Earth Science Tech, Inc 10-Q for FY2022 Q2
Earth Science Tech, Inc. (ETST)
About this 10-Q
Earth Science Tech, Inc filed this 10-Q on November 22, 2021, covering the quarter ended September 30, 2021 (FY2022 Q2).
Headline figures
Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $2455
- down 90.8% from $26.55K a year earlier
- Net income
- $3.34M
- compared with a net loss of $167.99K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission
file number:
(Exact name of registrant as specified in its charter)
(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)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) |
Name of each exchange on which registered | ||
| N/A | N/A | N/A |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed 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.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | 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 ☐
As of November 19, 2021, there were shares of registrant’s common stock outstanding.
TABLE OF CONTENTS
| 2 |
Company Letterhead
November 17, 2021
BF Borgers CPA PC
5400 W. Cedar Avenue
Lakewood, CO 80226
We are providing this letter in connection with your review of the Interim Financial Information of Earth Science Tech, Inc. as of September 30, 2021, for the purpose of determining whether any material modifications should be made to the interim financial information for it to conform to accounting principles generally accepted in the United States of America. We confirm that we are responsible for the fair presentation of the interim financial information in conformity with generally accepted accounting principles. We are also responsible for establishing and maintaining effective internal control over financial reporting.
Certain representations in this letter are described as being limited to matters that are material. Items are considered material, regardless of size, if they involve an omission or misstatement of accounting information that, in light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would be changed or influenced by the omission or misstatement.
We confirm, to the best of our knowledge and belief, as of November 17, 2021, the following representations made to you during your review.
| 1) | The interim financial information referred to above has been prepared and presented in conformity with generally accepted accounting principles applicable to interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The interim financial information has been prepared on a basis consistent with prior interim periods and years and includes all disclosures necessary and required to be included by the laws and regulations to which the Company is subject. |
| 2) | We have designed our internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of interim financial information for external purposes in accordance with generally accepted accounting principles. |
| 3) | We have disclosed to you all deficiencies in the design or operation of internal control over financial reporting identified as part of our evaluation, including separately disclosing to you all such deficiencies that we believe to be significant deficiencies or material weaknesses in internal control over financial reporting. |
| 4) | Management’s certification regarding internal control over financial reporting as of January 31, 2021 discloses any changes in the Company’s internal control over financial reporting that occurred during the most recent quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. |
| 5) | We have made available to you all— |
| a) | Financial records and related data. |
| b) | Minutes of the meetings of stockholders, directors, and committees of directors, or summaries of actions of recent meetings for which minutes have not yet been prepared. All significant board and committee actions are included in the summaries. |
| 6) | There have been no communications from the SEC or other regulatory agencies regarding noncompliance with, or deficiencies, in financial reporting practices. |
| 7) | There are no material transactions that have not been properly recorded in the accounting records underlying the interim financial information. |
| 8) | We are not aware of any uncorrected financial statement misstatements. |
| 9) | We acknowledge our responsibility for the design and implementation of programs and controls to prevent and detect fraud. |
| 10) | We have no knowledge of any fraud or suspected fraud affecting the Company involving: |
| a) | Management; |
| b) | Employees who have significant roles in internal control over financial reporting; or |
| c) | Others where the fraud could have a material effect on the interim financial information. |
| 11) | We have no knowledge of any allegations of fraud or suspected fraud affecting the Company received in communications from employees, former employees, analysts, regulators, short sellers, or others. |
| 12) | The Company has no plans or intentions that may materially affect the carrying value or classification of assets and liabilities. |
| 13) | The following have been properly recorded or disclosed in the interim financial information: |
| a) | Related-party transactions, including sales, purchases, loans, transfers, leasing arrangements, and guarantees, and amounts receivable from or payable to related parties. |
| b) | Guarantees, whether written or oral, under which the Company is contingently liable. |
| c) | Significant estimates and material concentrations known to management that are required to be disclosed in accordance with the AICPA Statement of Position 94-6, Disclosure of Certain Significant Risks and Uncertainties. |
| 14) | There are no: |
| a) | Violations or possible violations of laws or regulations whose effects should be considered for disclosure in the interim financial information or as a basis for recording a loss contingency. |
| b) | Unasserted claims or assessments that are probable of assertion and must be disclosed in accordance with FASB ASC 450 (formerly FASB Statement No. 5, Accounting for Contingencies). |
| c) | Other liabilities or gain or loss contingencies that are required to be accrued or disclosed by FASB ASC 450 (formerly FASB Statement No. 5). |
| 15) | The Company has appropriately reconciled its general ledger accounts to their related supporting information. All reconciling items considered to be material were identified and included on the reconciliations and were appropriately adjusted in the interim financial information. All intracompany (and intercompany) accounts have been eliminated or appropriately measured and considered for disclosure in the interim financial information. |
| 16) | The Company has satisfactory title to all owned assets, and there are no liens or encumbrances on such assets, nor has any asset been pledged as collateral. j |
| 17) | The company has complied with all aspects of contractual agreements that would have a material effect on the interim financial information in the event of noncompliance. |
| 18) | The company is not aware of any violation of the Foreign Corrupt Practices act. |
| 19) | Our plans with respect to alleviating the adverse financial conditions that caused you to express substantial doubt about the Company’s ability to continue as a going concern are as follows: |
| a) | Continued loans and advances from shareholders and those associated with the company. |
To the best of our knowledge and belief, no events have occurred subsequent to the balance sheet date and through the date of this letter that would require adjustment to or disclosure in the interim financial information referred to above.
Earth Science Tech, Inc
Name, Title
| 3 |
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EARTH SCIENCE TECH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| September 30, | March 31, | |||||||
| 2021 | 2021 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts Receivable(net allowance of $ | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Inventory | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Other Assets: | ||||||||
| Patent, net | ||||||||
| Rou Asset | ||||||||
| Deposits | ||||||||
| Total other assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’S EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| PPP Loan | ||||||||
| PPP Loan 2 | ||||||||
| Issa Loan Advance | ||||||||
| SBA EDIL Loan | ||||||||
| Accrued expenses | $ | $ | ||||||
| Accrued settlement | ||||||||
| Interest Payable | ||||||||
| Interest Payable-SBA EDIL Loan | ||||||||
| Interest Payable-ConvNotes-GHS | ||||||||
| Int Payable-Promissory Note-GHS | ||||||||
| Convertible Note | ||||||||
| Convertible Note 2-GHS | ||||||||
| Convertible Note 3-GHS | ||||||||
| Convertible Note 4-GHS | ||||||||
| Convertible Note 5-GHS | ||||||||
| Convertible Note 6-GHS | ||||||||
| Promissory Note-GHS | ||||||||
| Lease Liability Current | ||||||||
| Notes payable - related party | ||||||||
| Total current liabilities | ||||||||
| Long Term Liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ (Deficit) Equity: | ||||||||
| Common stock, par value $ per share, shares authorized; and shares issued and outstanding as of September 30, 2021 and March 31, 2021 respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ (Deficit)Equity | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ (Deficit) Equity | $ | $ | ||||||
| F-1 |
EARTH SCIENCE TECH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
| For the three | For the three | For the six | For the six | |||||||||||||
