UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20202021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________________ to ____________________
Commission File Number: 000-56025
Quanta, Inc.
(Exact name of registrant as specified in its charter)
Nevada | 81-2749032 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
(Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code): (424) (424) 261-2568
Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] ☒ No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] ☒ No [ ]☐
Indicate by check mark whether the registrantRegistrant 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 | Accelerated filer |
Non-accelerated filer | Smaller reporting company |
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] Yes☐ No [X] ☒
As of December 17, 2020,August 19, 2021, the registrant had 63,768,402 shares of Common Stock outstanding.
TABLE OF CONTENTS
2 |
PART I – FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share amounts)
June 30, 2021 | December 31, 2020 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | �� | |||||||
Cash | $ | 277,827 | $ | 6,270 | ||||
Accounts receivable | - | 685 | ||||||
Accounts receivable (net of reserve of $49,700) – related party | 149,100 | - | ||||||
Deferred charges – related party | - | 134,704 | ||||||
Inventories, net | 78,081 | 19,220 | ||||||
Prepaid production cost | 300,000 | - | ||||||
Total current assets | 805,008 | 160,879 | ||||||
Equipment, net | 192,027 | 200,523 | ||||||
Operating lease right-of-use asset, net | 321,263 | 362,227 | ||||||
Deposits | 16,883 | 16,883 | ||||||
Total assets | $ | 1,335,181 | $ | 740,512 | ||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 537,266 | $ | 673,494 | ||||
Advances | 200,000 | - | ||||||
Notes payable (net of deferred finance charges of $60,717 and $74,817 at June 30, 2021 and December 31, 2020, respectively) | 289,445 | 482,724 | ||||||
Convertible note payable (net of discount of $174,669 and $539,282 at June 30, 2021 and December 31, 2020, respectively) | 1,354,151 | 1,074,814 | ||||||
Deferred revenue, license agreement | 19,186 | 34,818 | ||||||
Operating lease liabilities, short-term | 103,914 | 100,901 | ||||||
Lease settlement obligation | 235,759 | 235,759 | ||||||
Total current liabilities | 2,739,721 | 2,602,510 | ||||||
Long term liabilities | ||||||||
Notes payable, long term | 457,288 | 451,368 | ||||||
Operating lease liabilities, long-term | 252,335 | 294,880 | ||||||
Total liabilities | 3,449,344 | 3,348,758 | ||||||
Commitments and contingencies: | - | - | ||||||
Mezzanine equity: | ||||||||
Series B preferred stock, $ | par value, shares authorized, and - - issued and outstanding at June 30, 2021 and December 31, 2020, respectively1,522,198 | - | ||||||
Series C preferred stock, $ | par value, shares authorized, and - - issued and outstanding at June 30, 2021 and December 31, 2020, respectively169,133 | - | ||||||
Preferred stock value | 1,691,331 | - | ||||||
Total Mezzanine equity | 1,691,331 | - | ||||||
Stockholders’ deficit: | ||||||||
Preferred stock, $ | par value; shares authorized; issued and outstanding2,500 | 2,500 | ||||||
Common stock, $ | par value; shares authorized; and shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively191,805 | 46,757 | ||||||
Shares to be issued ( | and as of June 30, 2021 and December 31, 2020, respectively)3,939,659 | 3,641,868 | ||||||
Additional paid-in capital | 13,867,853 | 10,102,805 | ||||||
Accumulated deficit | (21,258,289 | ) | (16,402,176 | ) | ||||
Total Quanta, Inc. stockholders’ deficit | (3,256,472 | ) | (2,608,246 | ) | ||||
Noncontrolling interest in consolidated subsidiary | (549,022 | ) | - | |||||
Total stockholders’ deficit | (3,805,494 | ) | (2,608,246 | ) | ||||
Total liabilities and stockholders’ deficit | $ | 1,335,181 | $ | 740,512 |
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
3 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except share and per share amounts)(Unaudited)
(Unaudited)
Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 | |||||||||||||
Sales, net | $ | 109,053 | $ | 306,785 | $ | 229,060 | $ | 657,134 | ||||||||
Sales, related party | - | - | 198,800 | - | ||||||||||||
License revenue | 7,816 | 11,368 | 15,632 | 17,823 | ||||||||||||
Total revenue | 116,869 | 318,153 | 443,492 | 674,957 | ||||||||||||
Cost of goods sold | 44,645 | 70,093 | 79,629 | 98,458 | ||||||||||||
Gross profit | 72,224 | 248,060 | 363,863 | 576,499 | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | 112,675 | 166,662 | 243,500 | 244,537 | ||||||||||||
Selling, general, and administrative (includes $210,000 royalty and $409,970 administrative to related party for the six months ended June 30, 2021, and $180,000 royalty to related party for the six months ended June 30, 2021) | 2,540,180 | 2,146,569 | 5,685,879 | 3,440,880 | ||||||||||||
Total operating expenses | 2,652,855 | 2,313,231 | 5,929,379 | 3,685,417 | ||||||||||||
Loss from operations | (2,580,631 | ) | (2,065,171 | ) | (5,565,516 | ) | (3,108,918 | ) | ||||||||
Other income (expense): | ||||||||||||||||
Interest expense | (23,709 | ) | (217,486 | ) | (91,526 | ) | (406,123 | ) | ||||||||
Debt discount amortization | (36,750 | ) | - | (68,695 | ) | - | ||||||||||
Private placement costs | - | (17,000 | ) | - | (279,000 | ) | ||||||||||
Change in fair value derivative | - | 148,000 | - | 283,139 | ||||||||||||
Gain on extinguishment of debt | - | 286,000 | - | 286,000 | ||||||||||||
Other income and expense, net | (60,459 | ) | 199,514 | (160,221 | ) | (115,984 | ) | |||||||||
Net loss | (2,641,090 | ) | (1,865,657 | ) | (5,725,737 | ) | (3,224,902 | ) | ||||||||
Net loss attributable to noncontrolling interest | 412,841 | - | 549,022 | - | ||||||||||||
Net loss attributable to Quanta, Inc. | $ | (2,228,249 | ) | $ | (1,865,657 | ) | $ | (5,176,715 | ) | $ | (3,224,903 | ) | ||||
Net loss per share, basic and diluted | $ | (0.01 | ) | $ | (0.0303 | ) | $ | (0.05 | ) | $ | (0.06 | ) | ||||
Weighted average common shares outstanding–basic and diluted | 149,170,837 | 5,842,875,252 | 106,363,740 | 57,512,526 |
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
4 |
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(amounts in thousands, except share amounts)(Unaudited)
(Unaudited)
Three months ended June 30, 2021 |
Shares | Amount | Shares | Amount | Capital | Issued | Deficit | Interest | Deficit | ||||||||||||||||||||||||||||
Series A | ||||||||||||||||||||||||||||||||||||
Preferred Stock, | Common Stock | Additional | Shares | Non | Total | |||||||||||||||||||||||||||||||
par value $0.001 | par value $0.001 | Paid-in | To be | Accumulated | Controlling | Stockholders’ | ||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Issued | Deficit | Interest | Deficit | ||||||||||||||||||||||||||||
Balance, March 31, 2021 | 2,500,000 | $ | 2,500 | 99,897,748 | $ | 99,900 | $ | 11,226,409 | $ | 3,802,047 | $ | (19,030,060 | ) | $ | (136,161 | ) | $ | (4,035,365 | ) | |||||||||||||||||
Shares issued for cash | - | - | 24,275,000 | 24,275 | 946,725 | - | - | - | 971,000 | |||||||||||||||||||||||||||
Adjustment for adoption of ASU 2020-6 | ||||||||||||||||||||||||||||||||||||
Issuance of shares | ||||||||||||||||||||||||||||||||||||
Issuance of shares, shares | ||||||||||||||||||||||||||||||||||||
Fair value of shares issued to employees and officer | ||||||||||||||||||||||||||||||||||||
Fair value of shares issued to employees and officer, shares | ||||||||||||||||||||||||||||||||||||
Fair value of perferred shares issued to officer | ||||||||||||||||||||||||||||||||||||
Fair value of perferred shares issued to officer, shares | ||||||||||||||||||||||||||||||||||||
Beneficial conversion feature of issued convertible notes | ||||||||||||||||||||||||||||||||||||
