Earth Science Tech, Inc 10-Q for FY2022 Q3
Earth Science Tech, Inc. (ETST)
About this 10-Q
Earth Science Tech, Inc filed this 10-Q on April 28, 2022, covering the quarter ended December 31, 2021 (FY2022 Q3).
Headline figures
Quarter ended December 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $3997
- down 83.3% from $23.93K a year earlier
- Net loss
- $115.05K
- compared with a net loss of $110.79K 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 April 25, 2022, there were shares of registrant’s common stock outstanding.
TABLE OF CONTENTS
| 2 |
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EARTH SCIENCE TECH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| December 31, | 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-SBA EDIL Loan | ||||||||
| Interest Payable-ConvNotes-GHS | ||||||||
| Int Payable-Promissory Note-GHS | ||||||||
| Convertible Note 2-GHS | ||||||||
| Convertible Note 3-GHS | ||||||||
| Convertible Note 4-GHS | ||||||||
| Convertible Note 5-GHS | ||||||||
| Convertible Note 6-GHS | ||||||||
| Interest Payable | ||||||||
| 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 December 31, 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 Nine | For the Nine | |||||||||||||
Months Ended | Months Ended | Months Ended | Months Ended | |||||||||||||
| December 31, 2021 | December 31, 2020 | December 31, 2021 | December 31, 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 | ||||||||||||||||
| Bad Debt Expense | ||||||||||||||||
| 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 expense | ( | ( | ( | |||||||||||||
| 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 December 31, 2021 AND 2020
| Common Stock | Preferred Stock | Additional Paid-in | Accumalated | ||||||||||||||||||||||||
| Description | Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||
| 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 | $ | $ | $ | $ | ( | ) | ( | ) | |||||||||||||||||||
| 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, 2021 | $ | $ | $ | $ | ( | ) | ( | ) | |||||||||||||||||||
| F-3 |
EARTH SCIENCE TECH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Nine | For the Nine | |||||||
Months Ended | Months Ended | |||||||
December 31, 2021 | December 31, 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
December 31, 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 recently changed its immediate focus from researching and developing innovative hemp extracts and making them accessible worldwide and its plans to be a supplier of high-quality hemp oil enriched with high-grade CBD. Its primary goal previously was 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, methods and protocols. 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 was the acquisition of a complimentary business that would bring revenues sufficient to support its own operations, that would also 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 opportunities that the Company identified with these companies that have reached an inflection point with revenue that 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., “picking 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.
On
or about November 3, 2021 the Company entered in to an agreement for the purchase of RxCompoundStore.com, LLC and Peaks Curative,
LLC through the purchase of
(“RXC”) 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. RXC 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 based on a proprietary formulation for men’s ED medications in the form of gummies. Currently RXC 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 had already planned on becoming a sterile compounding pharmacy and was working toward it when the Company entered into the definitive agreement to acquire RXC and PCL. The timing was ideal because management believes the Company was able to acquire RXC for significantly less than it would have been valued at if it already had a sterile certified facility built and in operation. However, RXC is close to that point and having the plan and path established and ready to implement, the time required to build and have the sterile facility certified will be substantially shorter than it would have been when RXC first began exploring the various requirements. RXC will work with Peaks Curative, LLC. to fill prescriptions for the customers that Peaks refers. RXC 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.
| F-5 |
Peaks Curative, LLC.
(“PCL”) was established as a marketing company initially to market men’s ED products directly to potential patients, however the Company plans to expand the products offered to include those that RXC can prepare and sell. PCL is what is known as a “telemedicine referral site” facilitating asynchronous consultations for branded compound medications prepared at RXC. For Example, men that respond to ads for ED gummies are referred to licensed medical professionals who determine eligibility by questionnaires completed by the prospective patient. By the answers provided, the doctor determines if the prospective patient can safely take the medication and meet that he meets the requirements. Having determined that he meets the requirements and can safely use the medication, the doctor will then send in a prescription to RXC, who, in turn will fill and send the gummies or other medication to the customer/patient. Since RXC is only licensed in Florida and New York, PCL will not target its marketing efforts in other states unless it establishes a referring relationship with pharmacies in other states where RXC does not intend to seek licensure as a compounding pharmacy. As RXC expands the products it wants to focus on, PCL will develop campaigns to drive sales for those products.
