NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE
MONTHS ENDED MARCH 31, 2022 AND 2021 (UNAUDITED)
NOTE
1 – DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Quanta,
Inc. (the “Company”) is an applied science company focused on a range of pharmaceutical, nutraceutical, topical relief and
cosmetic products utilizing patented polarization technology. The Company’s operations are based in Burbank, California. On April
28, 2016, the Company was incorporated as Freight Solution, Inc. in the State of Nevada. Effective June 6, 2018, the Company (then known
as Bioanomaly Inc.) was acquired by Freight Solution in a transaction accounted for as a reverse merger transaction. On July 11, 2018,
the Company changed its name to Quanta, Inc.
On
December 21, 2020, the Company entered into a Securities Exchange Agreement with Medolife Rx, Inc., a Wyoming corporation, (“Medolife
Rx”) pursuant to which, the Company agreed to acquire 51% of Medolife Rx in exchange for 9,000 shares of newly created Series B
Convertible Preferred Stock. On January 14, 2021, we completed the acquisition of 51% of Medolife, which has nominal assets, liabilities,
and operations. (see Notes 12 and 13).
Basis
of presentation-Unaudited Interim Financial Information
The
accompanying unaudited condensed consolidated financial statements 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 three months ended March 31,
2022, are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2022. These
financial statements should be read in conjunction with the financial statements of the Company for the year ended December 31, 2021
and notes thereto contained in the Annual Report on Form 10-K of the Company as filed with the SEC on April 15, 2022.
The
consolidated financial statements include the accounts of Quanta Inc, and its 51% owned subsidiary, Medolife Rx, Inc. All intercompany
balances and transactions have been eliminated in consolidation.
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 quarter
ended March 31, 2022, the Company incurred a net loss of $949,154
and used cash in operating activities of $249,499,
and at March 31, 2022, the Company had a stockholders’ deficit of $4,560,537.
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
March 31, 2022, the Company had cash on hand in the amount of $7,786. 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
Use
of estimates
The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant accounting
estimates include certain assumptions related to, among others, allowance for doubtful accounts receivable, impairment analysis of long-term
assets, valuation allowance on deferred income taxes, assumptions used in valuing stock instruments issued for services, assumptions
made in valuing derivative liabilities, and the accrual of potential liabilities. Actual results may differ from these estimates.
Revenue
recognition
The
Company follows the guidance of Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers.
ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contracts, which includes
(1) identifying the contracts or agreements with a customer, (2) identifying our performance obligations in the contract or agreement,
(3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing
revenue as each performance obligation is satisfied. The Company only applies the five-step model to contracts when it is probable that
the Company will collect the consideration it is entitled to in exchange for the services it transfers to its clients.
Product
Sales—Substantially all of the Company’s revenue is derived from product sales. Product revenue and costs of sales are
recognized when control of the products transfers to our customer, which generally occurs upon shipment from our facilities. The Company’s
performance obligations are satisfied at that time. The Company does not have any significant contracts with customers requiring performance
beyond delivery, and contracts with customers contain no incentives or discounts that could cause revenue to be allocated or adjusted
over time.
License
revenue— Revenue from symbolic IP is recognized over the access period to the Company’s IP (see Note 2).
Cost
of goods sold includes direct costs and fees related to the sale of our products.
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-based
compensation
The
Company periodically issues stock options, warrants, shares of common stock, and restricted stock unit awards, as share-based compensation
to employees and non-employees. The Company accounts for its share-based compensation in accordance with FASB ASC 718, Compensation
– Stock Compensation (Topic 718). Stock-based compensation cost for employees is measured at the grant date, based on the estimated
fair value of the award, and is recognized as expense over the requisite service period. Recognition of compensation expense for non-employees
is in the same period and manner as if the Company had paid cash for the services.
The
fair value of the Company’s stock options is estimated using the Black-Scholes-Merton Option Pricing model, which uses certain
assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or restricted stock, and future
dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes-Merton Option Pricing model and based
on actual experience. The assumptions used in the Black-Scholes-Merton Option Pricing model could materially affect compensation expense
recorded in future periods.
Prepaid
production costs
In
February 2021, the Company’s subsidiary Medolife Rx entered into a collaboration and joint development agreement with a company
(the “Agent) for Medolife to produce some of its products in the Agent’s facility. Medolife Rx agreed to pay the Agent $300,000
for the right to use the Agents production facility for a term of five years. Medolife Rx will also pay a production fee, ad defined,
to the Agent for any production. The Company determined that there is no distinct asset that it is purchasing from the Agent and will
record amortization of the prepaid fee ratably over the life of the contract.
Advertising
costs
Advertising
costs are expensed as incurred. During the quarters ended March 31, 2022 and March 31, 2021, advertising costs totaled $5,000 and $57,959,
respectively.
Research
and Development Costs
Costs
incurred for research and development are expensed as incurred. During the quarters ended March 31, 2022 and March 31, 2021, research
and development costs totaled $105,000 and $130,825, 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 three months ended March 31, 2022 and 2021, the dilutive impact of common stock equivalents, e.g. stock options, warrants and convertible
notes payable have been excluded from calculation of weighted average shares because their impact on the loss per share is anti-dilutive.