Fair Value of shares issued for loan fees | ||||||||||||||||||||||||||||||||||||
Fair Value of shares issued for loan fees, shares | ||||||||||||||||||||||||||||||||||||
Fair value of shares for services | - | - | 8,925,976 | 8,926 | 786,882 | - | - | - | 795,808 | |||||||||||||||||||||||||||
Fair value of vested restricted stock | - | - | - | - | - | 137,612 | - | - | 137,612 | |||||||||||||||||||||||||||
Fair value of vested options | - | - | - | - | 55,911 | - | - | - | 55,911 | |||||||||||||||||||||||||||
Shares issued for conversion of convertible notes | - | - | 58,702,494 | 58,704 | 851,926 | - | - | - | 910,630 | |||||||||||||||||||||||||||
. | . | |||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | (2,228,229 | ) | (412,861 | ) | (2,641,090 | ) | ||||||||||||||||||||||||
Balance June 30, 2021 | 2,500,000 | $ | 2,500 | 191,801,218 | $ | 191,805 | $ | 13,867,853 | $ | 3,939,659 | $ | (21,258,289 | ) | $ | (549,022 | ) | $ | (3,805,494 | ) |
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 | ) |
Six Months Ended June 30, 2021 |
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 | ) |
Series A | ||||||||||||||||||||||||||||||||||||
Preferred Stock, | Common Stock | Additional | Shares | Non | Total | |||||||||||||||||||||||||||||||
par value $ | par value $ | Paid-in | To be | Accumulated | Controlling | Stockholders’ | ||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Issued | Deficit | Interest | Deficit | ||||||||||||||||||||||||||||
Balance December 31, 2020 | 2,500,000 | $ | 2,500 | 46,756,970 | $ | 46,757 | $ | 10,102,805 | $ | 3,641,868 | $ | (16,402,176 | ) | $ | - | $ | (2,608,246 | ) | ||||||||||||||||||
Adjustment for adoption of ASU 2020-6 | - | - | - | - | (823,655 | ) | - | 320,602 | - | (503,053 | ) | |||||||||||||||||||||||||
Shares issued for cash | - | - | 56,750,000 | 56,750 | 1,928,250 | - | - | - | 1,985,000 | |||||||||||||||||||||||||||
Fair value of shares for services | - | - | 14,925,976 | 14,926 | 1,299,832 | - | - | - | 1,314,758 | |||||||||||||||||||||||||||
Fair value of vested restricted stock | - | - | - | - | - | 297,791 | - | - | 297,791 | |||||||||||||||||||||||||||
Fair value of vested options | - | - | - | - | 126,905 | - | - | - | 126,905 | |||||||||||||||||||||||||||
Shares issued for conversion of convertible notes | - | - | 73,368,272 | 73,372 | 1,233,716 | - | - | - | 1,307,088 | |||||||||||||||||||||||||||
. | . | |||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | (5,176,715 | ) | (549,022 | ) | (5,725,737 | ) | ||||||||||||||||||||||||
Balance June 30, 2021 | 2,500,000 | $ | 2,500 | 191,801,218 | $ | 191,805 | $ | 13,867,853 | $ | 3,939,659 | $ | (21,258,289 | ) | $ | (549,022 | ) | $ | (3,805,494 | ) |
5 |
Three months ended September 30, 2019 (Unaudited) | ||||||||||||||||||||||||
Common Stock, par value $0.001 | Additional | |||||||||||||||||||||||
Number of shares | Amount | paid-in capital | Shares 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 |
QUANTA, INC. AND SUBSIDIARY
Nine months ended September 30, 2019 (Unaudited) | ||||||||||||||||||||||||
Common Stock, par value $0.001 | Additional | |||||||||||||||||||||||
Number of shares | Amount | paid-in capital | Shares 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 |
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
Three months ended June 30, 2020 |
Series A | ||||||||||||||||||||||||||||||||||||
Preferred Stock, | Common Stock | Additional | Shares | Non | Total | |||||||||||||||||||||||||||||||
par value $ | par value $ | Paid-in | To be | Accumulated | Controlling | Stockholders’ | ||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Issued | Deficit | Interest | Deficit | ||||||||||||||||||||||||||||
Balance March 31, 2020 | - | $ | - | 54,198,366 | $ | 55,198 | $ | 6,223,617 | $ | 2,773,868 | $ | (9,596,992 | ) | $ | - | $ | (544,309 | ) | ||||||||||||||||||
Issuance of shares | - | - | 18,519 | - | 4,995 | (4,995 | ) | - | - | - | ||||||||||||||||||||||||||
Shares issued for cash | - | - | 277,778 | - | 74,722 | - | - | - | 74,722 | |||||||||||||||||||||||||||
Fair value of shares for services | - | - | 1,250,117 | 998 | 185,581 | 336,000 | - | - | 522,579 | |||||||||||||||||||||||||||
Fair value of vested options | - | - | - | - | 100,921 | - | - | - | 100,921 | |||||||||||||||||||||||||||
Fair value of shares issued to employees and officer | - | - | 451,198 | - | 52,254 | - | - | - | 52,254 | |||||||||||||||||||||||||||
Fair value of perferred shares issued to officer | 2,500,000 | 2,500 | - | - | 462,500 | - | - | - | 465,000 | |||||||||||||||||||||||||||
Beneficial conversion feature of issued convertible notes | - | - | - | - | 291,000 | - | - | - | 291,000 | |||||||||||||||||||||||||||
Fair Value of shares issued for loan fees | - | - | 705,000 | 705 | 78,438 | 10,890 | - | - | 90,033 | |||||||||||||||||||||||||||
. | . | |||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | (1,865,657 | ) | - | (1,865,657 | ) | |||||||||||||||||||||||||
Balance June 30, 2020 | 2,500,000 | $ | 2,500 | 56,900,978 | $ | 56,901 | $ | 7,474,028 | $ | 3,115,763 | $ | (11,462,649 | ) | $ | - | $ | (1,711,744 | ) |
Six Months Ended June 30, 2020 |
Series A | ||||||||||||||||||||||||||||||||||||
Preferred Stock, | Common Stock | Additional | Shares | Non | Total | |||||||||||||||||||||||||||||||
par value $ | par value $ | Paid-in | To be | Accumulated | Controlling | Stockholders’ | ||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Issued | Deficit | Interest | Deficit | ||||||||||||||||||||||||||||
Balance December 31, 2019 | - | $ | - | 49,087,255 | $ | 49,087 | $ | 5,619,733 | $ | 2,847,868 | $ | (8,237,747 | ) | $ | - | $ | 278,941 | |||||||||||||||||||
Issuance of shares | - | - | 5,018,519 | 5,000 | 499,995 | (504,995 | ) | - | - | - | ||||||||||||||||||||||||||
Shares issued for cash | - | - | 388,889 | 1,111 | 103,611 | - | - | - | 104,722 | |||||||||||||||||||||||||||
Fair value of shares for services | - | - | 1,250,117 | 998 | 185,581 | 762,000 | - | - | 948,579 | |||||||||||||||||||||||||||
Fair value of vested options | - | - | - | - | 180,916 | - | - | - | 180,916 | |||||||||||||||||||||||||||
Fair value of shares issued to employees and officer | - | - | 451,198 | - | 52,254 | - | - | - | 52,254 | |||||||||||||||||||||||||||
Fair value of perferred shares issued to officer | 2,500,000 | 2,500 | - | - | 462,500 | - | - | - | 465,000 | |||||||||||||||||||||||||||
Beneficial conversion feature of issued convertible notes | - | - | - | - | 291,000 | - | - | - | 291,000 | |||||||||||||||||||||||||||
Fair Value of shares issued for loan fees | - | - | 705,000 | 705 | 78,438 | 10,890 | - | - | 90,033 | |||||||||||||||||||||||||||
. | . | |||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | (3,224,902 | ) | - | (3,224,902 | ) | |||||||||||||||||||||||||
Balance June 30, 2020 | 2,500,000 | $ | 2,500 | 56,900,978 | $ | 56,901 | $ | 7,474,028 | $ | 3,115,763 | $ | (11,462,649 | ) | $ | - | $ | (1,711,744 | ) |
See notes to condensed consolidated financial statements
6 |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)(Unaudited)
(Unaudited)
Nine Months Ended September 30, 2020 | Nine Months Ended September 30, 2019 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
CASH FLOW FROM OPERATING ACTIVITIES: | ||||||||||||||||
Net loss | $ | (5,931 | ) | $ | (3,017 | ) | $ | (5,725,737 | ) | $ | (3,224,902 | ) | ||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
Depreciation | 162 | 122 | 35,168 | 106,718 | ||||||||||||
Fair value of shares issued for services | 1,314,758 | 180,916 | ||||||||||||||
Fair value of vested options | 250 | - | 126,905 | 186,893 | ||||||||||||
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 | - | ||||||||||||||
Fair value of vested restricted shares | 297,791 | 761,686 | ||||||||||||||