Shortly after entering into the purchase agreement with RxCompoundstore.com and Peaks Curative, the Company shifted from formulating and selling CBD products to formulating pharmaceutical products and topicals for sale through its accounts and the telemedicine platform of Peaks Curative. The Company anticipates launching Peaks Curative by the period ending June 30, 2022. The Company will design and produce enhanced pharmaceutical compounded products through RxCompoundStore.com, LLC to distribute through its physician ordered accounts, along with generic erectile dysfunction and other sexual health prescription items through Peaks Curative. The Company intends to create and provide high quality prescription products for its physician accounts, while offering unique ED and sexual enhancement products through its telemedicine platform.
The Company plans to offer a wide selection of health and nutrition products online and through clinics and pharmacies. In particular, the Company intends to continue with its plans to move its compounding pharmacy to a larger facility thereby positioning itself to maximize efficiencies once the telemedicine platform is launched. In addition to the larger facility, the Company plans to build a sterile facility so that injectable products may be compounded and sold. Our current product selection includes many high-quality ingredients to formulate and fulfill prescriptions when ordered, and includes our proprietary Tadalafil Gummies.
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.
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. After the conditions to Closing have been met, RxCompoundStore.com, LLC., Peaks Curative, LLC will also be wholly owned subsidiaries of the Company.
| F-6 |
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, Inc. (“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, although it too has suspended operations in an effort to focus on opportunities that management has determined will drive revenue faster than the Company’s CBD business.
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-7 |
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-8 |
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.
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 not more likely than not those assets will be recognized.
| F-9 |
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
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 December 31, 2021 the Company has no 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. These 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.
| F-10 |
Property and equipment
Property and equipment are 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 | |
| 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.
| F-11 |
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 December 31, 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.
| F-12 |
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 $
The
Seller and current owner of RxCompoundStore,com, LLC and Peaks Curative, LLC is Mario Tabraue, the brother of our CEO, Nickolas S. Tabraue.
Although strictly speaking, the acquisition was negotiated in an arms-length transaction and both the Company and Mario Tabraue had separate
counsel, each of whom contributed to the acquisition agreement. The Company’s Board of Directors, the Company’s Management
and the Successor Receiver all concluded that the purchase price, consisting of million shares of ETST common stock and $
Note 5 – Stockholders’ Equity
During
the three months ended December 31, 2021 and 2020, the Company issued and common shares for an aggregate
sales price of $
As
part of the acquisition of RxCompoundStore.com, LLC and Peaks Curative, LLC, the agreement calls for the issuance of million shares
of the Company’s common stock (in addition to $
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 $
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.
| F-13 |
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.
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 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. Thereafter, on November 3, 2021, the Company and the owner of RxCompoundStore.com, LLC and Peaks Curative, LLC entered into and executed a definitive agreement for the Company’s acquisition of the two LLC’s. See Note 1 for a description of each of these entities and the terms of the acquisition.
| F-14 |
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, looking specifically at his actions, practices, and evidence produced in support of his claims for additional fees. The successor receiver then issued his report evaluating Mr. Stevens additional claims for fees and found that no outstanding fees were due. The court had set an evidentiary hearing scheduled for mid-January 2022 to consider the successor Receiver’s conclusions, with respect to the former Receiver’s potential culpability and resulting liability to the Company for actions he took acting as Receiver of the Company. However, this was extended until March, 2022 and may be further extended if the Company is unable to reach settlement and otherwise come to agreement with various parties who claim they are owed money.
Lease Agreements
On
August 31, 2021, the Company entered into an agreement with JCR Medical Equipment, Inc., a Florida Corporation to lease a
Entry into Acquisition Agreement
As
the first part of its acquisition plan described in the Company’s current report filed with the Commission on Form 8-K on September
10, 2021, on November 3, 2021 the Company entered into an agreement to acquire RxCompoundStore.com, LLC a Florida limited liability company
and Peaks Curative LLC, a Florida limited liability company. As stated in its current report filed with the Commission on November 8,
2022, the acquisition of the two companies is the first step in the two-stage strategic acquisition plan that the Company has developed
in its commitment to increase and maximize shareholder value. The acquisition of the two entities was structured as an acquisition of
The
Seller also has an existing loan from the Small Business Administration (“SBA”) in the amount of approximately $
a.) Seller pays the entire balance and any accrued interest due there on, or
b.) Seller secures SBA’s consent to transfer ownership without any changes as long as the terms don’t adversely affect the Company’s existing loans or,
c.) Seller secures SBA’s consent to transfer ownership, and if there are any required changes that adversely affect the Company, the Company the Company must agree to the changes or otherwise waive the Seller’s obligation to satisfy the loan.
d.) Stated another way, if the SBA refuses to give consent to transfer of ownership or the terms, “as is”, negatively affect the Company’s existing loans, or changes are required by the SBA in order for them to consent to transfer of control and the Company does not accept them, then the Seller’s only way to satisfy this provision prior to closing is to pay the balance of the loan and any accrued interest in full prior to closing.
