NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2018 (UNAUDITED)
NOTE
1 – DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Quanta,
Inc (formerly “Bioanomaly”), a California corporation, was incorporated on December 27, 2016 and commenced operations
in 2017. On June 6, 2018, Bioanomaly completed a merger with Freight Solution, Inc (“Freight Solution”), a Nevada
corporation. Pursuant to the merger agreement, all the shareholders of Bioanomaly exchanged all of their shares of Bioanomaly
for an aggregate of 21,908,810 newly issued shares of Freight Solution’s common stock. After the merger was completed, the
Bioanomaly shareholders owned approximately 77% of the outstanding shares of common stock of Freight Solution and the original
shareholders of Freight Solution owned approximately 23% of the outstanding shares of common stock of Freight Solution. The transaction
was accounted for as a reverse merger (recapitalization) with Bioanomaly deemed to be the accounting acquirer and Freight Solution
deemed to be the legal acquirer. Upon the closing, Bioanomaly changed its name to Quanta, Inc. (the “Company”). The
financial statements presented herein are those of the accounting acquirer (i.e., Bioanomaly) given the effect of the issuance
of 6,500,000 shares of common stock upon completion of the transaction. In addition, the Company incurred expenses of $495,760
in connection with the reverse merger.
The
Company is an applied science business focused on increasing energy levels of plant matter and increasing performance within the
human body.
Going
Concern
The
accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and
the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying financial statements,
for the three months ended March 31, 2019, the Company incurred a net loss of $182,781 and used cash in operating activities of
$51,813, and at March 31, 2019, the Company had a had a working capital deficiency of $190,571. 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 its report on the Company’s
December 31, 2018 financial statements, has expressed 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
March 31, 2019, the Company had cash on hand in the amount of $82,723. Subsequent to the March 31, 2019 the Company received $142,500
for subscriptions for shares of common stock to be issued in a private placement. Management estimates that the current funds
on hand will be sufficient to continue operations through the next six months. The Company’s ability to continue as a going
concern is dependent upon improving its profitability and the continuing financial support from its shareholders. Management believes
the existing shareholders or external financing will provide the additional cash to meet the Company’s obligations as they
become due. No assurance can be given that any future financing, if needed, will be available or, if available, that it will be
on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, if needed, it may contain
undue restrictions on its operations, in the case of debt financing, or cause substantial dilution for its stockholders, in the
case of equity financing
Basis
of presentation
The
accompanying unaudited condensed consolidated financial statements as of and for the three months ended March 31, 2019 and 2018,
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, 2019 are not necessarily indicative
of the results of operations to be expected for the full fiscal year ending December 31, 2019. The Condensed Consolidated Balance
Sheet information as of December 31, 2018 was derived from the Company’s audited Consolidated Financial Statements as of
and for the nine month period ended December 31, 2018, included in the Company’s Annual Report on Form 10-KT filed with
the SEC on April 16, 2019. 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.
Use
of estimates
The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant
accounting estimates include certain assumptions related to, among others, impairment analysis of long-term assets, valuation
allowance on deferred income taxes, assumptions used in valuing stock instruments issued for services, and the accrual of potential
liabilities. Actual results may differ from these estimates.
Revenue
The
Company follows the guidance of Accounting Standards Codification (ASC) 606, Revenue from Contracts . ASC 606 creates a five-step
model that requires entities to exercise judgment when considering the terms of contracts, which includes (1) identifying the
contracts or agreements with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining
the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue
as each performance obligation is satisfied. The Company only applies the five-step model to contracts when it is probable that
the Company will collect the consideration it is entitled to in exchange for the services it transfers to its clients.
The
Company’s revenue consists of revenue from sales of its CBD products. Generally, the Company’s performance obligations
are transferred to the customer at a point in time, typically upon delivery of products. The Company offers no discounts, rebates,
rights of return, or other allowances to clients which would result in the establishment of reserves against service revenue.
Additionally, to date, the Company has not incurred incremental costs in obtaining a client contract.
Cost
of revenue includes direct costs and fees related to the sale of our products.
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 implementation of ASC 842 did not have a material impact on the Company’s consolidated
financial statements and did not have a significant impact on our liquidity or on our compliance with our financial covenants
associated with our loans. 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 $409,620, lease liabilities for operating leases of $409,620, and
a zero cumulative-effect adjustment to accumulated deficit. The Company elected to exclude from its balance sheets recognition
of leases having a term of 12 months or less (“short-term leases”) and elected to not separate lease components and
non-lease components for its long-term leases. Lease expense is recognized on a straight-line basis over the lease term. See Note
3 for further information regarding the impact of the adoption of ASC 842 on the Company’s financial statements.
Net
Loss per Share
Basic
loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares
outstanding during the period. Diluted loss per share reflects the potential dilution, using the treasury stock method that could
occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the loss of the Company. In computing diluted loss per share, the treasury stock
method assumes that outstanding warrants and convertible notes are exercised and the proceeds are used to purchase common stock
at the average market price during the period. Warrants and convertible notes may have a dilutive effect under the treasury stock
method only when the average market price of the common stock during the period exceeds the exercise price of the options and
warrants.
For
the three months ended March 31, 2019, the dilutive impact of warrants exercisable into 3,000,000 shares of the Company’s
common stock have been excluded because their impact on the loss per share is anti-dilutive. For the three months ended March
31, 2018, the dilutive impact of notes payable convertible into 3,771,000 shares of the Company’s 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 and cash equivalents, accounts receivable, accounts
payable and accrued liabilities, and notes payable, approximate their fair values because of the short-term nature of these financial
instruments
Concentrations
of risks
For
the three months ended March 31, 2019 and March 31, 2018, no customer accounted for 10% or more of revenue or accounts receivable
at period-end.