Fair value of mezzanine equity Series B and Series C preferred shares issued for services | 1,691,331 | - | ||||||||||||||
Fair value of shares issued to officer | - | 514,754 | ||||||||||||||
Amortization of convertible note discount | 54,595 | 380,000 | ||||||||||||||
Amortization of note payable discount | 14,100 | - | ||||||||||||||
Amortization of right-of-use asset | 40,964 | 84,095 | ||||||||||||||
Fees paid through conversion of convertible notes | 54,400 | - | ||||||||||||||
Change in fair value of derivative | (101 | ) | - | - | (283,139 | ) | ||||||||||
Loss on debt extinguishment | 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 | - | - | ||||||||||||||
Private placement costs | - | 279,000 | ||||||||||||||
Gain on extinguishment of debt | - | (286,000 | ) | |||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accounts receivable | 22 | (37 | ) | 685 | 10,640 | |||||||||||
Accounts receivable, related party | (198,800 | ) | - | |||||||||||||
Allowance for doubtful accounts | 49,700 | - | ||||||||||||||
Deferred expenses, related party | 134,704 | - | ||||||||||||||
Inventories | (34 | ) | - | (58,861 | ) | (38,882 | ) | |||||||||
Prepaid Expenses | 7 | - | ||||||||||||||
Prepaid production costs | (300,000 | ) | 7,500 | |||||||||||||
Accounts payable and accrued liabilities | 386 | 29 | (136,890 | ) | 72,387 | |||||||||||
Advances | 200,000 | - | ||||||||||||||
Deferred revenue | (26 | ) | 76 | (15,632 | ) | (17,052 | ) | |||||||||
Operating lease liabilities | (39,493 | ) | (78,018 | ) | ||||||||||||
Net cash used in operating activities | (1,804 | ) | (968 | ) | (2,460,312 | ) | (1,343,404 | ) | ||||||||
CASH FLOW FROM INVESTING ACTIVITIES: | ||||||||||||||||
Purchase of equipment | (80 | ) | (84 | ) | (26,672 | ) | (80,272 | ) | ||||||||
Net cash used in investment activities | (80 | ) | (84 | ) | (26,672 | ) | (80,272 | ) | ||||||||
CASH FLOW FROM FINANCING ACTIVITIES: | ||||||||||||||||
Proceeds from shares to be issued | 50 | |||||||||||||||
Proceeds from shares issued for cash | 125 | 1,110 | 1,985,000 | 104,722 | ||||||||||||
Proceeds from convertibles notes payable | 712 | - | 975,000 | 563,000 | ||||||||||||
Proceeds from revenue sharing loan | 250 | - | ||||||||||||||
Proceeds from PPP and EIDL loans | 294 | - | ||||||||||||||
Proceeds from notes payable | 378 | - | 10,000 | 679,000 | ||||||||||||
Principal payments of convertible notes | (282 | ) | - | |||||||||||||
Principal payments of notes payable | (65 | ) | (59 | ) | (211,459 | ) | (44,000 | ) | ||||||||
Costs of recapitalization | - | - | ||||||||||||||
Principal payments of convertible notes payable | - | (282,000 | ) | |||||||||||||
Net cash provided by financing activities | 1,462 | 1,051 | 2,758,541 | 1,020,722 | ||||||||||||
Increase (decrease) in cash | (422 | ) | (1 | ) | 271,557 | (402,954 | ) | |||||||||
Cash and cash equivalents, beginning of period | 433 | 36 | 6,270 | 433,099 | ||||||||||||
Cash and cash equivalents, end of period | $ | 11 | $ | 29 | $ | 277,827 | $ | 30,145 | ||||||||
Supplemental Disclosures of Cash Flow Information: | ||||||||||||||||
Cash paid for taxes | - | - | ||||||||||||||
Cash paid for Interest | 17 | - | ||||||||||||||
Cash paid for interest | 59,749 | 391,405 | ||||||||||||||
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 | - | ||||||||||||||
Adjustment for adoption of ASU 2020-06 | 503,053 | - | ||||||||||||||
Common shares issued for conversion of convertible notes | 1,307,088 | - | ||||||||||||||
Derivative liabilities allocated to convertible note discount | - | 153,000 | ||||||||||||||
Recognition of operating lease right-of-use asset and operating lease liabilities | $ | - | $ | 431,402 |
See notes to condensed consolidated financial statements
7 |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINESIX MONTHS ENDED SeptemberJUNE 30, 2021 AND 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,December 21, 2020, the Company experienced a change in control and appointment of a new Chief Executive Officer, among other corporate actions, and commenced a transitionentered into a holding company. During the transition phase,Securities Exchange Agreement with Medolife Rx, Inc., a Wyoming corporation, (“Medolife Rx”) pursuant to which, the Company furloughed mostagreed to acquire 51% of its employees,Medolife Rx in exchange for shares of newly created Series B Convertible Preferred Stock. On January 14, 2021, the Company completed the acquisition of 51% of Medolife, which had nominal assets, liabilities, and has continued to sell its products onlineoperations. (see Note 12)10).
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 (“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 and six months ended June 30, 2021, are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2021. These financial statements should be read in conjunction with the financial statements of the Company for the year ended December 31, 2020 and notes thereto contained in the Annual Report on Form 10-K of the Company as filed with the SEC on April 15, 2021. The condensed consolidated balance sheet as of December 31, 2020 included herein was derived from the audited consolidated financial statements as of that date, but does not include all disclosures, including notes, required by GAAP.
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 ninesix months ended SeptemberJune 30, 2020,2021, the Company incurred a net loss of $5,931$5,725,737 and used cash in operating activities of $1,804,$2,460,312, and at SeptemberJune 30, 2020,2021, the Company had a stockholders’ deficit of $1,850.$3,805,494. 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 theirits report on the Company’s December 31, 2019 audited2020 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 SeptemberJune 30, 2020,2021, 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.$277,827. Management estimates that the current funds on hand will be sufficient to continue operations through the next threesix 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 Americaaccounting 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—Revenue from salesSubstantially all of the Company’s CBDrevenue is derived from product sales. Product revenue and costs of sales are recognized when control of the 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,transfers to our customer, which is the amount of consideration the Company expects to receive in exchange for transferring products to a customer. Generally, thegenerally occurs upon shipment from our facilities. The Company’s performance obligations are transferred to the customersatisfied at a point in time, typically upon delivery of products.that time. The Company historically has offereddoes not have any significant contracts with customers requiring performance beyond delivery, and contracts with customers contain no incentives or discounts rebates, rights of return,that could cause revenue to be allocated 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.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.
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-based compensation
Stock 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 in non-capital raising transactions for services and for financing costs.non-employees. The Company accounts for such grants issued and vestingits 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 ASC 718, whereby the estimated fair value of the award, and is measured on the date of grant and recognized as expense over the requisite service period. Recognition of compensation expense onfor non-employees is in the straight-line basis oversame period and manner as if the vesting period. The Company recognizeshad paid cash for the fair value of stock-based compensation within its Statements of Operations with classification depending on the nature of the services rendered.services.