As
of March 31, 2022, 1,325,000 options were outstanding of which 975,814 were exercisable, and convertible debt and accrued interest totaling
$1,840,877 was convertible into 102,103,193 shares of common stock. It should be noted that contractually the limitations on the third-party
notes (and the related warrant) limit the number of shares converted to either 4.99% or 9.99% of the then outstanding shares. As of March
31, 2022, and 2021 potentially dilutive securities consisted of the following:
SCHEDULE OF POTENTIALLY DILUTIVE SECURITIES
| |
March
31, 2022 | | |
March
31, 2021 | |
Stock
options | |
| 1,325,000 | | |
| 1,325,000 | |
Unvested
restricted shares | |
| 750,000 | | |
| 2,625,000 | |
Convertible
notes payable | |
| 102,103,193 | | |
| 97,064,539 | |
Total | |
| 104,178,193 | | |
| 101,014,539 | |
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 March 31, 2022 and December 31, 2021, the Company did not have any Level 2 liabilities comprised of the fair value of embedded derivative
liabilities.
Concentrations
of risks
For
the three months ended March 31, 2022, no customer accounted for 10% or more of revenue. For the three months ended March 31, 2021, one
customer accounted for 61% of revenue. As of December 31, 2021, one customer accounted for 100% of accounts receivable. No other customer
accounted for 10% or more of accounts receivable.
As
of March 31, 2022, two vendors accounted for 75% of accounts payable and no other vendor accounted for 10% or more of accounts payable.
As of December 31, 2021, two vendors accounted for 63% 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, 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
August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options
(Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40).” ASU 2020-06
reduces the number of accounting models for convertible debt instruments by eliminating the cash conversion and beneficial conversion
accounting models. As a result, the Company’s convertible debt instruments will be accounted for as a single liability measured
at its amortized cost as long as no other features require bifurcation and recognition as derivatives. For contracts in an entity’s
own equity, the type of contracts primarily affected by this update are freestanding and embedded features that are accounted for as
derivatives under the current guidance due to a failure to meet the settlement conditions of the derivative scope exception. The Company
early adopted ASU No. 2020-06 effective January 1, 2021 using the modified retrospective approach. Upon adoption, the following changes
resulted: (i) the intrinsic value of the beneficial conversion feature recorded in 2020 was reversed as of the effective date of adoption,
thereby resulting in an increase in the convertible debentures with an offsetting adjustment to additional paid in capital and (ii) interest
expense recorded in 2020 that was related to the amortization of the discount related to the beneficial conversion feature was reversed
against opening accumulated deficit. Accordingly, the adoption of ASU 2020-06 resulted in a decrease to accumulated deficit of $2,054,759,
a decrease in addition paid in capital of $2,557,812, and an increase in convertible notes payable of $503,053 on January 1, 2021.
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.
Accounts
Receivable
Accounts
receivable are recorded net of an allowance for any uncollectible accounts if deemed necessary, and payments are generally due within
thirty to forty-five days of invoicing. Management reviews the adequacy of the allowance for doubtful accounts on an ongoing basis, using
historical collection trends and aging of receivables. Management also periodically evaluates individual customer’s financial condition,
credit history, and the current economic conditions to make adjustments in the allowance when it is considered necessary. Account balances
are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered
remote. At December 31, 2021 and December 31, 2020, the Company did not record any allowance for uncollectible accounts.
Inventories
Inventories
are stated at the lower of cost or net realizable value with cost determined on a first-in, first-out (“FIFO”) basis. We
regularly review our inventory quantities on hand and record a provision for excess and obsolete inventory based primarily on our estimated
forecast of product demand and our ability to sell the product(s) concerned. Demand for our products can fluctuate significantly. Additionally,
our management’s estimates of future product demand may be inaccurate, which could result in an understated or overstated provision
required for excess and obsolete inventory. A reserve for raw materials, product obsolescence and packaging for products that may no
longer be viable of $13,125 and $9,125 has been established for the years ended December 31, 2021 and 2020, respectively.
Equipment
Equipment
is stated at cost less accumulated depreciation. Depreciation is provided over the estimated useful lives of the equipment, which is
three years, using the straight-line method. Expenditures for major additions and improvements are capitalized and minor repairs and
maintenance are charged to expense as incurred. When equipment is retired or otherwise disposed of, the cost and accumulated depreciation
are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period.
Management
assesses the carrying value of equipment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
If there is indication of impairment, management prepares an estimate of future cash flows expected to result from the use of the asset
and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized to
write down the asset to its estimated fair value. For the years ended December 31, 2021 and 2020, the Company determined there were no
indicators of impairment of its property and equipment.
Impairment
of Long-lived Assets
The
Company reviews its equipment, right-of-use assets, and other long-lived assets, for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset group may not be recoverable. Recoverability is measured by a comparison of the carrying
amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an
asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount
of the asset exceeds the fair value of the assets. Fair value is generally determined using the asset’s expected future discounted
cash flows or market value, if readily determinable. For the years ended December 31, 2021 and 2020, the Company had no impairment of
long-lived assets.
Leases
The
Company accounts for its leases in accordance with the guidance of ASC 842, Leases. The Company determines whether a contract is, or
contains, a lease at inception. Right-of-use assets represent the Company’s right to use an underlying asset during the lease term,
and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and
lease liabilities are recognized at lease commencement based upon the estimated present value of unpaid lease payments over the lease
term. The Company uses its incremental borrowing rate based on the information available at lease commencement in determining the present
value of unpaid lease payments The Company adopted ASC 842 on January 1, 2019. There was no cumulative-effect adjustment to accumulated
deficit (see Note 5).
Derivative
Financial Instruments
The
Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded
derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded
at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations.