Escrow Commitment and Contingency
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 December 31, 2021, the Company had allowances of $
As of December 31, 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 $
Legal
expenses were $
Research and development were $ for the three months ended December 31, 2021.
Interest
expense was $
Note 8 — Subsequent Events
Revolving
Promissory Note issued January 28, 2022 for cash received $
Convertible
Note Mario Portela issued February 3, 2022 for cash received $
On
February 14, 2022, shares were issued to an existing
share holder since 2018 at $a share for s total amount of $
On
March 31, 2022 the Company was notified that its PPP loan forgiveness application was approved for the promissory note dated February
12, 2021 in the total amount of $
Revolving
Promissory Note issued April 1, 2022 for cash received $
On
April 21, 2022 the Company was notified that its PPP loan forgiveness application was approved for the promissory note dated April 30,
2020 in the total amount of $
On April 21, 2022, the Company amended its Articles of Incorporation ti increase the number of authorized shares of common stock of the Company to shares and designated shares of series B Preferred Stock (“Series B”). The Series B is in the issuance of shares of Series B to each Nickolas Tabraue and Mario Tabraue.
On April 22, 2022, the
Company entered into a confidential settlement agreement with GHS Investments, LLC where the Company will pay GHS a total sum of $
On April 25, 2022, the
Company’s CEO and Director amended his employee agreement commencing April 1, 2022 to receive shares of the Company’s
common stock and receive $
On April 25, 2022, the
Company’s President and Director amended his employee agreement commencing April 1, 2022 to receive shares of the Company’s
common stock and receive $
| F-15 |
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 December 31, 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 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.
| 3 |
On or about November 3, 2021 the Company entered in to an agreement for the purchase of RxCompoundStore.com, LLC and Peaks Curative, LLC through the purchase of 100% of the outstanding equity securities both entities. Under the terms of the transaction, the Seller agreed to exchange one Hundred (100) RxCompound Units and One Hundred (100) Peaks Units in exchange for 3,000,000 shares of the Company’s common stock together with $300,000 in cash. The transaction is structured in a way that allows the Buyer to raise the $300,000 cash component of the purchase price over time as it seeks and received additional funding. The cash component is managed separately, and under the terms of the Agreement, $0.50 of every $1.00 raised by the Company shall be held in escrow until the full $300,000 can be paid in full (unless the Seller waives and postpones the right to immediate payment as the Company is raising capital) at which time the parties will officially close the acquisition.
Shortly after entering into the purchase agreement with both RxCompoundstore.com and Peaks Curative, the Company shifted from formulating and selling CBD products to formulating pharmaceutical products and topicals for sale through its accounts and soon when launched through its telemedicine platform Peaks Curative. The Company anticipates launching Peaks Curative by the period ending June 30, 2022. The Company will design and produce enhanced pharmaceutical compounded products through RxCompoundStore.com, LLC. to distribute through its physician ordered accounts along with generic erectile dysfunction and other sexual health prescription items through Peaks Curative. The Company intends to create and provide high-quality prescription products to its physician accounts while offering unique both ED and sexual enhancement products through its telemedicine platform strongly positioned for maximum exposure upon launching.
The Company plans to offer a wide selection of health and nutrition products through online, clinics, pharmacies, and online. In particular, the Company plans to continue with plans to move its compounding pharmacy to a larger facility to to position itself and maximize efficiencies once the telemedicine platform is launched. In addition to the larger facility, the Company will build a sterile facility so that injectable products may be compounded and sold. Our current product selection includes many high-quality ingredients to formulate and fulfill prescription when ordered, and includes our proprietary Tadalafil Gummies.
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.)
| 4 |
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.
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.
| 5 |
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.