The fair value of the Company’s stock options is estimated using athe Black-Scholes-Merton option pricingOption 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 pricingOption Pricing model and based on actual experience. The assumptions used in the Black-Scholes-Merton option pricingOption 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, as 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. As of June 30, 2021, the Company had paid the Agent the entire fee.
Advertising costs
Advertising costs are expensed as incurred. During the ninesix months ended SeptemberJune 30, 20202021 and 2019,June 30, 2020, advertising costs totaled $53$544,565 and $58,$44,658, respectively.
Research and Development Costs
Costs incurred for research and development are expensed as incurred. During the ninesix months ended SeptemberJune 30, 20202021 and 2019,June 30, 2020, research and development costs totaled $307$243,500 and $197,$244,537, respectively and include salaries, benefits, and overhead costs of personnel conducting research and development of the Company’s products.
Basic net loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding forduring the period, excluding shares of unvested restricted common stock.period. 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 earningsloss per share is computed by dividingreflects 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,dilution, using the treasury stock method. Shares of restrictedmethod that could occur if securities or other contracts to issue common stock are includedwere exercised or converted into common stock or resulted in the diluted weighted average numberissuance of common sharesstock that then shared in the loss of the Company. In computing diluted loss per share, the treasury stock method assumes that outstanding fromwarrants and convertible notes are exercised and the date theyproceeds are granted. Potentialused to purchase common shares are excluded fromstock at the computationaverage market price during the period. Warrants and convertible notes may have a dilutive effect under the treasury stock method only when their effect is anti-dilutive.the average market price of the common stock during the period exceeds the exercise price of the options and warrants.
For the ninesix months ended September 30,June 31, 2021 and 2020, the dilutive impact of common stock equivalents, e.g. stock options, exercisable into 2,732,261 shares of common stock,warrants and convertible notes convertible into 61,171,291 shares of common stock, and 4,500,000 shares of unvested restricted common stockpayable have been excluded from calculation of weighted average shares because their impact on the loss per share is anti-dilutive.
As of June 30, 2021, convertible notes of $1,528,820and accrued interest are convertible into shares of common stock. It should be noted that undercontractually the contractual termslimitations on the third-party notes (and the related warrant) limit the number of the convertible notes; one note holder is limited no more thanshares converted to either 4.99% of outstanding shares; the other note holders are limited to no more thanor 9.99% of the then outstanding shares at any time within 61 daysshares.As of conversion. Therefore at SeptemberJune 30, 2021 and 2020, potentially dilutive securities consisted of the note holders could not convert their respective notes into more than 20,361,669 common shares.following:
June 30, 2021 | June 30, 2020 | |||||||
Stock options | 775,000 | 3,290,000 | ||||||
Unvested restricted shares | 2,000,000 | 5,125,000 | ||||||
Convertible notes payable | 83,908,000 | 889,469 | ||||||
Total | 86,683,000 | 9,304,469 |
Fair Value of Financial Instruments
The Company follows the authoritative guidance issued by the Financial Accounting Standards Board (“FASB”) for fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy was established, which prioritizes the inputs used in measuring fair value into three broad levels as follows:
9 |
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 instrumentsinstruments.
As of SeptemberJune 30, 2021 and December 31, 2020, the Company’s balance sheet includesCompany did not have any Level 2 liabilities comprised of the fair value of embedded derivative liabilities of $179 (see Note 8).liabilities.
Concentrations of risks
For the ninesix months ended SeptemberJune 30, 2020 and 2019,2021, one customer accounted for 15% or more52% of revenue. No otherFor the six months ended June 30, 2020, one customer accounted for 10%21% or more of revenue. As of SeptemberJune 30, 2020,2021 one customer accounted for 17%100% of accounts receivable and as of June 30, 2020, one customers accounted for 10%18% of accounts receivable. No other customer accounted for 10% or more of revenue or accounts receivable.
As of December 31, 2019,June 30, 2021, two customersvendors accounted for 19% and 12%61% of accounts receivable, respectively. Nopayable and no other customervendor accounted for 10%10% or more of accounts receivable.
payable. As of SeptemberJune 30, 2020, fourthree vendors accounted for 11%36%, 40% and 17% and 14% and 14%23%, respectively of accounts payable, respectively, and nopayable. 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.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 one1 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 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. 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.
In June 2016, the FASB issued ASU No. 2016-13,Credit Losses - Measurement of Credit Losses on Financial Instruments (Topic 326) (“ASC 326”). ASU 2016-13 requiresThe standard significantly changes how entities to use a forward-lookingwill 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 current expected credit losses (“CECL”)rather than incurred losses. Entities will apply the standard’s provisions as a cumulative-effect adjustment to estimate credit losses on certain typesretained earnings as of financial instruments, including trade receivables. This may resultthe beginning of the first reporting period in which the earlier recognition of allowances for losses. ASU 2016-13guidance is effective. The standard is effective for the Companyinterim and annual reporting periods beginning January 1, 2023, and early adoption is permitted.after December 15, 2022. The Company does not believeis currently assessing the potential impact of adopting this standard on the new guidanceCompany’s financial statements and related codification improvements will be material to its financial position, results of operations and cash flows.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 AGREEMENTINVENTORIES
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 net of reserves, consisted of the following:
SCHEDULE OF INVENTORIES
September 30, 2020 | December 31, 2019 | June 30, 2021 | December 31, 2020 | |||||||||||||
Raw materials and packaging | $ | 120 | $ | 103 | $ | 53,559 | $ | 3,144 | ||||||||
Finished goods | 37 | 20 | 24,522 | 16,076 | ||||||||||||
$ | 157 | $ | 123 | |||||||||||||
Inventories | $ | 78,081 | $ | 19,220 |
10 |
The Company has recorded a reserve for slow moving and potentially obsolete inventory. The reserve at June 30, 2021 and December 31, 2020 was $9,125 and $9,125, respectively.
NOTE 43 - EQUIPMENT
Equipment, stated at cost, less accumulated depreciation consisted of the following:
SCHEDULE OF EQUIPMENT
September 30, 2020 | December 31, 2019 | June 30, 2021 | December 31, 2020 | |||||||||||||
Machinery-technology equipment | $ | 705 | $ | 607 | $ | 704,772 | $ | 704,772 | ||||||||
Machinery-technology equipment under construction | 12 | 30 | 62,641 | 35,969 | ||||||||||||
717 | 637 | |||||||||||||||
Equipment, gross | 767,413 | 740,741 | ||||||||||||||
Less accumulated depreciation | (485 | ) | (324 | ) | (575,386 | ) | (540,218 | ) | ||||||||
$ | 232 | $ | 313 | |||||||||||||
Equipment, net | $ | 192,027 | $ | 200,523 |
Depreciation expense for the three and ninesix months ended SeptemberJune 30, 2021 and 2020 was $55$35,168 and $162, respectively. Depreciation expense for the three and nine months ended September 30, 2019 was $50 and $122,$106,718, respectively. As of SeptemberJune 30, 2020,2021, the equipment under construction is approximately 80%60% complete, and is expected to be completed and placed into service during the year ended December 31, 2020.2021.
NOTE 54 - OPERATING LEASESLEASE
At December 31, 2019,June 30, 2021, the Company hadhas 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.Burbank. The lease commenced on January 1, 2020, and has a term for 5 years, with annual fixed rental payments ranging from $90$90,000 to $101. The aggregate total fixed rent is approximately $478 and resulted in$101,296. At June 30, 2021, 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 impairmentbalance of the related netlease’s right of use asset of $255, and wrote ofcorresponding lease liability were $321,263 and $341,844, respectively. At June 30, 2021, the Company is also obligated under a deposit of $17 with the lessor.lease that was abandoned in December 2020. The total due to the lessor for the abandoned lease space is $236$235,759 and is recorded as lease settlement reserveobligation at SeptemberJune 30, 2020.2021.