For stock-based derivative financial instruments, the Company uses a probability weighted average Black-Scholes-Merton model to value
the derivative instruments at inception and on subsequent valuation dates through the December 31, 2021, 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.
NOTE
2 – INVENTORIES
Inventories
are valued at the lower of cost (first-in, first-out) or net realizable value, and net of reserves, consisted of the following:
SCHEDULE OF INVENTORIES
| |
March
31, 2022 | | |
December
31, 2021 | |
| |
| |
Raw
materials and packaging | |
$ | 60,163 | | |
$ | 60,109 | |
Finished
goods | |
| 29,734 | | |
| 38,051 | |
| |
| | | |
| | |
Inventories,
net | |
$ | 73,288 | | |
$ | 98,160 | |
The
Company has recorded a reserve for slow moving and potentially obsolete inventory. The reserve at March 31, 2022 and December 31, 2021
was $13,125 and
$13,125,
respectively.
NOTE
3 - EQUIPMENT
Equipment,
stated at cost, less accumulated depreciation consisted of the following:
SCHEDULE OF EQUIPMENT
| |
March
31, 2022 | | |
December
31, 2021 | |
| |
| | |
| |
Machinery-technology
equipment | |
$ | 704,772 | | |
$ | 704,772 | |
Machinery-technology
equipment under construction | |
| 75,259 | | |
| 75,259 | |
Equipment,
gross | |
| 780,031 | | |
| 780,031 | |
Less
accumulated depreciation | |
| (636,584 | ) | |
| (610,554 | ) |
| |
| | | |
| | |
Equipment,
net | |
$ | 143,447 | | |
$ | 169,477 | |
Depreciation
expense for the three months ended March 31, 2022 and 2021 was $26,030 and $17,584, respectively. As of March 31, 2022, the equipment
under construction is approximately 75% complete, and is expected to be completed and placed into service during the year ended December
31, 2021. At March 31, 2022 and December 31, 2021, machinery-technology equipment included machinery acquired from Arthur G. Mikaelian,
Ph.D initially costing $592,500, with a net book value of $5,355 and $25,772, respectively.
NOTE
4 - OPERATING LEASE
At
March 31, 2022, the Company has one operating lease for its headquarters office space in Burbank. The lease commenced on January 1, 2020,
and has a term for 5 years, with annual fixed rental payments ranging from $90,000 to $101,296. At March 31, 2021, the balance of the
lease’s right of use asset and corresponding lease liability were $258,315 and $294,754, respectively. At March 31, 2022, the Company
is also obligated under a lease that was abandoned in December 2020. The total due to the lessor for the abandoned lease space is $235,759
and is recorded as lease settlement obligation at March 31, 2022.
The
components of lease expense and supplemental cash flow information related to leases for the period are as follows:
SCHEDULE OF LEASE EXPENSE AND SUPPLEMENTAL CASH FLOW INFORMATION RELATED TO LEASES
| |
Three
months ended March
31, 2022 | |
| |
| |
Lease
Cost | |
| | |
Operating
lease cost (included in selling, general, and administrative expense in the Company’s statement of operations) | |
$ | 32,921 | |
| |
| | |
Other
Information | |
| | |
Cash
paid for amounts included in the measurement of lease liabilities for 2021 | |
$ | 23,891 | |
Weighted
average remaining lease term – operating leases (in years) | |
| 2.75 | |
Average
discount rate – operating leases | |
| 4 | % |
SCHEDULE OF SUPPLEMENTAL BALANCE SHEET INFORMATION RELATED TO LEASES
| |
|
At March 31, 2022 | |
| |
At
March 31, 2022 | |
Operating
leases | |
| | |
Long-term
right-of-use assets | |
$ | 258,315 | |
| |
| | |
Short-term
operating lease liabilities | |
$ | 108,569 | |
Long-term
operating lease liabilities | |
| 186,185 | |
Total
operating lease liabilities | |
$ | 294,754 | |
Maturities
of the Company’s lease liabilities are as follows:
SCHEDULE OF MATURITIES OF OPERATING LEASE LIABILITIES
Year
Ending | |
|
Operating Leases | |
Year
Ending | |
Operating
Leases | |
2022
(remainder of year) | |
| 82,981 | |
2023 | |
| 98,345 | |
2024 | |
| 118,266 | |
Total
lease payments | |
| 299,592 | |
Less:
Imputed interest | |
| 4,838 | |
Present
value of lease liabilities | |
| 294,754 | |
Less
current portion | |
| (108,569 | ) |
Operating
lease liabilities, long-term | |
$ | 186,185 | |
Lease
expense were $32,921 and $26,897 during the three months ended March 31, 2022 and 2022, respectively.