| Months Ended | Months Ended | Months Ended | Months Ended | |||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| Operating Expenses: | ||||||||||||||||
| Compensation - officers | ||||||||||||||||
| Officer Compensation Stock | ||||||||||||||||
| Employee Compensation Stock | ||||||||||||||||
| Marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Loss on disposal of assets | ||||||||||||||||
| Cost of legal proceedings | ||||||||||||||||
| Litigation Expense | ||||||||||||||||
| Research and development | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( |
) | ( |
) | ( | ) | ( | ) | ||||||||
| Other Income (Expenses) | ||||||||||||||||
| Other Income | ||||||||||||||||
| Interest expense | ( |
) | ( |
) | ( | ) | ( | ) | ||||||||
| Int Exp-Convertible Note 1-GHS | ( |
) | ( | ) | ||||||||||||
| Int Exp-Convertible Note 2-GHS | ( |
) | ( |
) | ( | ) | ( | ) | ||||||||
| Int Exp-Convertible Note 3-GHS | ( |
) | ( |
) | ( | ) | ( | ) | ||||||||
| Int Exp-Convertible Note 4-GHS | ( |
) | ( |
) | ( | ) | ( | ) | ||||||||
| Int Exp Promissory Note 5-GHS | ( |
) | ( |
) | ( | ) | ( | ) | ||||||||
| Int Exp Promissory Note 6-GHS | ( |
) | ( | ) | ||||||||||||
| Interest Expense-Promissory Note-GHS | ( |
) | ( |
) | ( | ) | ( | ) | ||||||||
| Interest Expense-SBA Loan | ( |
) | ( | ) | ||||||||||||
| Interest income | ||||||||||||||||
| Total other income (expenses) | ( |
) | ( | ) | ||||||||||||
| Net loss before income taxes | ( |
) | ( | ) | ||||||||||||
| Income taxes | ||||||||||||||||
| Net loss | $ | $ | ( |
) | $ | $ | ( | ) | ||||||||
| F-2 |
EARTH SCIENCE TECH. INC, AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY
FOR THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
| Common Stock | Preferred Stock | Additional Paid-in | Accumalated | |||||||||||||||||||||||||
| Description | Shares | Amount | Shares | Amount | Capital | Deficit | Total | |||||||||||||||||||||
| Balance June 30, 2020 | $ | $ | $ | $ | ( | ) | ( | ) | ||||||||||||||||||||
| Common stock issued for cash | ||||||||||||||||||||||||||||
| Common stock issued for services | ||||||||||||||||||||||||||||
| Common stock issued for officer compensation | - | - | ||||||||||||||||||||||||||
| Common stock issued for employee compensation | - | - | ||||||||||||||||||||||||||
| Common stock issued for Conversion on Note | - | - | ||||||||||||||||||||||||||
| Net Loss | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance September 30, 2020 | $ | $ | $ | $ | ( | ) | ( | ) | ||||||||||||||||||||
| Common stock issued for cash | ||||||||||||||||||||||||||||
| Common stock issued for services | ||||||||||||||||||||||||||||
| Common stock issued for officer compensation | - | - | ||||||||||||||||||||||||||
| Common stock issued for employee compensation | ||||||||||||||||||||||||||||
| Common stock issued for Conversion on Note | ||||||||||||||||||||||||||||
| Net Loss | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance December 31, 2020 | $ | $ | $ | $ | ( | ) | ( | ) | ||||||||||||||||||||
| Common stock issued for cash | ||||||||||||||||||||||||||||
| Common stock issued for services | ||||||||||||||||||||||||||||
| Common stock issued for officer compensation | ||||||||||||||||||||||||||||
| Common stock issued for employee compensation | ||||||||||||||||||||||||||||
| Common stock issued for Conversion on Note | ||||||||||||||||||||||||||||
| Net Loss | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance March 31, 2021 | $ | $ | $ | $ | ( | ) | ( | ) | ||||||||||||||||||||
| Common stock issued for cash | ||||||||||||||||||||||||||||
| Common stock issued for services | ||||||||||||||||||||||||||||
| Common stock issued for officer compensation | ||||||||||||||||||||||||||||
| Common stock issued for employee compensation | ||||||||||||||||||||||||||||
| Common stock issued for Conversion on Note | ||||||||||||||||||||||||||||
| Net Loss | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance June 30, 2021 | $ | $ | $ | $ | ( | ) | ( | ) | ||||||||||||||||||||
| Common stock issued for cash | ||||||||||||||||||||||||||||
| Common stock issued for services | ||||||||||||||||||||||||||||
| Common stock issued for officer compensation | ||||||||||||||||||||||||||||
| Common stock issued for employee compensation | ||||||||||||||||||||||||||||
| Common stock issued for Conversion on Note | ||||||||||||||||||||||||||||
| Net Loss | ||||||||||||||||||||||||||||
| Balance September 30, 2021 | $ | $ | $ | $ | ( | ) | ( | ) | ||||||||||||||||||||
| F-3 |
EARTH SCIENCE TECH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Six | For the Six | |||||||
| Months Ended | Months Ended | |||||||
| September 30, 2021 | September 30, 2020 | |||||||
| Cash Flow From Operating Activities: | ||||||||
| Net loss | ( | ) | ||||||
| Adjustments to reconcile net loss to net cash from operating activities: | ||||||||
| Stock-based compensation | ||||||||
| Stock issued for services | ||||||||
| Intrinsic value of Conv Notes-Addtl Paid-in-Capital | ||||||||
| Depreciation and amortization | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Increase/Decrease in deposits | ||||||||
| Increase/Decrease in prepaid expenses and other current assets | ||||||||
| Decrease/Increase in inventory | ||||||||
| Increase in other assets | ||||||||
| Increase in accrued settlement | ( | ) | ||||||
| Increase in accounts payable | ||||||||
| Net Cash Used in Operating Activities | ( | ) | ( | ) | ||||
| Investing Activities: | ||||||||
| Purchases of property and equipment | ||||||||
| Patent expenditures | ||||||||
| Net Cash Used in Investing Activities | ||||||||
| Financing Activities: | ||||||||
| Proceeds from issuance of common stock | ||||||||
| Proceeds from notes payable- related party | ||||||||
| Proceeds from Convertible Notes | ||||||||
| Intrinsic value of Conv Notes-Addtl Paid-in-Capital | - | - | ||||||
| Officer Compensation Stock | ||||||||
| Repayment of advances from related party | ||||||||
| Net Cash Provided by Financing Activities | ||||||||
| Net Decrease in Cash | ||||||||
| Cash - Beginning of year | ||||||||
| Cash - End of year | ||||||||
| F-4 |
EARTH SCIENCE TECH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
(UNAUDITED)
Note 1 — Organization and Nature of Operations
Earth Science Tech, Inc. (“ETST” or the “Company”) was incorporated under the laws of the State of Nevada on April 23, 2010. ETST has changed its immediate focus from researching and developing innovative hemp extracts and making them accessible worldwide; with plans to be a supplier of high quality hemp oil enriched with high-grade CBD. Its primary goal had been to advance different high quality hemp extracts with a broad profile of cannabinoids and additional natural molecules found in industrial hemp and to identify their distinct properties. Initially our missions were to educate the public on the many and varied nutritional and health benefits of CBD-rich hemp oil, to optimize purity in formulation, and to find new product delivery systems. With the decline in CBD sales due to the number of factors described in the Registrant’s periodic report filed with the SEC on Form 10-K for the period ending March 31, 2021, we determined that the most efficient means to increase shareholder value would be the acquisition of a complimentary business that would bring revenues sufficient to support its own operations but that would allow the business to expand and for the Company to rebuild its CBD business. The opportunity that the Company is currently pursuing is the acquisition of JBC Medical Equipment, Inc. together with RxCompoundStore.com, LLC and Peaks Curative, LLC. The acquisition of all three businesses would give the Company the ability to cross-sell among the businesses as well as our current customers. There are also some areas that have been identified in these companies that are at the point where the revenue levels are at a point where allocating minimal incremental expenses in certain product offerings should result in more significant increases in revenue and earnings. The corporate strategy currently is to develop the acquisition plan, structure and terms while the Company’s receivership is wound down so that when it emerges from receivership, it is in a position to execute on the planned acquisitions. As the Company assimilates the new businesses into its operations, it plans to work to raise additional capital necessary to expand on the existing operations and to capitalize on their synergistic opportunities that provide the greatest immediate return on investment (i.e. pick the low hanging fruit), then to continue capitalizing on the opportunities among the companies and to rebuild its CBD sales. Finally it plans to license its Hygee product to a third party, if it is able to negotiate terms that are acceptable.
To design and produce CBD enhanced nutraceutical products for sale to the general public. We intend to create high-grade CBD-rich hemp oil and other CBD containing products unique to the current market in the nutraceuticals industry. We believe that our formulations will set us apart from competing products for promoting health. We have formulated and produced our initial CBD products, intended for, subject to performance, treating various symptoms of diseases and ailments or for overall health. The Company plans to expand manufacturing and marketing of these CBD products with expansion of products over the next five years.