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:
SCHEDULE OF LEASE EXPENSE AND SUPPLEMENTAL CASH FLOW INFORMATION RELATED TO LEASES
Nine months ended September 30, 2020 | Six months ended June 30, 2021 | |||||||
(in thousands) | ||||||||
Lease Cost | ||||||||
Operating lease cost (included in selling, general, and administrative expense in the Company’s statement of operations) | $ | 171,332 | $ | 62,905 | ||||
Other Information | ||||||||
Cash paid for amounts included in the measurement of lease liabilities for 2020 | $ | 92 | ||||||
Cash paid for amounts included in the measurement of lease liabilities for 2021 | $ | 61,200 | ||||||
Weighted average remaining lease term – operating leases (in years) | 3.25 | 2.50 | ||||||
Average discount rate – operating leases | 4 | % | 4 | % |
The supplemental balance sheet information related to leases for the period is as follows:SCHEDULE OF SUPPLEMENTAL BALANCE SHEET INFORMATION RELATED TO LEASES
At June 30, 2021 | ||||
Operating leases | ||||
Long-term right-of-use assets | $ | 321,263 | ||
Short-term operating lease liabilities | $ | 103,914 | ||
Long-term operating lease liabilities | 252,335 | |||
Total operating lease liabilities | $ | 356,249 |
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 |
SCHEDULE OF MATURITIES OF OPERATING LEASE LIABILITIES
Year Ending | Operating Leases | |||
2021(remainder of year) | 46,350 | |||
2022 | 95,481 | |||
2023 | 98,345 | |||
2024 | 139,767 | |||
Total lease payments | 379,943 | |||
Less: Imputed interest | (23,694 | ) | ||
Present value of lease liabilities | 356,249 | |||
Present value of lease liabilities | 356,249 | |||
Less current portion | (103,914 | ) | ||
Operating lease liabilities, long-term | $ | 252,335 |
11 |
Lease expensesexpense were $72$62,905 and $171$98,926 during the three and ninesix months ended SeptemberJune 30, 2021 and 2020, respectively. Lease expenses were $20 and $81 during the three and nine months ended September 30, 2019, respectively.
NOTE 65 – NOTES PAYABLE
SCHEDULE OF 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 |
June 30, 2021 | December 31, 2020 | |||||||
(a) Notes payable secured by equipment | $ | 257,175 | $ | 438,634 | ||||
(b) Note payable, secured by assets-in default | 13,350 | 33,350 | ||||||
(c) Note payable, Payroll Protection Program | 134,125 | 134,125 | ||||||
(d) Note payable, Economic Injury Disaster Loan | 160,000 | 160,000 | ||||||
(e) Revenue sharing agreement | 242,800 | 242,800 | ||||||
Total notes payable outstanding | 807,450 | 1,008,909 | ||||||
Debt discount | (60,717 | ) | (74,817 | ) | ||||
Notes payable, net of discount | 746,733 | 934,092 | ||||||
Current portion | 289,445 | 482,724 | ||||||
Long term portion | $ | 457,288 | $ | 451,368 |
(a) | In April 2020 and May 2020, the Company entered into two financing agreements aggregating | |
(b) | Note payable, interest at |
(c) | ||
On May 7, 2020, the Company was granted a loan (the “PPP loan”) from Bank of America in the aggregate amount of | ||
(d) | On September 5, 2020, the Company received a | |
(e) | Between July 7, 2020, and July 29, 2020, the Company issued notes payable to |
NOTE 76 – CONVERTIBLE NOTES PAYABLE
Convertible notes payable consisted of the following:
SCHEDULE OF CONVERTIBLE NOTES PAYABLE
September 30, 2020 | December 31, 2019 | June 30, 2021 | December 31, 2020 | |||||||||||||
Unsecured | ||||||||||||||||
(a) Convertible notes with fixed discount percentage conversion prices | 223 | 282 | $ | - | $ | 180,200 | ||||||||||
Put premiums on stock settled debt | - | 117,866 | ||||||||||||||
(b) Convertible notes with fixed conversion prices | 497 | - | 1,528,820 | 936,944 | ||||||||||||
Default penalty principal added, charged to loss on debt extinguishment | 315 | - | ||||||||||||||
Put premiums on stock settled debt | 155 | - | ||||||||||||||
Default penalty principal added | - | 369,086 | ||||||||||||||
Total convertible notes principal outstanding | 1,035 | 282 | 1,528,820 | 1,614,096 | ||||||||||||
Debt discount | (590 | ) | (225 | ) | (174,669 | ) | (539,282 | ) | ||||||||
Convertible notes, net of discount and premium | $ | 600 | $ | 57 | $ | 1,354,151 | $ | 1,074,814 | ||||||||
Current portion | 600 | 57 | 1,354,151 | 1,074,814 | ||||||||||||
Long-term portion | $ | - | $ | - | $ | - | $ | - |
(a) | At December 31, | |
(b) | As of December 31, 2020, the balance | |
At December 31, 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
|
AtNOTE 7 – DERIVATIVE LIABILITIES AND FINANCIAL INSTRUMENTS
The Company had no derivative liabilities at June 30, 2021 or December 31, 2019,2020. For the balance of unamortized discount on convertible notes was $225. During the ninesix months ended SeptemberJune 30, 2020, debt discount of $761 was recorded, and debt discount amortization of $396 was recorded. At September 30, 2020, the balancea roll-forward of the unamortized discount was $590.level 2 valuation financial instrument is as follows:
SCHEDULE OF LEVEL 2 VALUATION FINANCIAL INSTRUMENTS
Derivative Liabilities | ||||
Balance at December 31, 2019 | $ | 400,139 | ||
Recognition of derivative liabilities upon initial valuation | 176,000 | |||
Change in fair value of derivative liabilities during the three months ended June 30, 2020 | (283,139 | ) | ||
Balance at June 30, 2020 | $ | 293,000 |
NoteNOTE 8 – DERIVATIVE FINANCIAL INSTRUMENTSMEZZANINE EQUITY
At December 31, 2019, the balanceThe shares of the derivative liabilities was $400, which was fully extinguished Series B and Series C convertible preferred stock discussed below have been determined by the Company to be conditionally redeemable upon pay-offthe occurrence of certain events that are not solely within the control of the related convertible notewithissuer, and upon such event, the shares would become redeemable at the option of the holders, they are classified as ‘mezzanine equity’ (temporary equity). The purpose of this classification is to convey that such a decreasesecurity may not be permanently part of fair valueequity and could result in a demand for cash, securities or other assets of $114the entity in the future. The shares as valued have been classified as mezzanine equity and gainpresented as such on debt extinguishment of $286 during the nine months ended Septemberconsolidated balance sheet at June 30, 2020. The Company also recorded additions of $101 related2021 as single line items due 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,immaterial par value. The mezzanine equity value is not included in shareholders’ deficit.
Series B Convertible Preferred Stock
On December 21, 2020, the Company hadentered 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 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 $ was charged to compensation expense during the six months ended June 30, 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 $notes outstandinginto 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 consideredentitled to have embedded derivative liabilities that require bifurcation perliquidation benefits including a cash payout, the note agreements.liquidation terms include sales and mergers affection a change in control. per share and a stated value of $ per share (the “Stated Value”) and each Series C Preferred Share shall be convertible
13 |
On January 14, 2021, the Board of Directors of the Company approved the issuance of all derivative liabilitiesshares issued to Trillium and Sagittarii were valued at the following dates using a binomial model with the following assumptions: authorized shares of Series C Convertible Preferred Stock. shares of Series C Preferred Stock were issued to Trillium Partners LP, and shares of Series C Preferred Stock were issued to Sagittarii Holdings, Inc. The
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$169,133 based on the historical volatilityconversion number of common shares at the Company’s stock. The expected life of the conversion feature of the notes was basedmarket price on the remaining termsdate of issuance, and were charged to expense for services during 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.six months ended June 30, 2021.
NOTE 9 – STOCKHOLDERS’ EQUITYDEFICIT
Series A PreferredCommon Stock
On April 14,November 20, 2020, the Company filed a CertificateBoard of Designation forDirectors approved an increase in the Company’s Series A Preferredauthorized shares of Common Stock with thefrom to shares by Unanimous Written Consent. The Secretary of State of Nevada designating 2,500,000 approved the share increase.