NOTE
5 – NOTES PAYABLE
SCHEDULE OF NOTES PAYABLE
| |
|
March 31, 2022 | | |
|
December 31, 2021 | |
| |
March
31, 2022 | | |
December
31, 2021 | |
| |
| | |
| |
(a)
Notes payable secured by equipment (net of deferred finance charge of $39,567 and $46,617 as of March 31, 2022 and December 31, 2021,
respectively) | |
$ | 184,108 | | |
$ | 166,258 | |
(b)
Note payable, secured by assets-in default | |
| 13,350 | | |
| 13,350 | |
Note payable, secured by assets-in default | |
| 13,350 | | |
| 13,350 | |
(c)
Note payable, Payroll Protection Loan | |
| - | | |
| - | |
Note payable, Payroll Protection Loan | |
| - | | |
| - | |
(d)
Note payable, Economic Injury Disaster Loan | |
| 160,000 | | |
| 160,000 | |
Note payable, Economic Injury Disaster Loan | |
| 160,000 | | |
| 160,000 | |
(e)
Revenue sharing agreement | |
| 242,000 | | |
| 242,800 | |
(f)
Global merchant financing | |
| 68,330 | | |
| - | |
Global merchant financing | |
| 68,330 | | |
| - | |
(g)
Business funding financing | |
| 37,615 | | |
| - | |
Business funding financing | |
| 37,615 | | |
| - | |
Total
notes payable outstanding | |
| 705,403 | | |
| 582,408 | |
Current
portion | |
| 545,403 | | |
| 422,408 | |
| |
| | | |
| | |
Long
term portion | |
$ | 160,000 | | |
$ | 160,000 | |
|
(a) |
In
April 2020 and May 2020, the Company entered into two financing agreements aggregating $505,646. The notes have a stated interest
rate of 10.9%. The notes were issued at a discount including fees for underwriting, legal and administrative costs along with deferred
financing costs. The deferred financing costs are being amortized over the terms of the notes. The notes are secured by the Company’s
equipment, and require monthly payments of principal and interest of $21,000, and mature in April 2022 and May 2022. At December
31, 2021, the balance due on these notes was $212,875. During the quarter ended March 31, 2022, the Company did not make any payments
and at March 31, 2021, the balance due on these notes was $212,875, plus accrued interest. |
|
|
|
|
(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, and it is currently in default. During the three months ended
March 31, 2021, the company made principal payments of $20,000. The note is in default and the Company is in discussion with the
note holder. |
|
(c) |
On
May 7, 2020, the Company was granted a loan (the “PPP loan”) from Bank of America in the aggregate amount of $134,125,
pursuant to the Paycheck Protection Program (the “PPP”) under the CARES Act. The PPP loan agreement is dated May 4, 2020,
matures on May 4, 2022, bears interest at a rate of 1% per annum, with the first six months of interest deferred, is payable monthly
commencing on November 2020, and is unsecured and guaranteed by the U.S. Small Business Administration (“SBA”). The loan
term may be extended to April 20, 2025, if mutually agreed to by the Company and lender. We applied ASC 470, Debt, to account
for the PPP loan. The PPP loan may be prepaid at any time prior to maturity with no prepayment penalties. Funds from the PPP loan
may only be used for qualifying expenses as described in the CARES Act, including qualifying payroll costs, qualifying group health
care benefits, qualifying rent and debt obligations, and qualifying utilities. The Company intends to use the entire loan amount
for qualifying expenses. Under the terms of the PPP, certain amounts of the loan may be forgiven if they are used for qualifying
expenses. The Company intends to apply for forgiveness of the PPP loan with respect to these qualifying expenses, however, we cannot
assure that such forgiveness of any portion of the PPP loan will occur. As for the loan forgiveness, the PPP loan was wholly forgiven
and a legal release received, the liability was reduced by the amount forgiven and a gain on extinguishment was 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 March 31, 2022. |
|
|
|
|
(d) |
On
September 5, 2020, the Company received a $160,000 loan (the “EID Loan”) from the SBA under the SBA’s Economic
Injury Disaster Loan program. The EID Loan has a thirty-year term and bears interest at a rate of 3.75% per annum. Monthly principal
and interest payments of $0.7 per month are deferred for twelve months, and commence in June 2021. The EID Loan may be prepaid at
any time prior to maturity with no prepayment penalties. The proceeds from the EID Loan must be used for working capital. The Loan
contains customary events of default and other provisions customary for a loan of this type. The Company was in compliance with the
terms of the EID loan as of March 31, 2022. |
|
|
|
|
(e) |
Between
July 7, 2020, and July 29, 2020, the Company issued notes payable to third-party investors totaling $250,000. Under the terms of
the note, the Company is to pay 50% of the net revenues beginning on August 21, 2020, for a product to be designed and produced by
the Company. The product has not been produced and therefore no payments have been made. The Company has received a notice of default
and demand for payment from three note holders (owed approximately $146,000). The Company has retained counsel who is in discussion
with the note holders. |
|
(f) |
On
January 10, 2022, the Company received a merchant loan in the total amount of $102,000 and
is required to make forty (40) weekly payments of $2,628.46 to satisfy the obligation. The
Company is in compliance with the terms of the loan as of March 31, 2022.
|
|
(g) |
On
February 15, 2022, the Company received a short term loan in the total amount of $57,000
and is required to make nineteen () weekly payments of $3,230.76 to satisfy the obligation.
The Company is in compliance with the terms of the loan as of March 31, 2022.