To offer a wide selection of health and nutrition products through online, clinics, pharmacies, and in-store retail. Through our wholly owned subsidiary, we plan to continue expanding retail sales of nutritional supplements through online, clinics, pharmacies, and in-store sales. Then with the acquisition of the compounding pharmacy, we will focus on men’s health as well as other areas. In particular, the Company plans to continue with plans to build a sterile facility so that injectable products may be compounded and sold. Our current product selection includes many high-quality supplement brands, and includes our proprietary CBD-rich hemp oil.
Note 2 — Summary of Significant Accounting Policies
Basis of presentation
The Company’s accounting policies used in the presentation of the accompanying consolidated financial statements conform to accounting principles generally accepted in the United States of America (“US GAAP”) and have been consistently applied.
| F-5 |
Principles of consolidation
The accompanying consolidated financial statements include all of the accounts of the Company and its wholly-owned subsidiaries. The subsidiaries include Nutrition Empire, Inc., Cannabis Therapeutics, Inc. and Earth Science Pharmaceutical Inc. Earth Science Foundation, Inc. is a non-profit favored entity of the Company focused on developing its role as a world leader in the CBD space, expanding its work in the pharmaceutical and medical device sectors.
Earth Science Pharmaceutical (“ESP”) is a wholly-owned subsidiary of ETST was committed to the development of low cost, non-invasive diagnostic tools, medical devices, testing processes and vaccines for sexually transmitted infections and/or diseases. ESP’s operations have been suspended while the Company restructures to maximize all efforts in the best interest to its shareholders.
Cannabis Therapeutics (“CTI”) is a wholly-owned subsidiary of ETST poised to take a leadership role in the development of new, leading-edge cannabinoid-based pharmaceutical and nutraceutical products. CTI is invested in research and development to explore and harness the medicinal power of cannabidiol. The company is focused on developing treatments for breast and ovarian cancers, as well as two generic CBD based pharmaceutical drugs.
Nutrition Empire Inc. (“NE”) was established in 2014 as a supplement retail store offering products such as; sports nutrition, at the time Earth Science Tech, Inc.’s High Grade CBD Oil and nutraceutical/bioceutical line. In early 2017 the Company decided to relinquish the retail store to allocate its capital and time to further pursue its successful industrial hemp CBD products through its growing wholesale accounts. Since the closing of Nutrition Empire in 2017, the wholly owned subsidiary has been dormant and kept for potential acquisitions or projects.
Earth Science Foundation (“ESF”) is a favored entity of ETST, effectively being a non-profit organization on February 11, 2019 and is structured to accept grants and donations to conduct further studies and help donate ETST’s effective CBD products to those in need.
All intercompany balances and transactions have been eliminated on consolidation.
Use of estimates and assumptions
The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
The Company’s significant estimates and assumptions include the fair value of financial instruments; the accrual of the legal settlement, the carrying value recoverability and impairment, if any, of long-lived assets, including the estimated useful lives of fixed assets; the valuation allowance of deferred tax assets; stock based compensation, the valuation of the inventory reserves and the assumption that the Company will continue as a going concern. Those significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to those estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.
Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Management regularly reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such reviews, and if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates.
Carrying value, recoverability and impairment of long-lived assets
The Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC’) 360 to evaluate its long-lived assets. The Company’s long-lived assets, which include property and equipment and a patent are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
| F-6 |
The Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.
The Company considers the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in the Company’s stock price for a sustained period of time; and (vi) regulatory changes. The Company evaluates assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events. Impairment of changes, if any, are included in operating expenses.
On
June 4, 2019 the Company discontinued its patents based upon the advice of IP counsel. IP counsel indicated that only one patent application
had a reasonable chance of being granted and based upon this advice the Company determined that it would discontinue this approach of
using the patent process to protect product formulations in general and rather, revert to proprietary formulae and trade secrets to protect
its intellectual property (unless it was clear from the beginning of the process that the formula was patentable. As a result, on June
4, 2019, the company wrote down or otherwise impaired approximately $
Cash and cash equivalents
The Company considers all highly liquid investments with a maturity of three months or less to be cash and cash equivalents.
Related parties
The Company follows ASC 850 for the identification of related parties and disclosure of related party transactions.
Pursuant to this ASC related parties include a) affiliates of the Company; b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825-10-15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company; f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
Commitments and contingencies
The Company follows ASC 450 to account for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. This may result in contingent liabilities that are required to be accrued or disclosed in the financial statements. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
| F-7 |
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time, that these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.
Revenue recognition
The Company follows and implemented ASC 606, Revenue from Contracts with Customers for revenue recognition. Although the new revenue standard is expected to have an immaterial effect, if any, on our ongoing net income, we did implement changes to our processes related to revenue recognition and the control activities within them. These included the development of new policies based on the five-step model provided in the new revenue standard, ongoing contract review requirements, and gathering of information provided for disclosures.
The Company recognizes revenue from product sales or services rendered when control of the promised goods are transferred to our clients in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods and services. To achieve this core principle, we apply the following five steps: identify the contract with the client, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to performance obligations in the contract and recognize revenues when or as the Company satisfies a performance obligation.
The Company recognizes its retail store revenue at point of sale, net of sales tax.
Inventories
Inventories consist of various types of nutraceuticals and bioceuticals at the Company’s retail store and main office. Inventories are stated at the lower of cost or market using the first in, first out (FIFO) method. A reserve is established if necessary to reduce excess or obsolete inventories to their net realizable value.
Cost of Sales
Components of costs of sales include product costs, shipping costs to customers and any inventory adjustments.
Shipping and Handling Costs
The Company includes shipping and handling fees billed to customers as revenues and shipping and handling costs for shipments to customers as cost of revenues.
Research and development
Research and development costs are expensed as incurred. The Company’s research and development expenses relate to its engineering activities, which consist of the design and development of new products for specific customers, as well as the design and engineering of new or redesigned products for the industry in general.
| F-8 |
Income taxes
The
Company follows ASC 740 in accounting for income taxes. Deferred tax assets and liabilities are determined based on the estimated future
tax effects of net operating loss carry forwards and temporary differences between the tax bases of assets and liabilities and their
respective financial reporting amounts measured at the current enacted tax rates. The Company records a valuation allowance for its deferred
tax assets when management concludes that it is
The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. As of March 31, 2019, the Company has not recorded any unrecognized tax benefits.
Interest
and penalties related to liabilities for uncertain tax positions will be charged to interest and operating expenses, respectively. The
Company has net operating loss carry forwards (NOL) for income tax purposes of approximately $
Internal Revenue Code Section 382 (“Section 382”) imposes limitations on the availability of a company’s net operating losses after certain ownership changes occur. The Section 382 limitation is based upon certain conclusions pertaining to the dates of ownership changes and the value of the Company on the dates of the ownership changes. It was determined that an ownership change occurred in October 2013 and March 2014. The amount of the Company’s net operating losses incurred prior to the ownership changes are limited based on the value of the Company on the date of the ownership change. Management has not determined the amount of net operating losses generated prior to the ownership change available to offset taxable income subsequent to the ownership change.
The Company follows ASC 260 to account for earnings per share. Basic earnings per common share calculations are determined by dividing net results from operations by the weighted average number of shares of common stock outstanding during the year. Diluted loss per common share calculations are determined by dividing net results from operations by the weighted average number of common shares and dilutive common share equivalents outstanding. During periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation.
As of September 30, 2021 the Company has warrants that are anti-dilutive and not included in the calculation of diluted loss per share.
Cash flows reporting
The Company follows ASC 230 to report cash flows. This standard classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect method”) as defined by this standard to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments. The Company reports separately information about investing and financing activities not resulting in cash receipts or payments in the period pursuant this standard.
The Company follows ASC 718 in accounting for its stock-based compensation to employees. This standard states that compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period, which is usually the vesting period. The Company values stock-based compensation at the market price of the Company’s common stock as of the date in which the obligation for payment of service is incurred.
The Company accounts for transactions in which service are received from non-employees in exchange for equity instruments based on the fair value of the equity instrument exchanged in accordance with ASC 505-50.