The Company has 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 authorized and undesignated preferredand shares were outstanding as of June 30, 2021 and December 31, 2020, respectively.
Common 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.issued for cash
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 ninesix months ended SeptemberJune 30, 2020,2021, the Company issued 407,408 shares of common stock under a Form S-1 then in effect at a price of $ per share. Also during the six months ended June 30, 2021, the Company issued shares of common stock in a private placement of shares at a price of $0.26$ to $ per share. Total proceeds of $1,985,000 in cash was received.
During the six months ended June 30, 2020, the Company issued $125.$104,722. shares of common stock in a private placement of shares at a price of $ per share for total proceeds of
TheCommon stock issued for services
During the six months ended June 30, 2021, the Company issued 3,955,747 common shares of common stock to two holdersservice vendors with a fair value of convertible notes at contracted prices.$1,244,808, and shares of common stock to employees and officers of the Company with a fair value of $69,950. The fair value of the shares was $211determined based on the closing price of the Company’s common stock on the date shares were granted, and the conversions reduced the convertible note principal due by $140.recorded as stock compensation in selling, general and administrative expense.
The Company issued 1,127,522 common shares of stock to secure financing for total fair value of $105.
During the ninesix months ended SeptemberJune 30, 2020, the Company recognized beneficial conversion features totaling $1,569, as additional paid in capital forissued shares of common stock to service vendors with a fair value of $52,254. The fair value of the difference betweenshares was determined based on the conversionclosing price of the Company’s common stock on the date shares were granted, and recorded as stock compensation in selling, general and administrative expense.
During the six months ended June 30, 2020, the Company issued notes payable and thenote holders for services with a fair value asof $186,579. The fair value of the dateshares was determined based on the closing price of the amendmentsCompany’s common stock on the date shares were granted, and recorded as stock compensation in selling, general and administrative expense. shares of common stock to consultants and convertible
During the six months ended June 30, 2020, the Company issued 90,033. The 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 was recorded as debt discount to be amortized over the term of the related convertible notes.notes payable. shares of common stock to convertible note holders for fees with a fair value of $
Preferred Stock
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, Thethe 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$462,500 and was recorded as a stock compensation expense in selling, general and administrative expense during the ninesix months ended SeptemberJune 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,In 2019, the Company agreed to issue a consultant for services. Arthur Mikaelian. shares of the Company’s common stock with vesting terms to
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. 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 ninesix months ended SeptemberJune 30, 2021 and 2020, total share-based expense recognized related to vested restricted shares totaled $929.$ and $ , respectively. At SeptemberJune 30, 2020,2021, there was $753$ of unvested compensation related to these awards that will be amortized over a remaining vesting period of 1.4 years.approximately nine months thru March 2022.
The following table summarizes restricted common stock activity for the ninesix months ended SeptemberJune 30, 2020:2021:
SUMMARY OF RESTRICTED COMMON STOCK ACTIVITY
Number of shares | Fair value of shares (in thousands) | Number of shares | Fair value of shares | |||||||||||||
Non-vested shares, December 31, 2019 | 5,750,000 | $ | 1,682 | |||||||||||||
Non-vested shares, December 31, 2020 | 3,250,000 | 431,411 | ||||||||||||||
Granted | - | - | - | - | ||||||||||||
Vested | (1,875,000 | ) | (929 | ) | (1,250,000 | ) | (297,791 | ) | ||||||||
Forfeited | - | - | - | - | ||||||||||||
Non-vested shares, September 30, 2020 | 3,875,000 | $ | 753 | |||||||||||||
Non-vested shares, June 30, 2021 | 2,000,000 | $ | 139,620 |
As of SeptemberJune 30, 2020,2021, 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
14 |
Common stock issued in conversion of convertible notes payable
During the yearsix months ended December 31, 2019,June 30, 2021, the Company issued shares of common stock to holders of convertible notes upon the conversion of convertible notes payable and accrued interest valued at $1,307,088.
Stock Options
During the six months ended June 30, 2021 and 2020, the Company recognized $ and $ , respectively, of compensation expense relating to vested stock options.
During the six months ended June 30, 2021, the Company did not issue any options. In April 2020, 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 optionsstock which vested immediately, and 300,000 of the options vest over 24 months.immediately. The options have an exercise price of $0.10 to $0.14$ per share, and expire in ten years. TotalThe total fair value of these options at grant date was approximately $85,$ , which was determined using thehe Black-Scholes-Merton option pricing model with the following average assumption: stock price $0.14$ per share, expected term ranging from , volatility 236% %, dividend rate of 0% % and risk-freerisk-fee 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.
As of June 30, 2021, the amount of unvested compensation related to stock options was approximately $ which will be recorded as an expense in future periods as the options vest.
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 |
SCHEDULE OF STOCK OPTION ACTIVITY
Number of options | Weighted Average Exercise Price | Contractual Life in Years | ||||||||||
Options Outstanding as of December 31, 2020 | 4,130,000 | 0.10 | ||||||||||
Granted | - | - | - | |||||||||
Exercised | (350,000 | ) | - | - | ||||||||
Forfeited | (3,005,000 | ) | - | - | ||||||||
Options Outstanding as of June 30, 2021 | 775,000 | 0.10 | ||||||||||
Options Exercisable as of June 30, 2021 | 775,000 | $ | 0.10 |
At SeptemberJune 30, 2020,2021, the options outstanding had no intrinsic value.
NOTE 10 – RELATED PARTY TRANSACTIONS
On January 14, 2021, the Company completed the acquisition of 51% of Medolife Rx, a company controlled by Arthur Mikaelian (see Note 8). Prior to the acquisition, Mr. Mikaelian was a consultant and shareholder in the Company. In connection with the acquisition of 51% of Medolife Rx, Mr. 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 Mr. Mikaelian assumed on January 14, 2021. As Medolife Rx had nominal assets, liabilities, and operations, proforma information is not presented.
The Company has an agreement with Mr. Mikaelian in consideration of the Company’s exclusive use of patented technology developed by Mr. 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. During the six months ended June 30, 2021 and 2020, the Company recognized royalty expenses of $210,000 and $180,000, respectively.
During the six months ended June 30, 2021, the Company recorded revenue of $198,800, or 44% of total revenue for the period, from a company controlled by a family member of the Company’s CEO. At June 30, 2021, the net amount due from the related party was $149,100 and represents 100% of the Company’s accounts receivable at that date.
During the six months ended June 30, 2021, the Company recorded administrative expenses of $409,970 to a company controlled by Mr. Mikaelian.
NOTE 11 – COMMITMENTS AND CONTINGENCIES
TheCOVID-19
During the six months ended June 30, 2021, the COVID-19 pandemic has impacted our operating results and the Company has an agreement with an individual in considerationanticipates a continued impact for the balance 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.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 agreedmonitors guidance from federal, state, and local public health authorities, and has implemented health and safety precautions and protocols in response to issue 8,000,000 sharesthese guidelines. The extent of the impact of the COVID-19 pandemic has had and will continue to have on the Company’s common stockbusiness is highly uncertain and difficult to predict and quantify at this time.
Contingencies include obligations for lease agreements, including an abandoned lease space, along with vesting terms to the individualCompany current lease for its headquarters office (see Note 10)4). 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 discountIt is being amortized to interest expense over the expected life of the agreement. The Company has determinedmanagement’s opinion that there isare no material contingent liabilities that are not disclosed in the potential for litigation under these agreements however no estimate of liability can be calculatedfinancial statements and footnote disclosures as of SeptemberJune 30, 2020.2021.
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.Issued
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.
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.
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 extendedSubsequent to June 30, 2021, the conversion terms were changed from fixed percentage discountCompany issued a total of shares of common stock 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,holders in exchange for the conversion termsof convertible notes payable and accrued interest. In addition, shares of common stock were changed from fixed percentage discount to a fixed priceissued upon the exercise of $0.015. Additionally, the investor is now entitled to deduct $1,000 for each conversion to cover related costs.options.