|
NOTE
6 – CONVERTIBLE NOTES PAYABLE
Convertible
notes payable consisted of the following:
SCHEDULE OF CONVERTIBLE NOTES PAYABLE
| |
|
March 31, 2022 | | |
|
December 31, 2021 | |
| |
March
31, 2022 | | |
December
31, 2021 | |
Unsecured | |
| | | |
| | |
(a)
Convertible notes with fixed discount percentage conversion prices | |
$ | 357,920 | | |
$ | 315,140 | |
Put
premiums on stock settled debt | |
| - | | |
| 165,794 | |
| |
| | | |
| | |
(b)
Convertible notes with fixed conversion prices | |
| 1,405,000 | | |
| 1,550,000 | |
Default
penalty principal added | |
| - | | |
| - | |
Total
convertible notes principal outstanding | |
| 1,762,920 | | |
| 2,030,934 | |
Debt
discount | |
| (87,484 | ) | |
| (139,014 | ) |
| |
| | | |
| | |
Convertible
notes, net of discount and premium | |
$ | 1,675,436 | | |
$ | 1,891,920 | |
Current
portion | |
| 1,675,436 | | |
| 1,891,920 | |
Long-term
portion | |
$ | - | | |
$ | - | |
|
(a) |
At
December 31, 2021, the balance due on convertible notes with fixed discount percentage conversion prices was $315,140, with related
put premium of $165,794. At December 31, 2020, the balance due on convertible notes with fixed discount percentage conversion prices
was $180,200, with related put premium of $117,866. During the year ended December 31, 2021, the Company issued five convertible
notes with fixed discount percentage conversion prices aggregating $362,000 and made repayments aggregating $46,860. At the option
of the holders, the notes were convertible into shares of the Company’s common stock at a price per share discount of 25% to
35% of the lowest bid price of the Company’s common stock within twenty-five days prior to conversion. The notes were treated
as stock settled debt under ASC 480-Distinguishing Liabilities from Equity, and a put premium of $165,794 was recognized and charged
to interest expense when the notes were recorded in 2021. Also during the year ended December 31, 2021, note holders converted $113,000
principal into 7,533,333 shares of the Company’s common stock. Upon conversion the related put premiums of $127,866 associated
with these notes were reclassified to additional paid-in capital. As of December 31, 2021, the balance due on convertible notes with
fixed discount percentage conversion prices was $315,140, and the related put premium was $165,794. |
|
(b) |
As
of December 31, 2020, the balance due on convertible notes with fixed conversion prices was
$1,550,000. For the year ended December 31, 2021, the Company issued eleven convertible notes
with fixed conversion prices aggregating $1,722,500. In addition, convertible notes with
fixed conversion prices totaling $1,482,845 of principal and $75,576 of accrued interest
(total of $1,558,421) were converted into 124,384,253 shares of the Company’s common
stock. At December 31, 2021, the balance of the due on convertible notes with fixed conversion
prices was $1,550,000. The notes are unsecured, convertible into common stock at prices ranging
from $0.015 per share to $0.04 per share, bear interest at 4% to 10% per annum, and mature
through November 11, 2022. |
|
|
At
December 31, 2021, the net unamortized balance of debt discounts was $139,014, consisting of debt discount related to fees and original
issue discounts (OID). The Company early adopted ASU No. 2020-06 (See Note 1) effective January 1, 2021 using the modified retrospective
approach. The adoption of ASU 2020-06 on January 1, 2021, resulted in a decrease in addition paid in capital of $823,655, a decrease
to accumulated deficit of $320,602, and an increase in total stockholders’ deficit of $503,053.
The
debt discounts related to fees and OID are amortized over the life of the related notes or are amortized in full upon the conversion
of the corresponding note to common stock. For the year ended December 31, 2021, debt discounts of $303,100 were added related to
the eleven convertible notes issued above, and amortization of $164,086 was recorded. At December 31, 2021, the net unamortized balance
of other debt discounts was $139,014.
On
May 4, 2021 (“Effective Date”), the Company entered into a securities purchase agreement (the “SPA”) with
Clifton Royale Apartments, LLC (the “Investor”) pursuant to which the Company issued a 4% unsecured convertible promissory
note (the “Note”) in the principal amount of $80,000. On this date, the Company received proceeds of $80,000.
The
maturity date of the Note was November 4, 2021. The Note bears interest at a rate of four percent (4%) per annum, which interest
shall be paid by the Company to the Investor in Common Stock at any time the Investor sends a notice of conversion to the Company.
The Investor is entitled to, at its option, convert all or any amount of the principal amount and any accrued but unpaid interest
of the Investor Note into Common Stock, at any time, at a fixed conversion price for each share of Common Stock equal to $0.01 (as
defined in the Note) of the Common Stock as reported on the OTC Marketplace exchange upon which the Company’s shares are traded
during the twenty (20) consecutive Trading Day period immediately preceding (i) the applicable Effective Date; or (ii) the conversion
date. The Company also issued a common stock purchase warrant for 15,000,000 shares (the “Warrant”).
On
September 2, 2020, the Company issued a convertible note (see paragraph a above) having a conversion price less than $0.05 which
triggered a term common to all notes in paragraph b, which changed the conversion terms to be the lower of $0.05 or 61% of the lowest
traded price during the 15 days prior to the conversion. This event is also considered a default for which a penalty is charged equal
to 150% of the accrued interest, default interest and principal, totaling $314,441. At December 31, 2020 the new principal totaled
$811,385.
On
December 9, 2020, the Company executed amendments to these notes effective September 30, 2020, which extended the maturity dates
and fixed the conversion price at $0.015. The Company determined that the change in the note terms resulted in old and new debt instruments
that were substantially different, with the old debt being extinguished. Due to the change in conversion terms the notes also require
the recognition of the beneficial conversion feature of the increased principal ($314,441 default principal) and lowering of the
conversion price resulting in recognition of additional charges. Loss on debt extinguishment was charged $757,293 and debt discounts
were charged $314,441 with a credit to additional paid in capital for the debt discounts. In addition $243,285 related to the unamortized
discounts as originally recorded was also charged to loss on debt extinguishment for the unamortized balance of debt discounts. In
addition, loss on debt extinguishment was charged $229,712 for other costs related of the extinguishment. |
|
|
During
the three months ended December 31, 2020, the Company issued nine convertible notes with
fixed conversion prices aggregating $440,000. The notes are unsecured, bear interest at 10%
per annum, and mature through June 30, 2021. The notes are convertible into common stock
at $0.015 per share. The Company recorded debt discounts of $43,000. On December 2, 2020
default penalties of $54,645 were declared by the note holders. The principal balance of
these notes totals $494,645 at December 31, 2020. Beneficial conversion features having a
value of $451,646 were also recognized with a charge to debt discount offset with a credit
to additional paid in capital. The debt discounts are amortized over the life of the notes
or are amortized in full upon the conversion of the corresponding notes to common stock.