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Property and equipment
Property and equipment is recorded at cost net of accumulated depreciation. Depreciation is computed using the straight-line method based upon the estimated useful lives of the respective assets as follows:
Schedule of Property and Equipment Estimated Useful Lives
| Leasehold improvements | |
| Signage | |
| Furniture and equipment | |
| Computer equipment |
The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from accounts and any resulting gains or losses are included in operations.
Recently issued accounting pronouncements
In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-15, Classification of Certain Cash Receipts and Cash Payments. The new standard will change the classification of certain cash payments and receipts within the cash flow statement. Specifically, payments for debt prepayment or debt extinguishment costs, including third-party costs, premiums paid, and other fees paid to lenders that are directly related to the debt prepayment or debt extinguishment, excluding accrued interest, will now be classified as financing activities. Previously, these payments were classified as operating expenses. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019, with early adoption permitted, and will be applied retrospectively. The Company does not expect that the adoption of this new standard will have a material impact on its consolidated financial statements.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. This ASU requires lessees to recognize most leases on their balance sheets related to the rights and obligations created by those leases. The ASU also requires additional qualitative and quantitative disclosures related to the nature, timing and uncertainty of cash flows arising from leases. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this new standard will have on its consolidated financial statements.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation – Stock Compensation. The new standard modified several aspects of the accounting and reporting for employee share- based payments and related tax accounting impacts, including the presentation in the statements of operations and cash flows of certain tax benefits or deficiencies and employee tax withholdings, as well as the accounting for award forfeitures over the vesting period. The new standard was effective for the Company on April 1, 2017. The Company does not believe that the adoption of this new standard will have a material effect on its consolidated financial statements.
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In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers. This guidance will supersede Topic 605, Revenue Recognition, in addition to other industry-specific guidance, once effective. The new standard requires a company to recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, as a revision to ASU 2014-09, which revised the effective date to fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted but not prior to periods beginning after December 15, 2016 (i.e., the original adoption date per ASU 2014-09). In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations, which clarifies certain aspects of the principal- versus-agent guidance, including how an entity should identify the unit of accounting for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements, such as service transactions. The amendments also reframe the indicators to focus on evidence that an entity is acting as a principal rather than as an agent. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, which clarifies how an entity should evaluate the nature of its promise in granting a license of intellectual property, which will determine whether it recognizes revenue over time or at a point in time. The amendments also clarify when a promised good or service is separately identifiable (i.e., distinct within the context of the contract) and allow entities to disregard items that are immaterial in the context of a contract. The Company continues to assess the impact this new standard may have on its ongoing financial reporting. The Company has identified its revenue streams both by contract and product type and is assessing each for potential impacts. For the revenue streams assessed, the Company does not anticipate a material impact in the timing or amount of revenue recognized.
In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Intangibles-Goodwill and Other, which simplifies the accounting for goodwill impairments by eliminating step 2 from the goodwill impairment test. Instead, if “the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.” The guidance is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this new standard will have on its Consolidated Financial Statements.
All other newly issued accounting pronouncements not yet effective have been deemed either immaterial or not applicable.
Intangible Assets
In
October 2014, the Company acquired a patent that is being amortized over its useful life of fifteen years in accordance with ASC 350,
“Intangibles - Goodwill and Other”. The Company purchased the patent through a cash payment of $
Reclassification
Certain amounts from the prior period have been reclassified to conform to the current period presentation.
Note 3 — Going Concern
The
accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
At September 30, 2021, the Company had negative working capital, an accumulated deficit of $
While the Company is attempting to generate sufficient revenues, the Company’s cash position may not be sufficient to pay its obligations and support the Company’s daily operations. Management intends to raise additional funds by way of a public or private offering. Management believes that the actions presently being taken to further implement its business plan and generate sufficient revenues may provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to generate sufficient revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenues.
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The condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Note 4 - Related Party Balances and Transactions
Kannabidioid,
Inc. is currently in development stage and has had
On
January 11, 2019, Robert Stevens was appointed by the Nevada District Court as Receiver for the Company in Case No. A-18-784952-C. As
approved by the Nevada District Court, Strongbow Advisors, Inc., an entity controlled by Robert Stevens (“Strongbow”), is
compensated at a rate of $
Note 5 – Stockholders’ Equity
During
the three months ended September 30, 2021 and 2020, the Company issued and common shares for an aggregate of $
Note 6 — Commitments and Contingencies
Legal Proceedings
On January 11, 2019, the Company received notice that Strongbow Advisors, Inc. and Robert Stevens (“Stevens”, and together with Strongbow, the “Receiver”) had been appointed by the Nevada District Court, as Receiver for the Registrant in Case No. A-18-784952-C (the “Order).
The
Company sought the appointment of the Receiver after it found itself in an imminent danger of insolvency following the issuance by an
arbitration panel of an award (the “Award”) in the sum of $
The
Award consisted of a sum for breach of contract against the Company in the amount of $
The
Cromogen Litigation has been settled under an agreement that provides for monthly payments beginning after the first of the year in January
2022. The settlement agreement contains a significant increase in the amount due from $
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As part of the impact of the receivership, the Court issued a Writ of Injunction or “Blanket Stay” covering the Company and its assets during the time that the Company is in receivership. As a result of the “Blanket Stay” the Company’s estate is protected from creditors and interference with its administration is prevented while the Company’s financial issues are being fully analyzed and resolved. As part of this process, creditors will be notified and required to provide claims in writing under oath on or before the deadline stated in the notice provided by the Receiver or those claims will be barred under NRS §78.675. The Blanket Stay will remain in place unless otherwise waived by the Receiver, or it is vacated by the Court or alternatively, lifted by the Court, upon a “motion to lift stay” duly made and approved by the Nevada District Court.
On November 7, 2019 the Receiver for Earth Science Tech, Inc., a Nevada corporation (the “Company”) filed a motion for preliminary injunction against Majorca Group Ltd. in the 8th Judicial District in Clark County, Nevada. The filing requests a show cause hearing whereby the Company will request the Court grants it motion to cancel certain shares and class of stock and to nullify certain amendments of the Articles of Incorporation. Specifically, the Company is asking that Majorca Group Ltd. be restricted from selling, transferring, converting, encumbering, hypothecating, obtaining loans against or in any fashion or in any way transferring their shares of common and preferred stock in the Company. Additionally the motion seeks a Freezing Injunction over any broker, bank, any financial institution, attorney, or agent holding shares of the Company as well as any proceeds from shares of the Company.
On January 19, 2021, one of the Company’s largest shareholders served and filed a notice of motion and motion to intervene against Robert L. Stevens and Strongbow Advisors, Inc. (individually or collectively referred to as “Receiver”) this action was later joined by additional shareholders representing approximately 33% of the issued and outstanding shares of the Company at that time. This motion to intervene, at its heart, was based upon and resulted from, what the interveners saw as, a lack of transparency by the Receiver. What was filed was initially based upon concerns of Mr. Stevens’ lack of transparency. However as the matter progressed in court, additional concerns have arisen and on August 27, 2021, Stevens and Strongbow were discharged and removed and William Leonard was appointed to replace them as Receiver, by the Nevada District Court. Mr. Leonard is currently reviewing various matters, including past invoices presented by Stevens, as well as his conduct during the time he acted as Receiver for the Company as well as others that the prior Receiver had a prior relationship with that have derived benefits from working with the prior Receiver. The outcome of this review is uncertain at this time and a wide number of outcomes is possible.
The Company is now optimistic that it will be able to emerge from receivership under the new receiver, in a reorganized position that will allow it to proceed with the acquisitions of the three entities. Combined, these entities present a larger opportunity to realize the synergies that they have among themselves and in so doing, the Company believes it will be possible for shareholder value to increase at a faster rate than would otherwise be possible with only its CBD business and licensing of its medical device, Hygee, The Company has executed a joint letter of intent with three entities involved in the durable medical equipment, retail sales and compounding pharmacy businesses with the objective of negotiating the final terms of a transaction that will result in the Company’s acquisition of these entities.
Following the discharge and removal of Robert L. Stevens and Strongbow Advisors, Inc., the successor Receiver, William A Leonard, Jr., of Crisis Management, Inc., undertook the investigation of the former receiver’s actions, practices , and alleged fees. The successor receiver then issued his report evaluating Mr. Stevens alleged fees and found that no outstanding fees are due. The court has set to an evidentiary hearing scheduled for mid January 2022 to consider the successor receivers conclusions as well as the former receiver’s potential liabilities to the Company.