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.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose any statements contained in this Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as “may”, “will”, “expect”, “believe”, “anticipate”, “estimate” or “continue” or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within our control. These factors include by are not limited to economic conditions generally and in the industries in which we may participate; competition within our chosen industry, including competition from much larger competitors; technological advances and failure to successfully develop business relationships.
This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those anticipated in these forward-looking statements.
Overview
Quanta isWe are an applied science company focusedfounded 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.
BioanomalyQuanta, Inc. (“Quanta”) is a cutting-edge technology platform whose patented, proprietary technology harnesses advances in quantum biology to increase the potency of active ingredients. Currently, Quanta supports product formulations in pain management, anti-inflammation, skincare, agriculture, nutritional supplements, and plant-based consumables. Ultimately, Quanta’s mission is to deliver better, more effective ingredients to elevate product efficacy.
Our Company History
The company was founded in 2016Nevada 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 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. Mr. Sands agreed to transfer the Control Block to Arthur Mikaelian in exchange for 3,000,000 shares of the Company’s Common Stock, and for the payment of $22,500 in accrued salary, as well as the payment of health insurance benefits through January of 2022.
16 |
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.
In 2007, Medolife began its venom-to-drug research and development concept. In 2008, Medolife identified the Rhopalurus princeps scorpion species, which are endemic to the Dominican Republic, as a possible candidate. The company entered into an agreement with the local Ministry of Environment and Natural Resources to investigate the anticancer properties of scorpion venom peptides. The Company’s research confirmed the anticancer properties of the peptide. That same year, Medolife registered its product, Escozine, in the Dominican Republic due to the prime material and preliminary studies originating from Dominican Republic. Escozine was registered under Sanitary Registry Number PN2010-0244 as an anti-tumoral alternative medicine in the Dominican Republic, which allowed the company to perform clinical studies and observations in the country.
Quanta entered the CBD pain-relief rub market (“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.
In early 2020, the company was about to apply to the FDA to initiate the approval process for Escozine as an orphan drug for pancreatic cancer. The Weinberg Group was hired as our regulatory compliance consultants for the FDA application and guidelines.
As the COVID-19 pandemic spread during the Spring of 2020, Medolife studied the scorpion venom peptide as a potential COVID-19 drug treatment and began confirming its antiviral properties. The company applied to the FDA as a Pre-Investigational New Drug (PIND), which accepted the application under PIND #150335. For PIND Submission and Clinical Trial Strategy in the United States and the Dominican Republic, Medolife has contracted Affinity Bio Partners as a consulting firm on FDA regulatory matters.
In August of 2020, Medolife initiated clinical studies at the Cruz Jiminian Clinic (Clinica Cruz Jiminian) in Santo Domingo, Dominican Republic, which is one of the leading clinics with a license allowing them to treat COVID-19 patients. The study included 450 COVID-19 patients. The observation contained more female than male patients, with 252 female and 198 male participants. Out of 450 participants, there was an even spread among the age groups, with a higher number in the 41-to-50-year-old group.
EFFICACY STUDY.
Escozine was used as a 3-pillar treatment: a Therapeutic, a Palliative, and a Preventative.
Therapeutic
● | Escozine was used as a monotherapy | |
● | All therapeutic participants were tested COVID-19 positive prior to observation. | |
● | 100% of patients were discharged with a negative COVID-19 test result within 7 to 10 days of treatment with Escozine. |
Conclusion: Within 4-5 days, all COVID-19 patients using Escozine tested negative for the virus, indicating Escozine eliminated the COVID-19 virus or accelerated recovery.
Palliative
● | COVID-19 positive patients report a dramatic decrease of symptoms within 2-4 days of Escozine treatments. The World Health Organization Quality of Life (“WHOQOL”) Bref quality of life questionnaire by the World Health Organization (WHO) was used since July 2020 to evaluate patients’ symptoms, including: |
○ | Shortness of breath | |
○ | Pain | |
○ | Fatigue | |
○ | Headache | |
○ | Loss of taste | |
○ | Fever | |
○ | Loss of smell (anosmia) |
Conclusion: All participants reported significant improvement on all their COVID-19-related symptoms within 5 days, indicating that Escozine can be used to treat the symptoms of COVID-19.
Preventative
● | Transmission of virus to treating physicians and nurses of COVID-19 patients is inhibited upon administering Escozine. | |
● | Substantial reduction in infectability and spread of the SARS-CoV-2 virus. |
17 |
Conclusion: All hospital workers remained healthy during the clinical observation while taking Escozine, indicating that Escozine can be used as a preventative measure for COVID-19. The preventative capabilities require additional study.
SAFETY STUDY.
To verify the safety of using Escozine, patients were tested before and after treatment for:
● | Hematology | |
● | Clinical chemistry (Kidney and Liver function tests, Enzymes, Glucose, Calcium and Phosphorus) | |
● | Urine | |
● | CD4/CD8 |
Conclusion: No toxic response was observed in 100% of patients and no side-effects were reported, indicating that Escozine is safe to use for COVID-19 patients.
ADDITIONAL FINDINGS.
During the clinical study, Medolife observed that Escozine prevents Acute Kidney Injury (AKI) caused by a group of technology and industry entrepreneurs and provides licensed technology solutionsCOVID-19:
● | During the clinical study, no deaths occurred. | |
● | 40% of the monitored COVID-19 patients who were administered Escozine, had serum creatinine that was higher than normal, indicating AKI before Escozine administration. | |
● | After Escozine administration, most of the patient’s creatinine concentrations dropped or did not change. | |
● | Overall, the frequency of patients that developed normal creatinine levels after Escozine administration was statistically significant (p<0.05). |
Medolife has received a new reply from the FDA on their latest submission of requested data. In the reply, the FDA: |
● | Validated of the Company’s clinical trial as an informal proof-of-concept study | |
● | Laid out very specific guidelines for the next steps required by the regulatory body in order to garner approval for Escozine as a treatment for COVID-19, in which the FDA requested: |
○ | Pharmacokinetic (PK) study, which Medolife has initiated in the United Kingdom. | |
○ | DNA toxicology study, for which Medolife is negotiating with a GLP certified laboratory in the United States. | |
○ | Additional Chemistry, Manufacturing and Controls (CMC) data from Medolife’s contract manufacturer, CURE Pharmaceutical Corporation. |
R&D Expenses related to natural product companies in multiple verticals. Our headquarters is located in Burbank, California.Escozine.
Over the last 24 months, the company has spent more than $533,000 on research and development related to Escozine as both a treatment of cancer and for COVID-19.
Quanta Basics
Quanta, Inc. (“Quanta”) is a cutting-edge technology platform whose patented, proprietary technology harnesses advances in quantum biology to increase the potency of active ingredients. Currently, Quanta supports product formulations in pain management, anti-inflammation, skincare, agriculture, nutritional supplements, and plant-based consumables. Ultimately, Quanta’s mission is to deliver better, more effective ingredients to elevate product efficacy, reduce waste and facilitate healthier, more sustainable consumption.
The established resonance theory behind Quanta’s polarization process has many potential applications. From potentiating bio-ingredients to produce more-effective carbon-trapping plants to transformative anti-aging solutions Quanta’s technology has the opportunity to upend how commercial products are made and the benefits from them. Already we see multi-trillion-dollar global industries benefiting from Quanta’s technology.
Our proof of concept, Quanta’s market-leading CBD pain-relief rub (“Muscle Rub”), is only the first in a series of paradigm shift products to emerge from our labs. At the heart of its well-documented effectiveness is our proprietary “polarization” process, which uses electromagnetic force to markedly enhance bioactivity at the molecular level—a polarized active ingredient is more soluble and creates stronger bonds with the body’s receptors. This allows us to enhance ingredients so they work faster and more powerfully without the use of chemical by-products or cellular penetration. Quanta believes this natural solution has nearly limitless applications in the world of plant-based consumer products.
Quanta is involved in ambitious projects that we believe will reshape the next wave of climate science, sustainability, nutrition, and more. Having harnessed the technology of the future, Quanta is dedicated to bringing tomorrow’s health and wellness solutions to the billions in need today.
