneficial conversion feature will be recognized as a debt discount and additional paid in capital.
Amendments
to Convertible Notes effective September 30, 2020 to Cure Defaults
On
December 9, 2020, the Company executed an amendment to its convertible note payable issued to Livingston Asset Management LLC
on April 27, 2020, curing the defaults under the terms of the original note. The maturity was extended to June 30, 2021, the conversion
terms were changed from fixed percentage discount to a fixed price of $0.015. Additionally, the investor is now entitled to deduct
$1,000 for each conversion to cover related costs.
On
December 9, 2020, the Company executed an amendment to its convertible note payable issued to Alpha Capital Anstalt on April 27,
2020, curing the defaults under the terms of the original note. The principal was restated under the default terms to be $261,956,
the maturity was extended to June 30, 2021, the conversion terms were changed from fixed percentage discount to a fixed price
of $0.015. Additionally, the investor is now entitled to deduct $1,000 for each conversion to cover related costs.
On
December 9, 2020, the Company executed an amendment to its convertible note payable issued to Trillium Partners LP on April 27,
2020, curing the defaults under the terms of the original note. The principal was restated under the default terms to be $261,956,
the maturity was extended to June 30, 2021, the conversion terms were changed from fixed percentage discount to a fixed price
of $0.015. Additionally, the investor is now entitled to deduct $1,000 for each conversion to cover related costs.
On
December 9, 2020, the Company executed an amendment to its convertible note payable issued to an individual on April 27, 2020,
curing the defaults under the terms of the original note. The principal was restated under the default terms to be $36,132, the
maturity was extended to June 30, 2021, the conversion terms were changed from fixed percentage discount to a fixed price of $0.015.
Additionally, the investor is now entitled to deduct $1,000 for each conversion to cover related costs.
On
December 9, 2020, the Company executed an amendment to its convertible note payable issued to Trillium Partners LP on May 27,
2020, curing the defaults under the terms of the original note. The principal was restated under the default terms to be $17,930,
the maturity was extended to June 30, 2021, the conversion terms were changed from fixed percentage discount to a fixed price
of $0.015. Additionally, the investor is now entitled to deduct $1,000 for each conversion to cover related costs.
On
December 9, 2020, the Company executed an amendment to its convertible note payable issued to Alpha Capital Anstalt on May 27,
2020, curing the defaults under the terms of the original note. The principal was restated under the default terms to be $8,965,
the maturity was extended to June 30, 2021, the conversion terms were changed from fixed percentage discount to a fixed price
of $0.015. Additionally, the investor is now entitled to deduct $1,000 for each conversion to cover related costs.
On
December 9, 2020, the Company executed an amendment to its convertible note payable issued to Trillium Partners LP on June 26,
2020, curing the defaults under the terms of the original note. The principal was restated under the default terms to be $153,681,
the maturity was extended to June 30, 2021, the conversion terms were changed from fixed percentage discount to a fixed price
of $0.015. Additionally, the investor is now entitled to deduct $1,000 for each conversion to cover related costs.
On
December 9, 2020, the Company executed an amendment to its convertible note payable issued to Trillium Partners LP on August 27,
2020, curing the defaults under the terms of the original note. The principal was restated under the default terms to be $70,765,
the maturity was extended to June 30, 2021, the conversion terms were changed from fixed percentage discount to a fixed price
of $0.015. Additionally, the investor is now entitled to deduct $1,000 for each conversion to cover related costs.
The
amendments to the notes above have been recognized in the financial statements as of September 30, 2020, as loss on debt extinguishment
(for changes in principal amount of $315,000) the beneficial conversion features recorded as additional paid in capital and were
charged to loss on debt extinguishment ($901,000) and debt discount of $315,000 which will be amortized with periodic charges
to interest expense over the amended terms of the notes.
Amendments
to Convertible Notes Issued Subsequent to September 30, 2020 to Cure Defaults
On
December 9, 2020, the Company executed an amendment to its convertible note payable issued to Alpha Capital Anstalt on November
3, 2020, curing the defaults under the terms of the original note. The principal was restated under the default terms to be $34,455,
the maturity was extended to June 30, 2021, the conversion terms were changed from fixed percentage discount to a fixed price
of $0.015. Additionally, the investor is now entitled to deduct $1,000 for each conversion to cover related costs.