During
the year ended December 31, 2020, debt discount of $2,556,602 was recorded, debt discount amortization of $775,538 was recorded,
discount of $381,084 was recorded as private placement costs, and $1,085,698 was removed upon debt extinguishment. At December 31,
2020, the balance of the unamortized discount was $539,282. |
Note
7 – DERIVATIVE LIABILITIES AND FINANCIAL INSTRUMENTS
The
Company did not derivative liabilities at March 31, 2022 or December 31, 2021.
NOTE
8 – MEZZANINE EQUITY
The
Company has determined that its shares of the Series B and Series C convertible preferred stock are conditionally redeemable upon the
occurrence of certain events that are not solely within the control of the issuer, and upon such event, the shares would become redeemable
at the option of the holders; accordingly the Series B and Series C convertible preferred stock are classified as “mezzanine equity”
(temporary equity), between liabilities and stockholders’ deficit. The purpose of this classification is to convey that such a
security may not be permanently part of equity and could result in a demand for cash, securities or other assets of the entity in the
future. The shares as valued have been classified as mezzanine equity and presented as such on the consolidated balance sheet at March
31, 2022 as single line items due to the immaterial par value. The mezzanine equity value is not included in shareholders’ deficit.
Series
B Convertible 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. Anti-dilution terms of the preferred may change the conversion ratio. 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. Additionally, the shareholders are entitled
to liquidation benefits including a cash payout, the liquidation terms include sales and mergers affection a change in control.
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. The shares issued to Dr. Mikaelian
on January 14, 2021 were valued based on the conversion number of common shares at the market price on the date of issuance. Due fact
that there Medolife Rx, Inc. was a start-up venture with no net asset value the value associated with the shares of $1,522,198 was charged
to compensation expense during the three months ended March 31, 2021.
Series
C Convertible 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.
Anti-dilution terms of the preferred may change the conversion ratio. 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. Additionally, the shareholders are entitled to liquidation benefits including a cash payout, the
liquidation terms include sales and mergers affection a change in control.
On
January 14, 2021, the Board of Directors of the Company approved the issuance of all 1,000 authorized shares of Series C Convertible
Preferred Stock to the following Medolife Rx Designees:
Trillium
Partners LP |
500
Shares of Series C Preferred Stock |
|
|
Sagittarii
Holdings, Inc. |
500
Shares of Series C Preferred Stock |
The
stock will be valued on the basis of the greater of the value of the services received or the fair value of the Series C convertible
preferred shares issued.
The
shares issued to Trillium and Sagittarii were valued based on the conversion number of common shares at the market price on the date
of issuance. The shares were valued at $169,133 and were charged to expense for services during the three months ended March 31, 2021.
NOTE
9 – STOCKHOLDERS’ DEFICIT
Common
Stock
Common
stock issued for cash
During
the three months ended March 31, 2022, the Company did not issue any shares of common stock.
Common
stock issued for services
During
the three months ended March 31, 2022, the Company issued 39,621,756 shares of common stock to service vendors with a fair value of $377,742.
Fair value of the shares was determined based on the closing price of the Company’s common stock on the date shares were granted,
and recorded as stock compensation in selling, general and administrative expense.
Preferred
Stock
Series
A Preferred Stock
On
April 14, 2020, the Company filed a Certificate of Designation for the Company’s Series A Preferred Stock (“Series A”)
with the Secretary of State of Nevada designating 2,500,000 shares of its authorized preferred stock as Series A Preferred Stock, par
value of $0.001 per share. The Series A Preferred Stock is not entitled to receive any dividends or liquidation preference and are not
convertible into shares of the Company’s common stock. The holders of the Series A Preferred Stock, in the aggregate, have voting
power equal to 51% of the total votes of all of the outstanding common and preferred stock of the Company entitled to vote. Accordingly,
each share of Series A Preferred Stock shall have voting rights equal to one and one-tenth (1.1) times a fraction, the numerator of which
is the shares of outstanding common stock and undesignated preferred stock of the Company and the denominator of which is number of shares
of outstanding Series A Preferred Stock. With respect to all matters upon which stockholders are entitled to vote or give consent, the
holders of the outstanding shares of Series A Preferred Stock shall vote with the holders of the common stock and any outstanding preferred
stock without regard to class, except as to those matters on which separate class voting is required by applicable law or the Company’s
Articles of Incorporation.
On
April 14, 2020, The Company issued 2,500,000 shares of the Series A to the Company’s Chief Executive Officer in a private placement
transaction. The fair value of the stock was determined to be $465,000 as determined by a third party valuation expert, and was recorded
as stock compensation.
On
November 16, 2020, the Company entered into a Control Block Transfer Agreement with Eric Rice and Phillip Sands, pursuant to which, Mr.