Lease Agreements
On
August 30, 2021, the Company entered into an agreement with JCR Medical Equipment, Inc., a Florida Corporation to lease a 1,000 square
foot facility consisting of office and warehouse space out of its
| F-13 |
Note 7 — Balance Sheet and Income Statement Footnotes
Accounts
receivable represent normal trade obligations from customers that are subject to normal trade collection terms, without discounts or
rebates. If collection is expected in one year or less they are classified as current assets. If not, they are presented as non-current
assets. Notwithstanding, these collections, the Company periodically evaluates the collectability of accounts receivable and considers
the need to establish an allowance for doubtful debts based upon historical collection experience and specifically identifiable information
about its customers. As of September 30, 2021, the Company had allowances of $
As of September 30, 2021, ROU Asset was $and Lease Liability-Current was $.
Accounts payable are obligations to pay for goods and services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities
Accrued
expenses of $
General
and administrative expenses were $
Professional fees were $ for the three months ended September 30, 2021.
Legal
expenses were $
Research and development were $ for the three months ended September 30, 2021.
Interest
expense was $(
Note 8 — Subsequent Events
On November 3, 2021, the Company entered into a definitive agreement to acquire both RxCompoundStore.com, LLC (“RxCompound”) and Peaks Curative, LLC (“Peaks”) (collectively, the “Companies”). The acquisition of these two companies is Phase I of its roll-up plan which involves driving immediate revenue through the compounding pharmacy with a focus on men’s health. The Company first announced its acquisition plans earlier in its Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission (“SEC” or the “Commission”) on September 10, 2021.
About RxComponundStore.com, LLC and Peaks Curative, LLC.
RxCompound is a compounding pharmacy licensed in the States of New York and Florida and registered with the Drug Enforcement Agency (“DEA”) to sell Schedules II and III controlled medications. RxCompound has focused on men’s health, specifically medical products directed at treating erectile dysfunction (“ED”) such as Tadalafil, and Sildenafil Citrate (generic names for Cialis and Viagra, respectively) and others, compounded into capsules, tablets. Its flagship product(s) are a proprietary formulation for men’s ED medications in the form of gummies. Currently RxCompound is not certified for and does not have sterile facilities that would allow it to offer medications that can be injected such as testosterone, HCG, TriMix or peptides. However, it was planning on becoming a sterile compounding pharmacy and was working toward it when the Company entered into the definitive agreement to acquire RxCompound. The timing was ideal because the Company was able to acquire RxCompound for significantly less than it would have been valued at if it already had a sterile certified facility while at the same time being very close to it and having the plan and path established and ready to implement. RxCompound will work with Peaks to fill prescriptions for the customers that Peaks refers. RxCompound will be able to expand by seeking licenses as a pharmacy in additional states and plans to work with Peaks in determining which states represent the opportunities and in order of priority.
Peaks was established as a marketing company that markets men’s ED products, however the Company plans to expand the products offered that RxCompound can prepare and sell. Peaks is what is known as a telemedicine referral site facilitating asynchronous consultations for branded compound medications prepared at RxCompound. For Example, men that respond to ads for ED gummies are referred to licensed medical professionals who determine by questionnaires completed by the potential patient. By the answers provided, the doctor determines if they can: safely take the medication and meet the requirements; and if so, the doctor will send in a prescription to RxCompound who will fill it and send the gummies to the customer/patient. Since RxCompound is only licensed in Florida and New York, Peaks will not target its efforts in other states unless it establishes a referring relationship with pharmacies in other states where RxCompound does not intend to seek licensure as a compounding pharmacy. As RxCompound expands the products it wants to focus on, Peaks will develop campaigns to drive sales in those products.
General Terms of the Acquisitions.
RxCompound
and Peaks are both Florida limited liability companies that have their equity ownership structured as units or membership units. Although
the acquisitions were negotiated at arms’ length and both the Company and the owner of the membership units of RxCompound and Peaks
had separate counsel, since the owner, Mario Tabraue, is the brother of Nickolas Tabraue, our CEO and a member of our board of directors,
Nickolas Tabraue abstained from voting on the resolution of the board of directors that approved these transactions. Upon closing RxCompound
and Peaks will both be wholly owned subsidiaries of the Company. The agreement among the parties provides that the Company acquires all
of the membership units of both companies in exchange for $
On November 3, 2021, in accordance with the terms of the acquisition agreement referred to in Item 1.01 above, the Company’s Board of Directors appointed Mario G. Tabraue to fill a vacancy thereon. He will serve as a member of the board of directors until his earlier resignation, removal or incapacity. In addition, under the terms of the same agreement, Mario Tabraue was appointed to serve as the President of the Company, to serve until his earlier resignation or removal and will continue to serve as president of both RxCompoundstore.com, LLC. and Peaks Curative, LLC while the membership units of both are in escrow and following closing, when both are wholly owned subsidiaries. (Nickolas Tabraue will continue to serve as CEO of the Company).
Mario Tabraue – President and Director, 42 (age) Mr. Tabraue worked from 1997 until 2002 assisting with real estate transactions as well first and third party insurance claims at the law firm of MoisesKaba III. During this time, he also free-lanced creating web sites and working with businesses creating and implementing new processes, in accounting and with digital technologies. From 2002 until 2009, Mr. Tabraue worked for Eller-ITO Stevedoring Company at the Port of Miami where he served in operations and logistics, first with simple vessel operations and as he demonstrated his skills advanced to complex operations and finally management of full vessel planning and operations. From 2009 until 2013 Mr. Tabraue worked for Ceres Marine Terminals as an operations manager where he was given ever increasing responsibilities until among his duties were negotiating contract issues with union labor officials and contract negotiations with companies such as Royal Caribbean, Mediterranean Shipping Lines, Hapag-Lloyd and others. In 2013 through 2014 he began working with Zoological Wildlife Foundation, a business founded by his family in 2008. At the Foundation he restructured operations, tour packages, the accounting systems, and fully automated their booking system through the company’s website. Ultimately all internal procedures were automated and made paperless. In 2014 Mr. Tabraue was recruited back to Eller-ITO where he returned as Marine Manager and has advanced to the position of Special Projects Manager. In 2019, he began work for JCR Medical Equipment serving as the head of finance. In 2020 Mr. Tabraue purchased RxCompoundStore.com with the vision of starting a telemedicine platform to expand the company’s reach and to compete in the online market.
| F-14 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following section, Management’s Discussion and Analysis, should be read in conjunction with Earth Science Tech Inc.’s financial statements and the related notes thereto and contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this Report on Form 10-Q. The Company’s actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of many factors. The Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Report filed on Form 10-Q.
The following discussion should be read in conjunction with our unaudited consolidated financial statements and related notes and other financial data included elsewhere in this report. See also the notes to our consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Registration Statement filed on Form 10-12g and our Annual Report filed on Form 10-K for the fiscal year ended March 31, 2021, as well as our Quarterly report filed on Form 10-Q for the period ending September 30, 2021.
OVERVIEW
The Company has changed its immediate focus from researching and developing innovative hemp extracts and making them accessible worldwide; with plans to be a supplier of high quality hemp oil enriched with high-grade CBD. Its primary goal had been to advance different high quality hemp extracts with a broad profile of cannabinoids and additional natural molecules found in industrial hemp and to identify their distinct properties. Initially our missions were to educate the public on the many and varied nutritional and health benefits of CBD-rich hemp oil, to optimize purity in formulation, and to find new product delivery systems. With the decline in CBD sales due to the number of factors described in the Registrant’s periodic report filed with the SEC on Form 10-K for prior ending March 31, 2021, the Company determined that the most efficient means to increase shareholder value would be the acquisition of a complimentary business that would bring revenues sufficient to support its own operations but that would allow the business to expand and for the Company to rebuild its CBD business. The opportunity that the Company is currently pursuing is the acquisition of JBC Medical Equipment, Inc. together with RxCompoundStore.com, LLC and Peaks Curative, LLC. The acquisition of all three businesses would give the Company the ability to cross-sell among the businesses as well as our current customers. There are also some areas that have been identified in these companies that are at the point where the revenue levels are at a point where allocating minimal incremental expenses in certain product offerings should result in more significant increases in revenue and earnings. The corporate strategy currently is to develop the acquisition plan, structure and terms while the Company’s receivership is wound down so that when it emerges from receivership, it is in a position to execute on the planned acquisitions. As the Company assimilates the new businesses into its operations, it plans to work to raise additional capital necessary to expand on the existing operations and to capitalize on their synergistic opportunities that provide the greatest immediate return on investment (i.e. pick the low hanging fruit), then to continue capitalizing on the opportunities among the companies and to rebuild its CBD sales. Finally it plans to license its Hygee product to a third party, if it is able to negotiate terms that are acceptable.