On
December 9, 2020, the Company executed an amendment to its convertible note payable issued to an individual on November 3, 2020,
curing the defaults under the terms of the original note. The principal was restated under the default terms to be $25,859, the
maturity was extended to June 30, 2021, the conversion terms were changed from fixed percentage discount to a fixed price of $0.015.
Additionally, investor is now entitled to deduct $1,000 for each conversion to cover related costs.
On
December 9, 2020, the Company executed an amendment to its convertible note payable issued to another individual on November 3,
2020, curing the defaults under the terms of the original note. The principal was restated under the default terms to be $25,859,
the maturity was extended to June 30, 2021, the conversion terms were changed from fixed percentage discount to a fixed price
of $0.015. Additionally, the investor is now entitled to deduct $1,000 for each conversion to cover related costs.
On
December 9, 2020, the Company executed an amendment to its convertible note payable issued to Trillium Partners LP on November
3, 2020, curing the defaults under the terms of the original note. The principal was restated under the default terms to be $42,591,
the maturity was extended to June 30, 2021, the conversion terms were changed from fixed percentage discount to a fixed price
of $0.015. Additionally, the investor is now entitled to deduct $1,000 for each conversion to cover related costs.
The
issuances of the above securities were made in reliance upon exemptions from registration available under Section 4(a)(2) and
Rule 144 of the Securities Act, among others, as transactions not involving a public offering. This exemption was claimed on the
basis that these transactions did not involve any public offering and the purchasers in each offering were accredited or sophisticated
and had sufficient access to the kind of information registration would provide. In each case, appropriate investment representations
were obtained and certificates representing the securities were issued with restrictive legends.
PART
III – EXHIBITS
EXHIBIT
INDEX
The
following documents are filed (or incorporated by reference) as exhibits to this Registration Statement on Form S-1.
Exhibit
No.
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Description
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3.1
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Articles
of Incorporation of Quanta, Inc. (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 filed
with the Commission on March 27, 2017).
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3.2
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Certificate
of Amendment to Articles of Incorporation (Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed
with the Commission on February 5, 2019).
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3.3
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Bylaws
of Quanta, Inc. (Incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 filed with the Commission
on March 27, 2017).
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3.4
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Certificate
of Amendment to Articles of Incorporation and Certificate of Designation for Series A Preferred Stock (incorporated by reference
to Exhibit 3.4 to the Current Report on Form 8-K filed with the Commission on April 14, 2020).
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3.5
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Certificate
of Designation for Series B Preferred Stock filed in Nevada on January 12, 2021 (incorporated by reference to Exhibit 10.2
to the Current Report filed on Form 8-K with the Commission on January 19, 2021.)
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3.6
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Certificate
of Designation for Series C Preferred Stock filed in Nevada on January 12, 2021 (incorporated by reference to Exhibit 10.3
to the Current Report filed on Form 8-K with the Commission on January 19, 2021.)
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5.1*
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Opinion
of Stout Law Group, P. A.
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10.1*
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Form
of subscription agreement
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10.2
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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).
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10.3
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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).
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10.4
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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).
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10.5
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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).
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10.6
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Exclusive
License and Joint Venture Agreement dated March 23, 2017 (Incorporated by reference to Exhibit 10.6 to the Annual Report on
Form 10-KT filed with the Securities and Exchange Commission on April 16, 2019).
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10.7
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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)
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10.8
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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).
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10.9
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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).
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10.10
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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).
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10.11
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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).
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10.12
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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).
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10.13
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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).
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10.14
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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).
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10.15
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Equity
Purchase Agreement, dated as of April 9, 2020, by and between Quanta, Inc. and Oscaleta Partners LLC (incorporated by reference
to Exhibit 10.13 to the Registrant’s Registration Statement on Form S-1 filed with the Commission on April 10, 2020).
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10.16
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Registration
Rights Agreement, dated as of April 9, 2020, by and between Quanta, Inc. and Oscaleta Partners LLC (incorporated by reference
to Exhibit 10.14 to the Registrant’s Registration Statement on Form S-1 filed with the Commission on April 10, 2020).