Proof of Concept
Creating, producing and selling consumer products was never our primary focus; Quanta’s Muscle Rub was simply a means to an end - proof of concept and a revenue driver in a small emerging market as our business model took shape. Fundamentally, Quanta will 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.
18 |
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.capital.
Ultimately, these ventures would result in licensing out our technology to other reputable brands and companies to create co-branded products whereas the term “Powered by Quanta” becomes as recognized as “Intel Inside.”
We believe this type of partnership will afford a company Quanta partners with:
● | Development of emerging products with cutting edge ingredients. | |
● | A product line with a true point of differentiation. | |
● | New SKUs with an increased margin. | |
● | Decreased cost of goods sold. |
Simultaneously these partnerships will allow Quanta:
● | Greater brand recognition. | |
● | Increased revenue and in turn profitability. | |
● | Quicker timeline to more licensing opportunities because of a track record of success. | |
● | Brand to become synonymous with improving the performance of ingredients within products. |
Manufacturing Partnerships -
Quanta is currently focused on partnering with large-scale manufacturers and distributors able to produce products that meet the requirements of applicable regulations IE: Good Manufacturing Practices to fulfill orders of our own product line. This type of partnership is crucial because it will afford:
19 |
● | 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.
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.
Results of Operations
Summary of Key Results
Results of Operations for three months ended SeptemberJune 30, 20202021 compared to the three months ended SeptemberJune 30, 20192020
Revenue
Net sales are comprised of wholesale sales to our retail partners and sales through our direct to consumerdirect-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 SeptemberJune 30, 2020,2021, the Company recognized $315$109,053 in net sales. For the three months ended SeptemberJune 30, 2019,2020, the Company recognized $393$306,785 in net sales.
Expenses
Operating expenses for the three months ended SeptemberJune 30, 20202021 was $1,528. The Company incurred $62$2,652,855, including $112,675 in research and development costs, $840and $2,540,180 in selling, administrative, and other costs associated with operations.
Operating expenses for the three months ended June 30, 2020 was $2,313,231 including $166,662 in research and development costs, and $2,146,569 in selling, administrative and other costs associated with operations.
Other Income (Expense)
For the three months ended June 30, 2021, the Company recognized $(60,459) of net other expenses.
For the three months ended June 30, 2020, the Company recognized $199,514 of net other income.
Net Loss
Net loss for the three months ended June 30, 2021 was $2,641,090. Net loss for the three months ended June 30, 2020 was $1,865,657. No provision for income taxes for either period was recorded.
Results of Operations for six months ended June 30, 2021 compared to the six months ended June 30, 2020
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 six months ended June 30, 2021, the Company recognized $427,860 in net sales. For the six months ended June 30, 2020, the Company recognized $657,134 in net sales.
Expenses
Operating expenses for the six months ended June 30, 2021 was $5,929,379. The Company incurred $301,554 in compensation and benefit costs, $243,500 in research and development costs, and $5,384,325 in selling, administrative and other costs associated with operations, including legal and professional fees of $415,974.
Operating expenses for the six months ended June 30, 2020 was $3,685,417. The Company incurred $787,353 in compensation and benefit costs, $244,537 in research and development costs, and $2,653,527 in administrative and other costs associated with operations, including legal and professional fees of $400, and $370 of labor and related costs and charged $255 to operating expenses for the impairment lease right of use asset,$404,560.
Operating expenses for the three months ended September 30, 2019 was $1,237. The Company incurred $115 in research and development costs, and $1,237 in administrative and other costs associated with operations, including legal and professional fees of $126, and $307 of labor and related costs.
Other Income (Expense)
For the threesix months ended SeptemberJune 30, 2021, the Company recognized $(160,221) of net other expenses.
For the six months ended June 30, 2020, the Company recognized $1,450$(115,984) of net other expense.expenses.
For the three months ended September 30, 2019, the Company recognized $10 of net other expenses.
Net Loss
Net loss for the threesix months ended SeptemberJune 30, 20202021 was $2,706.$5,725,737. Net loss for the threesix months ended SeptemberJune 30, 20192020 was $928. We recorded no$3,224,902. No provision for federal income taxes for either period.period was recorded.
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 in net sales. For the nine months ended September 30, 2019, the Company recognized $914 in net sales.
Expenses
Operating expenses for the nine months ended September 30, 2020 was $5,213. The Company incurred $306 in research and development costs, and $3,494 in administrative and other costs associated with operations, including legal and professional fees of $805, and $1,157 of labor and related costs and charged $255 to operating expenses for the impairment lease right of use asset.
Operating expenses for the nine months ended September 30, 2019 was $3,685. The Company incurred $197 in research and development costs, and $2,670 in administrative and other costs associated with operations, including legal and professional fees of $232, and $832 of labor and related costs.
Other Income (Expense)
For the nine months ended September 30, 2020, the Company recognized $1,566 of net other expenses.
For the nine months ended September 30, 2019, the Company recognized $20 of net other expenses.
Net Loss
Net loss for the nine months ended September 30, 2020 was $5,931. Net loss for the nine months ended September 30, 2019 was $2,099. We recorded no provision for federal income taxes for either period.
Liquidity
We have yet to establish any history of profitable operations. For the ninesix months ended SeptemberJune 30, 2020,2021, the Company incurred a net loss of $5,031$5,725,737 and used cash in operating activities of $1,804,$2,460,312, and at SeptemberJune 30, 2020,2021, the Company had a stockholders’ deficitworking capital deficiency of $1,850.$3,805,494. 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 theirits report on the Company’s December 31, 2019 audited2020 financial statements, raised substantial doubt about the Company’s ability to continue as a going concern. ThisThe 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 SeptemberJune 30, 2020,2021, the Company had cash on hand in the amount of $11. Subsequent to September 30, 2020 the Company received $119 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.$277,827. 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
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, warrants, shares of common stock, and restricted stock unit awards, as share-based compensation to employees and non-employees in non-capital raising transactions for services and financing costs.non-employees. The Company accounts for such grants issued and vestingits 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 ASC 718, whereby the estimated fair value of the award, and is measured on the date of grant and recognized as expense over the requisite service period. Recognition of 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 optionsfor non-employees 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 determinesame period and manner as 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 valuehad paid cash for 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.services.
Recently Issued Accounting Pronouncements
See Note 1 to the Condensed Consolidated Financial Statements
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures”, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of SeptemberJune 30, 20202021 that our disclosure controls and procedures were not effective.
22 |
We identified material weaknesses in our internal controls over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (i) We dowe had an insufficient number of personnel appropriately qualified to perform control design, execution and monitoring activities; (ii) we did not have written documentation of our internal control policies and procedures, including written policies and procedures to ensure the correct application of accounting and financial reporting with respect to the current requirements of U.S. GAAP and SEC disclosure requirements; (iii) we had ineffective controls over our financial statement close and (ii) the Companyreporting process and did not provide reasonable assurance that accounts were complete and accurate and agreed to detailed support and that reconciliations of accounts were properly performed, reviewed and approved, (iv) we did not maintain effective policies to ensure adequatecontrols over the recording and approval of recurring and non-recurring journal entries and (v) we had inadequate 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.consistent with control objectives.
Changes in Internal Control over Financial Reporting
There were no changes in internal control over financial reporting (as defined by Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended SeptemberJune 30, 2020,2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
From time to time, we are a party to, or otherwise involved in, legal proceedings arising in the normal and ordinary course of business. As of the date of this report, we are not aware of any other proceeding, threatened or pending, against us which, if determined adversely, would have a material effect on our business, results of operations, cash flows or financial position.
The recent global coronavirus outbreak could harm our business and results of operations.
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 September 30, 2020, we believe the COVID-19 pandemic did impact our operating results as shipments to customers in the second quarter were down 13% 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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
No unregistered sales of equity securities subsequent to SeptemberJune 30, 2020.2021.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
The following exhibits are incorporated into this Form 10-Q Quarterly Report:
101.INS | Inline XBRL Instance Document | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed along with this document
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
QUANTA, INC | ||
Dated: | By: | /s/ |
Chairman, Chief Executive Officer (Principal Executive Officer and Principal Accounting Officer) |