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To design and produce CBD enhanced nutraceutical products for sale to the general public. The Company intend to create high-grade CBD-rich hemp oil and other CBD containing products unique to the current market in the nutraceuticals industry. The Company believe that our formulations will set us apart from competing products for promoting health. The Company has formulated and produced our initial CBD products, intended for, subject to performance, treating various symptoms of diseases and ailments or for overall health. The Company plans to expand manufacturing and marketing of these CBD products with expansion of products over the next five years.
To offer a wide selection of health and nutrition products through online, clinics, pharmacies, and in-store retail. Through our wholly owned subsidiary, the Company plans to continue expanding retail sales of nutritional supplements through online, clinics, pharmacies, and in-store sales. Then with the acquisition of the compounding pharmacy, the Company will focus on men’s health as well as other areas. In particular, the Company plans to continue with plans to build a sterile facility so that injectable products may be compounded and sold. Our current product selection includes many high-quality supplement brands, and includes our proprietary CBD-rich hemp oil.
Critical Accounting Policies and Estimates
The discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s condensed financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. In consultation with the Company’s Board of Directors, management has identified the following accounting policies that it believes are key to an understanding of its financial statements. These are important accounting policies that require management’s most difficult, subjective judgments.
Basis of Presentation
The Company’s accounting policies used in the presentation of the accompanying consolidated financial statements conform to accounting principles generally accepted in the United States of America (“US GAAP”) and have been consistently applied.
Principles of Consolidation
The accompanying consolidated financial statements include all of the accounts of the Company and its wholly-owned subsidiaries. The subsidiaries include Nutrition Empire, Inc., Cannabis Therapeutics, Inc., Earth Science Pharmaceutical Inc., and a non-profit favored entity Earth Science Foundation. (all intercompany balances and transactions have been eliminated on consolidation.)
Use of Estimates and Assumptions
The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
The Company’s significant estimates and assumptions include the fair value of financial instruments; the accrual of the legal settlement, the carrying value recoverability and impairment, if any, of long-lived assets, including the estimated useful lives of fixed assets; the valuation allowance of deferred tax assets; stock based compensation, the valuation of the inventory reserves and the assumption that the Company will continue as a going concern. Those significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to those estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.
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Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Management regularly reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such reviews, and if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates.
Carrying Value, Recoverability and Impairment of Long-Lived Assets
The Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC’) 360 to evaluate its long-lived assets. The Company’s long-lived assets, which include property and equipment and a patent are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
The Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.
The Company considers the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in the Company’s stock price for a sustained period of time; and (vi) regulatory changes. The Company evaluates assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events. Impairment of changes, if any, are included in operating expenses.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less to be cash and cash equivalents.
Related Parties
The Company follows ASC 850 for the identification of related parties and disclosure of related party transactions. Pursuant to this ASC related parties include a) affiliates of the Company; b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825-10-15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company; f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
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Commitments and Contingencies
The Company follows ASC 450 to account for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. This may result in contingent liabilities that are required to be accrued or disclosed in the financial statements. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time, that these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.
Revenue Recognition
The Company follows and implemented ASC 606, Revenue from Contracts with Customers for revenue recognition. Although the new revenue standard is expected to have an immaterial effect, if any, on our ongoing net income, the Company did implement changes to our processes related to revenue recognition and the control activities within them. These included the development of new policies based on the five-step model provided in the new revenue standard, ongoing contract review requirements, and gathering of information provided for disclosures.
The Company recognizes revenue from product sales or services rendered when control of the promised goods are transferred to our clients in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods and services. To achieve this core principle, the Company will apply the following five steps: identify the contract with the client, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to performance obligations in the contract and recognize revenues when or as the Company satisfies a performance obligation.
The Company recognizes its retail store revenue at point of sale, net of sales tax.
Inventories
Inventories consist of various types of nutraceuticals and bioceuticals at the Company’s retail store and main office. Inventories are stated at the lower of cost or market using the first in, first out (FIFO) method. A reserve is established if necessary to reduce excess or obsolete inventories to their net realizable value.
Cost of Sales
Components of costs of sales include product costs, shipping costs to customers and any inventory adjustments.
Shipping and Handling Costs
The Company includes shipping and handling fees billed to customers as revenues and shipping and handling costs for shipments to customers as cost of revenues.
Research and Development
Research and development costs are expensed as incurred. The Company’s research and development expenses relate to its engineering activities, which consist of the design and development of new products for specific customers, as well as the design and engineering of new or redesigned products for the industry in general.
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Net Loss Per Common Share
The Company follows ASC 260 to account for earnings per share. Basic earnings per common share calculations are determined by dividing net results from operations by the weighted average number of shares of common stock outstanding during the year. Diluted loss per common share calculations are determined by dividing net results from operations by the weighted average number of common shares and dilutive common share equivalents outstanding. During periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation.
As of September 30, 2021 the Company had no warrants issued or outstanding.
Cash Flows Reporting
The Company follows ASC 230 to report cash flows. This standard classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect method”) as defined by this standard to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments. The Company reports separately information about investing and financing activities not resulting in cash receipts or payments in the period pursuant this standard.
Stock Based Compensation
The Company follows ASC 718 in accounting for its stock based compensation to employees. This standard states that compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period, which is usually the vesting period. The Company values stock based compensation at the market price of the Company’s common stock as of the date in which the obligation for payment of service is incurred.
The Company accounts for transactions in which services are received from non-employees in exchange for equity instruments based on the fair value of the equity instrument exchanged in accordance with ASC 505-50.
Property and Equipment
Property and equipment is recorded at cost net of accumulated depreciation. Depreciation is computed using the straight-line method based upon the estimated useful lives of the respective assets as follows:
| Leasehold improvements | Shorter of useful life or term of lease |
| Signage | 5 years |
| Furniture and equipment | 5 years |
| Computer equipment | 5 years |
The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from accounts and any resulting gains or losses are included in operations.
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Liquidity and Capital Resources.
For the Three-Month Period Ended September 30, 2021 versus September 30, 2020
During the three months ended September 30, 2021, net cash used in the Company’s operating activities totaled $(20,831) compared to $(91,687) during the three months ended September 30, 2020. During the three months ended September 30, 2021, net cash used in investing activities totaled $1,172 compared to $0.00 provided by investing activities during the three months ended September 30, 2020. During the three months ended September 30, 2021, net cash provided by financing activities totaled $28,175 compared to $92,024 from financing activities during the three months ended September 30, 2020.
At September 30, 2021, the Company had cash of $25,217, accounts receivable of $5,456, inventories of $16,661 and prepaid expenses of $0 that comprised the Company’s total current assets totaling $47,334. The Company’s property and equipment at September 30, 2021 had a net book value of $0.
Convertible Note 2-GHS issued 4/2/19 for cash received $50,000, face amount $55,000 will accrue at a rate of 10% on a 360-day year. Maturity date is December 26, 2019. This note is at default and will continue accruing at the rate of 10%.
Convertible Note 3-GHS issued 5/15/19 for cash received $50,000, face amount $55,000 will accrue at a rate of 10% on a 360-day year. Maturity date is February 15, 2020. This note is at default and will continue accruing at the rate of 10%.
Convertible Note 4-GHS issued 6/07/19 for cash received $50,000, face amount $55,000 will accrue at a rate of 10% on a 360-day year. Maturity date is March 15, 2020. This note is at default and will continue accruing at the rate of 10%.