The Seller and current owner of RxCompoundStore,com, LLC and Peaks Curative, LLC is Mario Tabraue, the brother of our CEO, Nickolas S. Tabraue. Although strictly speaking, the acquisition was negotiated in an arms-length transaction and both the Company and Mario Tabraue had separate counsel, each of whom contributed to the acquisition agreement. The Company’s Board of Directors, the Company’s Management and the Successor Receiver all concluded that the purchase price, consisting of 3 million shares of ETST common stock and $300,000, was a fair and reasonable purchase price and that, given the various liabilities that ETST may exit receivership owing and the various legacy issues and the associated risks, the value the two acquisition targets represent is in all likelihood substantially greater than the purchase price would otherwise suggest, although there is not an accurate method to determine its value to a company that is in the position that this Company finds itself.
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.
| 6 |
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.
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 December 31, 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. These 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.
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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:
| 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.
Liquidity and Capital Resources.
For the Three-Month Period Ended December 31, 2021 versus December 31, 2020
During the three months ended December 31, 2021, net cash used in the Company’s operating activities totaled $(45,462) compared to $(155,826) during the three months ended December 31, 2020. During the three months ended December 31, 2021, net cash used in investing activities totaled $1,172 compared to $0.00 provided by investing activities during the three months ended December 31, 2020. During the three months ended December 31, 2021, net cash provided by financing activities totaled $38,175 compared to $135,135 from financing activities during the three months ended December 31, 2021.
At December 31, 2021, the Company had cash of $10,586, accounts receivable of $0, inventories of $15,094 and prepaid expenses of $0 that comprised the Company’s total current assets totaling $25,680. The Company’s property and equipment at December 31, 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.
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Convertible Note 6-GHS issued 7/01/21 for cash received $50,000, face amount $55,000 will accrue at a rate of 10% on a 360-day year. Maturity date is April 1, 2022.
At December 31, 2021, the Company had total liabilities of $2,177,012 of which $585,886 was held as a reserved for the settlement of its lawsuit with Cromogen in a month to month payment plan that is currently being renegotiated due to various components of the reorganization becoming more protracted than expected and the Company plans to come to a renegotiated payment terms with Cromogen along with the creditors under the terms that best work for the Company with payments commencing after termination of the receivership. (See Note 6 Legal Proceedings). In addition, the current liabilities also include $366,600 in reserve for November 3, 2021 escrowed purchase agreement, (See Note 4 Related Party Balances and Transaction and Note 5 Stock Holder Equity).
At December 31, 2021, the Company had a stockholder’s equity totaling $(1,784,732) compared to an equity of $(5,026,848) for the period ending December 31, 2020.
RESULTS OF OPERATIONS
For the Three Months Ended December 31, 2021 versus December 31, 2020
The Company’s revenue for the three months ended December 31, 2021 was $3,997 compared to December 31, 2020 revenue totaling $23,292. The decrease in revenue is primarily attributed to the Company transitioning out o CBD and into pharmaceuticals and telemedicine. (See Note 2 Overview)
The Company incurred operating expenses for the three months ended December 31, 2021 totaling $102,951, compared to $89,366 during the three months ended December 31, 2020. The increase in operating expenses can be attributed to the Company’s remaining balances from prior reporting costs compounding for its March 31, 2021 YE audit, and both periods ending June, 30, 2021 and September 30, 2021 quarterly review.
Officer compensation for the three months ended December 31, 2021 was $30,846 in cash and $0.00 in stock based compensation compared to $52,048 in cash and $0 in stock based compensation during the three months ended December 31, 2020. This decrease is due to and COO resigning from the Company. The Company accrued $26,000 of the officer compensation due the CEO’s salary being accrued until the Company is out of receivership and in a better position.
The Company incurred general and administrative expenses of $61,526, during the three months ended December 31, 2021, compared to $30,818 during the three months ended December 31, 2020.
The Company paid professional fees of $5,165, during the three months ended December 31, 2021, compared to $6,500 during the three months ended December 31, 2020.
The Company incurred costs of legal proceedings of $0 during the three months ended December 31, 2021, compared to $0 during the three months ended December 31, 2020.
The Company generated a net loss from continuing operations for the three ended December 31, 2021 and 2020 of approximately $(115,048) and $(110,793), respectively. As of December 31, 2021 and March 31, 2021, the Company had current assets of $25,680 and $64,564, respectively, which included the following as of December 31, 2021: cash and cash equivalents of approximately $10,586; inventory of $15,094; accounts receivable of $0 (net of $3,520 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.