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10.17
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Promissory
Note, dated as of April 9, 2020, issued by Quanta, Inc. in favor of Oscaleta Partners LLC (incorporated by reference to Exhibit
10.15 to the Registrant’s Registration Statement on Form S-1 filed with the Commission on April 10, 2020).
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10.18
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Form
of Securities Purchase Agreement, dated as of April 27, 2020, by and between Quanta, Inc. and the Purchasers Signatory Thereto
(incorporated by reference to Exhibit 10.17 of Registrant’s Current Report on Form 8-K filed with the Commission on
May 1, 2020).
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10.19
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Form
of Note, dated as of April 27, 2020, by and between Quanta, Inc. and the Holders Thereof (incorporated by reference to Exhibit
10.18 of Registrant’s Current Report on Form 8-K filed with the Commission on May 1, 2020).
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10.20
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Agreement
and Plan of Merger and Reorganization, dated June 6, 2018, 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 Commission on June 18,
2018).
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10.21
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Control
Block Transfer Agreement dated November 16, 2020 among Quanta, Inc., Eric Rice, and Phil Sands (incorporated by reference
to Exhibit 10.1 to the Current Report on Form 8-K filed with the Commission on November 18, 2020.)
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10.22
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Share
Cancellation Agreement dated November 16, 2020 among Quanta, Inc. and Eric Rice (incorporated by reference to Exhibit 10.2
to the Current Report on Form 8-K filed with the Commission on November 18, 2020.)
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10.23
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Securities
Exchange Agreement dated December 21, 2020 among Quanta, Inc. and Medolife Rx, Inc. (incorporated by reference to Exhibit
10.1 to the Current Report on Form 8-K filed with the Commission on December 22, 2020.)
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23.1*
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Consent
of Weinberg & Company, P.A.
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23.2*
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Consent
of Stout Law Group, P. A. (included in Exhibit 5.1)
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*
Filed herewith.
Item
17. Undertakings
The
undersigned Registrant hereby undertakes:
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(1)
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To
file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
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i.
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To
include any prospectus required by Section 10(a) (3) of the Securities Act;
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ii.
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To
reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information
set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low
or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate
offering price set forth in the “Calculation of Registration Fee” table in the effective Registration Statement;
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iii.
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To
include any material information with respect to the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement.
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(2)
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That,
for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof;
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(3)
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To
remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold
at the termination of the offering.
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(4)
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That,
for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant
to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on
Rule 430B or other than prospectuses filed in reliance on Rule 430A (§230.430A of this chapter), shall be deemed to be
part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however,
that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration
statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement
that was made in the registration statement or prospectus that was part of the registration statement or made in any such
document immediately prior to such date of first use.
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(5)
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For
determining liability of the undersigned registrant under the Securities Act to any purchaser in the initial distribution
of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant
pursuant to this Registration Statement, regardless of the underwriting method used to sell the securities to the purchaser,
if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant
will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
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i.
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Any
preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant
to Rule 424 (Sec. 230-424);
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ii.
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Any
free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred
to by the registrant;
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iii.
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The
portion of any other free writing prospectus relating to the offering containing material information about the undersigned
registrant or its securities provided by or on behalf of the undersigned registrant; and iv. Any other communication that
is an offer in the offering made by the undersigned registrant to the purchaser.
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(6)
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That,
for purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
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(7)
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That
for the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains
a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona fide offering thereof
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(8)
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Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions above, or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant
of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy
as expressed in the Act and will be governed by the final adjudication of such issue.
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SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the Registrant certifies that it has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Burbank, State of California, on February
9, 2021.
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QUANTA,
INC.
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By:
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/s/
Arthur Mikaelian
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Arthur
Mikaelian
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Chairman,
Chief Executive Officer and Chief Financial Officer
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attorney-in-fact
and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
In
accordance with the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
SIGNATURE
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TITLE
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DATE
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/s/
Arthur Mikaelian
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Chairman,
Chief Executive Officer and
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February
9, 2021
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Arthur
Mikaelian
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Chief
Financial Officer
(principal
executive officer and
principal
financial officer)
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/s/
Phil Sands
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President
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February
9, 2021
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Phil
Sands
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