Convertible Note 5-GHS issued 9/09/19 for cash received $50,000, face amount $55,000 will accrue at a rate of 10% on a 360-day year. Maturity date is June 9, 2020. This note is at default and will continue accruing at the rate of 10%.
Convertible Note from a current share holder, issued 2/09/21 for cash received $50,000, free amount $50,000 will accrue at a rate of 10% on a 360-day year. Maturity date is February 9, 2022.
At September 30, 2021, the Company had total liabilities of $1,733,209 of which $585,886 was held as a reserved for the settlement of its lawsuit with Cromogen in a month to month payment plan starting January 1, 2022 (SeeNote 8 Subsequent Events).
At September 30, 2021, the Company had a stockholder’s equity totaling $(1,679,684) compared to an equity of $(5,026,848) for the period ending September 30, 2020.
RESULTS OF OPERATIONS
For the Three Months Ended September 30, 2021 versus September 30, 2020
The Company’s revenue for the three months ended September 30, 2021 was $2,455 compared to September 30, 2020 revenue totaling $26,551. The decrease in revenue is primarily attributed to not having any of the online orders fulfilled during the month of July and August under the management of Robert L. Stevens leading to many upset customers and many refunds.
The Company incurred operating expenses for the three months ended September 30, 2021 totaling $47,313, compared to $168,928 during the three months ended September 30, 2020. The decrease in operating expenses can be attributed to Robert L. Stevens closing down the Doral, FL facility and suspending company operations while litigating the intervenors (see Note 5. Legal Proceedings).
Officer compensation for the three months ended September 30, 2021 was $9,500 in cash and $0.00 in stock based compensation compared to $82,048 in cash and $0 in stock based compensation during the three months ended June 30, 2020. This decrease is due to both the CFO and COO resigning from the Company and not being any executives prior to September 1, 2021.
The Company incurred marketing expenses of $0 during the three months ended September 30, 2021, compared to $460 during the three months ended September 30, 2020.
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The Company incurred general and administrative expenses of $30,313, during the three months ended September 30, 2021, compared to $74,020 during the three months ended September 30, 2020.
The Company paid professional fees of $0, during the three months ended September 30, 2021, compared to $7,400 during the three months ended September 30, 2020.
The Company incurred costs of legal proceedings of $7,500 during the three months ended September 30, 2021, compared to $5,000 during the three months ended September 30, 2020.
The Company incurred research and development expenses of $0 during the three months ended September 30, 2021, compared to $0 during the three months ended September 30, 2020.
The Company generated a net loss from continuing operations for the three ended September 30, 2021 and 2020 of approximately $(46,190) and $(155,493), respectively. As of September 30, 2021 and March 31, 2021, the Company had current assets of $53,525 and $64,564, respectively, which included the following as of September 30, 2021: cash and cash equivalents of approximately $25,217; inventory of $16,661; accounts receivable of $5,456 (net of $101,404 in allowances.) and prepaid expenses of $0; Compared to; and the following as of March 31, 2021 cash and cash equivalents of approximately $16,161; inventory of $21,739; accounts receivable of $6,108 (net of $101,404 in allowances); and prepaid expenses of $0.
The Company’s Plan of Operation for the Next Twelve Months.
The Company’s auditors have expressed doubt as to our ability to continue as a going concern in part, because at September 30, 2021, the Company had negative working capital, an accumulated deficit of $(29,977,989) and a note payable that has passed its maturity date and although the holder has been willing to forbear on collection activities, there is no formal written forbearance agreement and the holder could commence collections at any time if it so wished. The Company believes this is unlikely given the relative size of the note valued at $109,558 compared with the value of the note holder’s 6,700,000 shares of Common Stock. The largest note holder is GHS with a combined total note valued at $405,238 and is unlikely to convert due to the relationship with the Company. Additionally, our Current Liabilities have historically exceeded our Current Assets; and as of September 30, 2021 that trend was continued with our Current Liabilities of $1,733,209 exceeding our Current Assets of $53,525 by $1,679,684. While this trend is certainly has not been part of the Company’s objectives, management does not see it as particularly significant because in considering our Current Liabilities, $109,558 of them are represented in a related party note held by a “friendly” creditor who is also a large shareholder and $405,238 held by a friendly investment firm. In addition, the Current Liabilities also include the Accrued Settlement amount of $585,885.90 in a month to month payment plan starting January 1, 2022 (See Note 6 Legal Proceedings).
Regardless of the forgoing issues, the Company will require additional debt or equity financing for its operations as currently conducted. However the Company has changed its immediate focus from researching and developing innovative hemp extracts and making them accessible worldwide; with plans to be a supplier of high quality hemp oil enriched with high-grade CBD. Its primary goal had been to advance different high quality hemp extracts with a broad profile of cannabinoids and additional natural molecules found in industrial hemp and to identify their distinct properties. Initially our missions were to educate the public on the many and varied nutritional and health benefits of CBD-rich hemp oil, to optimize purity in formulation, and to find new product delivery systems. With the decline in CBD sales due to the numbers of factors described in the Registrant’s periodic report filed with the SEC on Form 10-K for period ending March 31, 2021, the Company determined that the most efficient means to increase shareholder value would be the acquisition of a complimentary business that would bring revenues sufficient to support its own operations but that would allow the business to expand and for the Company to rebuild its CBD business. The opportunity that the Company is currently pursuing is the acquisition of JBC Medical Equipment, Inc. together with RxCompoundStore.com, LLC and Peaks Curative, LLC. The acquisition of all three businesses would give the Company the ability to cross-sell among the businesses as well as our current customers. There are also some areas that have been identified in these companies that are at the point where the revenue levels are at a point where allocating minimal incremental expenses in certain product offerings should result in more significant increases in revenue and earnings. The corporate strategy currently is to develop the acquisition plan, structure and terms while the Company’s receivership is wound down so that when it emerges from receivership, it is in a position to execute on the planned acquisitions. As the Company assimilates the new businesses into its operations, it plans to work to raise additional capital necessary to expand on the existing operations and to capitalize on their synergistic opportunities that provide the greatest immediate return on investment (i.e. pick the low hanging fruit), then to continue capitalizing on the opportunities among the companies and to rebuild its CBD sales. Finally it plans to license its Hygee product to a third party, if it is able to negotiate terms that are acceptable.
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To design and produce CBD enhanced nutraceutical products for sale to the general public. The Company intends to create high-grade CBD-rich hemp oil and other CBD containing products unique to the current market in the nutraceuticals industry. The believe that our formulations will set us apart from competing products for promoting health. The Company have formulated and produced our initial CBD products, intended for, subject to performance, treating various symptoms of diseases and ailments or for overall health. The Company plans to expand manufacturing and marketing of these CBD products with expansion of products over the next five years.
To offer a wide selection of health and nutrition products through online, clinics, pharmacies, and in-store retail. Through our wholly owned subsidiary, the Company plan to continue expanding retail sales of nutritional supplements through online, clinics, pharmacies, and in-store sales. Then with the acquisition of the compounding pharmacy, the Company will focus on men’s health as well as other areas. In particular, the Company plans to continue with plans to build a sterile facility so that injectable products may be compounded and sold. Our current product selection includes many high-quality supplement brands, and includes our proprietary CBD-rich hemp oil.
Alternatively the Company could raise additional funds to meet the anticipated R&D and other expenses while the Company allow the sales from our existing products to become self sustaining. This last path is our currently intended path to additional revenue. In fact, our receiver intends to assist us in raising additional funds to meet our obligations and to fund expansion of our business and operations. The proceeds from any financing will be used to meet the expenses of the receiver’s ongoing fees and costs associated with the administration of the estate, meeting creditors allowed claims and working capital for the Company’s ongoing operations, expansion and pursuit of its business plan.