Rice agreed to transfer the 2,500,000 shares of the Series A to Mr. Sands. Mr. Rice agreed to transfer the Control Block to Phillip Sands
in order to consummate the Company’s transition into a holding company, without requiring the Company to further dilute its stock
through the issuance of new shares.
Phil
Sands resigned as an officer and director of the Company on May 10, 2021. Simultaneously therewith, the Company executed a Control Block
Transfer Agreement with Phil Sands and Arthur Mikaelian, pursuant to which, effective Mr. Sands agreed to transfer 2,500,000 shares of
the Company’s Series A Super Voting Preferred Stock to Dr. Mikaelian, 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.
Series
B Preferred Stock
On
December 21, 2020, the Company entered into a Securities Exchange Agreement with Medolife Rx, Inc., a Wyoming corporation, (“Medolife
Rx”) pursuant to which, the Company agreed to acquire 51% of Medolife Rx in exchange for 9,000 shares of newly created Series B
Convertible Preferred Stock, which, were issued to Dr. Arthur Mikaelian upon closing on January 14, 2021. Dr. Mikaelian’s 9,000
shares of Series B Convertible Preferred Stock are convertible into fifty-four percent (54%) of the issued and outstanding shares of
the Company’s common stock on a fully converted basis.
Series
C Convertible Preferred Stock - Description
The
terms of the Certificate of Designation of the Series C Convertible Preferred Stock, which was filed with the State of Nevada on January
12, 2021, state that such Series C Convertible shares have a par value of $0.00001 per share and a stated value of $100 per share (the
“Stated Value”) and each Series C Preferred Share shall be convertible into 6,750 shares of Common Stock (“Conversion
Ratio”), at the option of a Holder, at any time and from time to time, from and after the issuance of the Series C Preferred Stock;
provided that, for a period of twenty for (24) months from the Issuance Date, if the Company issues shares of common stock, including
common stock as the result of the purchase, exercise or conversion of outstanding derivative or convertible securities (or securities,
including any derivative securities, containing the right to purchase, exercise or convert into shares of common stock) (the “Dilution
Shares”) such that the outstanding number of shares of common stock on a fully diluted basis shall be greater than one hundred
twelve million five hundred thousand (112,500,000) shares (inclusive of conversions of Series C Preferred Stock at the Conversion Ratio
immediately above), then the Conversion Ratio for the Series C Preferred Stock then outstanding and unconverted as of the date the Dilution
Shares are issued shall be adjusted to equal the Conversion Ratio multiplied by a fraction, the numerator of which shall be the number
of shares outstanding on a fully diluted basis after the issuance of the Dilution Shares, and the denominator shall be one hundred twelve
million five hundred thousand (112,500,000). Subject to the beneficial ownership limitations of 9.99%, set forth in Section 5 (b) of
the attached Series C Convertible Preferred Stock Certificate of Designation, each holder of the Series C Preferred Stock shall have
the right to vote on any matter that may from time to time be submitted to the Company’s shareholders for a vote, on an as converted
basis, either by written consent or by proxy.
On
January 14, 2021, the Board of Directors of the Company approved the issuance of all 1,000 authorized shares of Series C Convertible
Preferred Stock to the following Medolife Rx Designees:
Trillium
Partners LP |
500
Shares of Series C Preferred Stock |
|
|
Sagittarii
Holdings, Inc. |
500
Shares of Series C Preferred Stock |
The
stock will be valued on the basis of the greater of the value of the services received or the fair value of the Series C convertible
preferred shares issued.
Restricted
common stock
In
2019, the Company agreed to issue 8,000,000 shares of the Company’s common stock with vesting terms to Arthur Mikaelian. 1,000,000
shares vested immediately, and the balance of 7,000,000 shares vest 625,000 shares per quarter over 2.8 years. 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 three months ended March 31, 2022 and 2021, total share-based expense recognized related to vested restricted shares totaled
$-0- and $382,544, respectively. At March 31, 2022, there was $48,867 of unvested compensation related to these awards that will be amortized
over a remaining vesting period of approximately six months thru March 2022.
The
following table summarizes restricted common stock activity for the three months ended March 31, 2022:
SUMMARY
OF RESTRICTED COMMON STOCK ACTIVITY
| |
Number
of shares | | |
Fair
value of shares | |
Non-vested
shares, December 31, 2021 | |
| 1,375,000 | | |
| 48,867 | |
Granted | |
| - | | |
| - | |
Vested | |
| (625,000 | ) | |
| (48,867 | ) |
Forfeited | |
| - | | |
| - | |
Non-vested
shares, March 31, 2022 | |
| 750,000 | | |
$ | - | |
As
of March 31, 2022, no shares have been issued and 5,375,000 vested shares are included in shares to be issued on the accompanying financial
statements
Common
stock issued in conversion of convertible notes payable
During
the three months ended March 31, 2022, the Company issued 66,979,631 shares of common stock to holders of convertible notes upon the
conversion of convertible notes payable and accrued interest valued at $517,895.During the three months ended March 31, 2021, the Company
issued 14,665,778 shares of common stock to holders of convertible notes upon the conversion of convertible notes payable and accrued
interest valued at $396,458.
Stock
Options
During
the three months ended March 31, 2022 and 2021, the Company did not recognize any compensation expense relating to vested stock options.
During
the three months ended March 31, 2022, the Company did not issue any options. In April 2020, the Company issued options exercisable into
300,000 shares of common stock which vested immediately. The options have an exercise price of $0.14 per share, and expire in 10 years.