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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 December 31, 2021, the Company had negative working capital, an accumulated deficit of $(30,093,037) 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 $454,717 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 December 31, 2021 that trend was continued with our Current Liabilities of $2,177,012 exceeding our Current Assets of $25,680 by $2,151,332. 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 $454,717 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 currently being renegotiated due to delays is completing various parts of the reorganization plan. The Company plans to come to a renegotiated payment terms with Cromogen along with the creditors under terms that best are consistent with the overall plan of reorganization; with payments commencing after exiting receivership. (See Note 6 Legal Proceedings). Lastly, the current liabilities includes November 3, 2021 escrowed purchase agreement amount of $366,600 having $150,000 to purchase RxCompoundstore, $150,0000 to purchase Peaks Curative, and $66,000 in stock payable. At the time the agreement was entered it was believed that the exit of receivership was within arm’s reach. It was agreed at the time of signing that RxCompoundStore.com and Peaks Curative would deliver the audit upon the Company’s exit of the receivership. As of the period ending December 31, 2021, the Company was still under receivership and did not receive the completed audit for review, a necessary part of the due diligence. Both parties have failed to deliver their shares/units. Despite the failure to execute the delivery of the shares and the ability for either party to unwind from this agreement, both parties continue to remain under contract, (See Note 4 Related Party Balances and Transaction and Note 5 Stock Holder Equity).
Regardless of the forgoing issues, the Company will require additional debt or equity financing for its operations as currently conducted. However as stated, 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 a variety of factors as 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 and that would allow the business to expand, allowing 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
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 December 31, 2021 and December 31, 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 not effective as of December 31, 2021.
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.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On January 11, 2019, the Company received notice that Strongbow Advisors, Inc. and Robert Stevens (collectively “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.
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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 with the first payment and terms currently being renegotiated to amend the original agreement’s first payment commencing on January 2022 to a later due to the Company not ending receivership due to Mr. Steven’s legal matter still being litigated under the new receiver.
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 requested a hearing for “an order to show cause” whereby the Receiver planned to request tcancelation of he certain shares for a class of stock and to nullify certain amendments of the Articles of Incorporation. Specifically, the Receiver asked 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 sought 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 was supposed to withdraw its motion for injunction over the Majorca common and preferred shares. The Settlement Agreement provides that Majorca Group, Ltd. and all relevant parties would, 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 were cancelled completely. The remaining 6,520,000 common shares held by Majorca is subject to lockup agreement and thereafter, sales were to 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 reviewed various matters, including past invoices presented by Stevens, as well as his conduct during the time he acted as Receiver for the Company. Mr. Leonard’s review also included others that Stevens had a prior relationship with that have derived benefits from working with him at the Company’s expense.
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 claims for fees for work he alleges was performed. The Successor Receiver then issued his report evaluating Mr. Stevens fees claims and found that there were no outstanding fees due. The court has set to an evidentiary hearing that has been scheduled and rescheduled for the court to consider the successor receivers conclusions as well as the former receiver’s potential liabilities to the Company.
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 was able to and decides to pay the settlement entirely prior to January 1, 2022 commencement, a $85,885.90 reduction would have taken place brining the total settlement to $500,000. If the Company defaulted on Cromogen’s settlement, a confession of judgement would 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 and enforce the judgement. As of the month of December Cromogen’s settlement terms were being renegotiated due to the Company extended review time taken by the Successor Receiver as well as continuing negotiations with Stevens. The Company plans to come to a renegotiated payment terms with Cromogen along with the other creditors in the terms that will provide the Company its best chances for success, with payments commencing following the Company’s exiting the receivership.
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The Company is now optimistic that it will be able to emerge from receivership, in a reorganized position that will allow it to proceed with the acquisitions of the three entities described above. 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,
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 December 31, 2021, the Company issued 500,000 shares of its common stock for $10,000, 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. On November 17, 2021 the Company issued 500,000 shares to an existing investor since 2018 issued 500,000 shares to investor at a price of $0.02 per share.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
None
ITEM 5. OTHER INFORMATION
Appointment of Directors and Officers
On November 3, 2021, in accordance with the terms of the acquisition agreement referred to herein, 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, (See Note 4 Related Party Balances and Transaction).
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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: April 27, 2022 | By: | /s/ William A. Leonard Jr. |
| Crisis Management, Inc. | ||
| Its: | Receiver | |
| EARTH SCIENCE TECH, INC. | ||
| Dated: April 27, 2022 | 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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