For
the three months ended March 31, 2019 and March 31, 2018, no vendor accounted for 10% or more of the Company’s cost of revenues,
or accounts payable at period-end.
The
Company maintains the majority of its cash balances with one financial institution, in the form of demand deposits, which may
from time to time exceed the federally insured limit of $250,000. The Company believes that no significant concentration of credit
risk exists with respect to its cash balances because of its assessment of the creditworthiness and financial viability of the
financial institution.
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), which replaces the
incurred-loss impairment methodology and requires immediate recognition of estimated credit losses expected to occur for most
financial assets, including trade receivables. Credit losses on available-for-sale debt securities with unrealized losses will
be recognized as allowances for credit losses limited to the amount by which fair value is below amortized cost. ASU 2016-13 is
effective for the Company beginning January 1, 2020 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 - DISTRIBUTION AGREEMENT
Effective
January 22, 2019, the Company entered into an agreement with Della Strada Wholesale for the exclusive rights to distribute the
Company’s products in the state of Colorado for three years. In consideration, the Company received a total one-time payment
of $100,000 which will be recognized as revenue on a straight line basis over the three year life of the agreement. For the three
months ended March 31, 2019, the Company recognized revenue related to this agreement in the amount of $6,210. For the three months
ended March 31, 2018, no distribution fee revenue was recorded.
NOTE
3 - OPERATING LEASE
In
June 2018, the Company entered into a noncancelable operating lease for its headquarters office requiring payments of $8,385 per
month, payments increasing 5% each year, and ending on July 31, 2023. At March 31, 2019, the remaining lease term was 4.5 years.
The Company does 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.
The
components of lease expense and supplemental cash flow information related to leases for the period are as follows:
|
|
Three Months Ended
March 31, 2019
|
|
Lease Cost
|
|
|
|
|
Operating lease cost (included in general and administration in the Company’s unaudited condensed statement of operations)
|
|
$
|
33,087
|
|
|
|
|
|
|
Other Information
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities for the first quarter 2019
|
|
$
|
25,155
|
|
Weighted average remaining lease term – operating leases (in years)
|
|
|
4.5
|
|
Average discount rate – operating leases
|
|
|
8.3
|
%
|
The
supplemental balance sheet information related to leases for the period is as follows:
|
|
At March 31, 2019
|
|
Operating leases
|
|
|
|
|
Long-term right-of-use assets
|
|
$
|
390,378
|
|
|
|
|
|
|
Short-term operating lease liabilities
|
|
$
|
73,800
|
|
Long-term operating lease liabilities
|
|
|
324,510
|
|
Total operating lease liabilities
|
|
$
|
398,310
|
|
Maturities
of the Company’s lease liabilities are as follows:
Year Ending
|
|
Operating Leases
|
|
2019 (remaining 9 months)
|
|
$
|
77,561
|
|
2020
|
|
|
108,292
|
|
2021
|
|
|
113,707
|
|
2022
|
|
|
119,392
|
|
2023
|
|
|
61,152
|
|
Total lease payments
|
|
|
480,104
|
|
Less: Imputed interest/present value discount
|
|
|
(81,794
|
)
|
Present value of lease liabilities
|
|
$
|
398,310
|
|
Lease
expenses were $33,087 and $17,400 during the three months ended March 31, 2019 and 2018, respectively.
NOTE
4 – STOCKHOLDERS’ EQUITY
For
the three months ended March 31, 2019, the Company received $172,866 for subscriptions to purchase 345,750 shares of its common
stock in a private placement at a price of $0.50 per share
Subsequent
to March 31, 2019 the Company received an additional $142,500 in subscriptions for an additional 285,000 shares of common stock
to be issued. As of March 31, 2019, and through the date of the financial statements, the shares had not been issued. The private
placement offering is expected to terminate upon the sale of 3,000,000 shares of common stock and the Company is obligated to
issue the shares once the private placement offering is completed.
NOTE
5 – 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. A summary of warrant activity during the three months ended March
31, 2019 is presented below:
|
|
Number of
warrants
|
|
|
Weighted
Average
Exercise Price
|
|
|
Contractual
Life
in Years
|
|
|
|
|
|
|
|
|
|
|
|
Warrants Outstanding and Exercisable as of December 31, 2018
|
|
|
3,000,000
|
|
|
$
|
0.30
|
|
|
|
4.00
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
Warrants Outstanding and Exercisable as of March 31, 2019
|
|
|
3,000,000
|
|
|
$
|
0.30
|
|
|
|
3.75
|
|
The
following table summarizes information concerning the Company’s stock warrants as of March 31, 2019:
|
|
|
Warrants Outstanding
|
|
|
Warrants Exercisable
|
|
Exercise Prices
|
|
|
Number
Outstanding
|
|
|
Average
Remaining
Contractual Life
(in years)
|
|
|
Weighted
Average
Exercise Price
|
|
|
Number Exercisable
|
|
|
Average
Remaining
Contractual Life
(in years)
|
|
|
Weighted
Average
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.30
|
|
|
|
3,000,000
|
|
|
|
3.75
|
|
|
$
|
0.30
|
|
|
|
3,000,000
|
|
|
|
3.75
|
|
|
$
|
0.30
|
|
At
March 31, 2019 and December 31, 2018, intrinsic value of the warrants was approximately $600,000.
NOTE
6 – COMMITMENTS AND CONTINGENCIES
The
Company has a profit sharing agreement with an individual in consideration of the Company’s exclusive use of patented technology
developed by the individual. Pursuant to the agreement, profits (as defined) from the Company’s operations will be allocated
50% to the Company and 50% to the individual. For the three months ended March 31, 2019 and March 31, 2018, the Company incurred
net losses and therefore no allocation of profit is due.