The total fair value of these options at grant date was approximately $30,000, which was determined using the Black-Scholes-Merton option
pricing model with the following average assumption: stock price $0.14 per share, expected term ranging from five years, volatility 236%,
dividend rate of 0% and risk-fee interest rate of 0.17%.
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.
As
of March 31, 2022, the amount of unvested compensation related to stock options was approximately $22,000 which will be recorded as an
expense in future periods as the options vest.
A
summary of stock option activity during the three months ended March 31, 2021:
SUMMARY
OF STOCK OPTION ACTIVITY
| |
Number
of options | | |
Weighted
Average Exercise Price | | |
Contractual
Life in Years | |
Options
Outstanding as of December 31, 2021 | |
| 775,000 | | |
| 0.10 | | |
| 6.0 | |
Granted | |
| - | | |
| 0.11 | | |
| 10.0 | |
Exercised | |
| - | | |
| - | | |
| - | |
Forfeited | |
| - | | |
| - | | |
| - | |
Options
Outstanding as of March 31, 2022 | |
| 775,000 | | |
| 0.11 | | |
| 6.5 | |
Options
Exercisable as of March 31, 2021 | |
| 975,814 | | |
$ | 0.10 | | |
| 5.5 | |
At
March 31, 2021, the options outstanding had no intrinsic value.
NOTE
10 – RELATED PARTY TRANSACTIONS
On
December 21, 2020, the Company entered into a Securities Exchange Agreement with Medolife Rx, Inc., a Wyoming corporation, (“Medolife
Rx”) pursuant to which, the Company agreed to acquire 51% of Medolife Rx from entities controlled by Arthur G. Mikaelian, Ph.D.
in exchange for 9,000 shares of newly created Series B Convertible Preferred Stock. Prior to this transaction, Dr. Mikaelian was a consultant
and shareholder in the Company (See Notes 4 and 10). On January 14, 2021, the Company completed the acquisition of 51% of Medolife. At
December 31, 2020 and through January 14, 2021, Medolife Rx had nominal assets, liabilities, and operations. During December 2021, the
Company advanced $235,000 to Medolife Rx in anticipation of the closing of the acquisition transaction. The funds were used to pay certain
expenses on behalf of the Company. At December 31, 2020, the balance of the advance was $134,704 and presented as deferred charges-related
party. In connection with the acquisition of 51% of Medolife Rx, Dr. Mikaelian was appointed as a member of the Board of Directors of
the Company, and also appointed to serve as the Company’s Chief Executive Officer, a role which Dr. Mikaelian assumed on January
14, 2021.
The
Company has an agreement with Dr. Mikaelian in consideration of the Company’s exclusive use of patented technology developed by
Dr. Mikaelian. Pursuant to the agreement, as amended, the Company shall pay a royalty of 25% of all the net income from the sale of licensed
products, as defined with a minimum royalty of $35,000 per month payable in cash or common stock of the Company. In addition, the Company
agreed to issue 8,000,000 shares of the Company’s common stock with vesting terms to the individual (see Note 10). During the year
ended December 31, 2020 and 2019, the Company recognized royalty expenses of $420,000 and $343,300, respectively.
On
November 15, 2020, the Company entered into an interim compensation agreement with Mr. Phillip Sands providing for monthly compensation
of $8,000 commencing December 1, 2020 until March 1, 2021.
On
November 16, 2020, the Company entered into a Control Block Transfer Agreement with Eric Rice and Phillip Sands, pursuant to which, Mr.
Rice agreed to transfer 2,500,000 shares of the Company’s Series A Super Voting Preferred Stock to Mr. Sands, representing a transfer
of majority voting control over the Company because the holder of such 2,500,000 shares of our Series A Super Voting Preferred Stock
automatically carries a vote equal to 51% on all matters submitted to a vote of the holders of our Common Stock and Preferred Stock.
Mr. Rice agreed to transfer the Control Block to Phillip Sands in order to consummate the Company’s transition into a holding company
(transition phase), without requiring the Company to further dilute its stock through the issuance of new shares.
For
the three months ended March 31, 2021, the Company recorded revenue of $198,800 from a company controlled by a family member of the Company’s
CEO. During the year ended, the related accounts receivable balance was zero, with $69,500 having been collected and the remaining balance
of $129,300 written off to bad debts.
During
the three months ended March 31, 2022, the Company recorded administrative expenses of $86,683 to a company controlled by Mr. Mikaelian.
NOTE
11 – COMMITMENTS AND CONTINGENCIES
COVID-19
During
the period ended March 31, 2022, the COVID-19 pandemic has impacted our operating results and the Company anticipates a continued impact
for the balance of the year. In addition, the pandemic may cause reduced demand for our products if, for example, the pandemic results
in a recessionary economic environment which negatively effects the consumers who purchase our products. The Company monitors guidance
from federal, state, and local public health authorities, and has implemented health and safety precautions and protocols in response
to these guidelines. The extent of the impact of the COVID-19 pandemic has had and will continue to have on the Company’s business
is highly uncertain and difficult to predict and quantify at this time.
Contingencies
include obligations for lease agreements, including an abandoned lease space discussed at Note 5, along with the Company current lease
for its headquarters office, also discussed in Note 5.
It
is management’s opinion that there are no material contingent liabilities that are not disclosed in the financial statements and
footnote disclosures as of March 31, 2022.
NOTE
12 – SUBSEQUENT EVENTS
Common
Stock Issued
Between
January 1, 2022 and May 19, 2022, the Company issued the 8,000,000 shares to Dr. Arthur Mikaelian.