Historically the Company have been able to fully fund operations from a combination of operations and through additional sales of our common stock; and even though the Company are in receivership, the Company have no reason to believe that the Company will not be able to continue doing so since the Company have a strong base of existing shareholders who are committed to our vision for the Company, they have historically demonstrated a willingness to purchase shares of stock when they are offered and the receiver intends to offer and in fact, has an additional exemption available to it that may be more desirable to them. If these shareholders were to cease purchasing shares when offered, if the Company or our receiver were unable to secure other sources of debt or equity financing, or if the Company or our receiver were unable to secure any or sufficient financing and on terms that are acceptable to us collectively, the Company would not be able to continue operations as currently planned. However the Company do have sufficient resources over the short and long term with scaled back expenses and R&D so that after several turns of inventory the Company believes the the Company would then be able to meet the costs of administration and resume our R&D and operations as planned. Additional funding primarily allows us to meet the additional costs associated with the receiver’s administration of the estate and to expedite our business plan. During the periods ending September 30, 2021 and September 30, 2020 the Company has met its capital requirements through a combination of operating activities and through external financing through the sale of its restricted common stock and convertible notes. The Company intends to continue the sales of our common stock and believe that by becoming a fully reporting company the Company has been able to attract additional investors, at smaller discounts to the current market price and from generally higher market prices, which is resulting in less dilution to existing investors than was the case while the Company was not a reporting company subject to the reporting requirements of the Securities Exchange Act of 1934, as amended.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
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ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Although our management has not formally carried out an evaluation under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”), because of the relatively thin management structure that the Company currently maintains, the Company believes that our Principal Executive Officer and Principal Financial Officer have sufficient timely information to allow them to make necessary disclosures in a timely manner.
Based on this informal evaluation, our principal executive and principal financial and accounting officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were effective as of June 30, 2018.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control and Financial Reporting
There were no other changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On January 11, 2019, the Company received notice that Strongbow Advisors, Inc. and Robert Stevens (“Stevens”, and together with Strongbow, the “Receiver”) had been appointed by the Nevada District Court, as Receiver for the Registrant in Case No. A-18-784952-C (the “Order).
The Company sought the appointment of the Receiver after it found itself in an imminent danger of insolvency following the issuance by an arbitration panel of an award (the “Award”) in the sum of $3,994,522.5 million in favor of Cromogen Biotechnology Corporation (“Cromogen”) in the matter entitled Cromogen Biotechnology Corporation vs. Earth Science Tech, Inc. (the “Cromogen Litigation”). The Nevada District Court found that the Company was in fact insolvent and ordered the appointment of the Receiver.
The Award consisted of a sum for breach of contract against the Company in the amount of $120,265.00, a sum for costs and fees against the Company in the amount of $111,057.00 and a sum for the claim of tortuous interference and conversion against the Company in the amount of $3,763,200.00. The District Court in Florida had confirmed the Award granted by the arbitration panel, denying however, the award of fees that the arbitration panel had granted Cromogen.
The Cromogen Litigation has been settled under an agreement that provides for monthly payments beginning after the first of the year in January 2022. The settlement agreement contains a significant increase in the amount due from $450,000 if the Company should default on its payment obligations thereunder.
As part of the impact of the receivership, the Court issued a Writ of Injunction or “Blanket Stay” covering the Company and its assets during the time that the Company is in receivership. As a result of the “Blanket Stay” the Company’s estate is protected from creditors and interference with its administration is prevented while the Company’s financial issues are being fully analyzed and resolved. As part of this process, creditors will be notified and required to provide claims in writing under oath on or before the deadline stated in the notice provided by the Receiver or those claims will be barred under NRS §78.675. The Blanket Stay will remain in place unless otherwise waived by the Receiver, or it is vacated by the Court or alternatively, lifted by the Court, upon a “motion to lift stay” duly made and approved by the Nevada District Court.
On November 7, 2019 the Receiver for Earth Science Tech, Inc., a Nevada corporation (the “Company”) filed a motion for preliminary injunction against Majorca Group Ltd. in the 8th Judicial District in Clark County, Nevada. The filing requests a show cause hearing whereby the Company will request the Court grants it motion to cancel certain shares and class of stock and to nullify certain amendments of the Articles of Incorporation. Specifically, the Company is asking that Majorca Group Ltd. be restricted from selling, transferring, converting, encumbering, hypothecating, obtaining loans against or in any fashion or in any way transferring their shares of common and preferred stock in the Company. Additionally the motion seeks a Freezing Injunction over any broker, bank, any financial institution, attorney, or agent holding shares of the Company as well as any proceeds from shares of the Company.
On January 27, 2020 Earth Science Tech, Inc., a Nevada corporation (the “Company”) reached a confidential settlement with Majorca Group, Ltd (“Majorca”). The Receiver will withdraw its motion for injunction over the Majorca common and preferred shares. The Settlement Agreement provides that Majorca Group, Ltd. and all relevant parties will, within 10 days of execution of the settlement agreement, return 18,000,000 common shares and 5,200,000 Series A Preferred Stock held by Majorca for cancellation. The Series A Preferred Stock class will be cancelled completely. The remaining 6,520,000 common shares held by Majorca is subject to lockup agreement and thereafter, sales will be made only pursuant to a limited strict bleed-out agreement administered by a third party.
On January 19, 2021, one of the Company’s largest shareholders served and filed a notice of motion and motion to intervene against Robert L. Stevens and Strongbow Advisors, Inc. (individually or collectively referred to as “Receiver”) this action was later joined by additional shareholders representing approximately 33% of the issued and outstanding shares of the Company at that time. This motion to intervene, at its heart, was based upon and resulted from, what the interveners saw as, a lack of transparency by the Receiver. What was filed was initially based upon concerns of Mr. Stevens’ lack of transparency. However as the matter progressed in court, additional concerns have arisen and on August 27, 2021, Stevens and Strongbow were discharged and removed and William Leonard was appointed to replace them as Receiver, by the Nevada District Court. Mr. Leonard is currently reviewing various matters, including past invoices presented by Stevens, as well as his conduct during the time he acted as Receiver for the Company as well as others that the prior Receiver had a prior relationship with that have derived benefits from working with the prior Receiver. The outcome of this review is uncertain at this time and a wide number of outcomes is possible.
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The Company is now optimistic that it will be able to emerge from receivership under the new receiver, in a reorganized position that will allow it to proceed with the acquisitions of the three entities. Combined, these entities present a larger opportunity to realize the synergies that they have among themselves and in so doing, the Company believes it will be possible for shareholder value to increase at a faster rate than would otherwise be possible with only its CBD business and licensing of its medical device, Hygee, The Company has executed a joint letter of intent with three entities involved in the durable medical equipment, retail sales and compounding pharmacy businesses with the objective of negotiating the final terms of a transaction that will result in the Company’s acquisition of these entities.
On August 30, 2021, the Company reached a settlement with Cromogen for $585,885.90 in a month to month payment plan starting January 1, 2022, having the initial payment of $45,000 and $10,000 each month followed with the final payment set on December 1, 2026. If the Company is able to and decides to pay the settlement entirely prior to January 1, 2022 commencement, a $85,885.90 reduction will take place having the settlement be $500,000. If the Company defaults on Cromogen’s settlement, a confession of judgement will be executed for the amount of $970,000, representing the total amount of Cromogen’s unsecured claims, less any amount paid by the Company, plus costs and attorney fees incurred to obtain the enforce of judgement.
ITEM 1A. RISK FACTORS
The Company is a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the three months ended September 30, 2021, the Company issued 0 shares of its common stock for $0, in transactions that were exempt from registration under the Securities Act of 1933, as amended pursuant to Section 4(2) and/or Rule 506 promulgate under Regulation D. No gain or loss was recognized on the issuances.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
None
ITEM 5. OTHER INFORMATION
Departure of Directors and Officers
None
ITEM 6. EXHIBITS
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
RECEIVER FOR EARTH SCIENCE TECH, INC. CASE NO. A-18-784952-C Crisis MANAGEMENT, Inc. | ||
| Dated: November 16, 2021 | By: | /s/ William A. Leonard Jr. |
| Crisis Management, Inc. | ||
| Its: | Receiver | |
| EARTH SCIENCE TECH, INC. | ||
| Dated: November 16, 2021 | By: | /s/ Nickolas S. Tabraue |
| Nickolas S. Tabraue, under the supervision and direction of William A. Leonard Jr. and Crisis Management, Inc., receiver for Earth Science Tech, Inc. Case No. A-18-784952-C | ||
| Its: | CEO and Director | |
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