|
|
●
|
decreased demand for our products;
|
|
|
●
|
injury to our reputation;
|
|
|
●
|
costs of related litigation;
|
|
|
●
|
substantial monetary awards to consumers;
|
|
|
●
|
the inability to successfully commercialize our products.
|
We depend upon our key personnel and our ability to attract and retain employees.
Our future growth and success depend on our ability to recruit, retain, manage and motivate our employees. The loss of the services of any member of our senior management or the inability to hire or retain experienced management personnel could adversely affect our ability to execute our business plan and harm our operating results. Because of the specialized scientific and managerial nature of our business, we rely heavily on our ability to attract and retain qualified scientific, technical and managerial personnel, in addition to skilled employees in sales and marketing. The competition for qualified personnel in the nutraceutical field is intense. Due to this intense competition, we may be unable to continue to attract and retain qualified personnel necessary for the development of our business or to recruit suitable replacement personnel. In addition, our compensation arrangements, such as our bonus programs, may not always be successful in attracting new employees or retaining and motivating our existing employees.
We have limited history of operations and we may incur losses.
As a company with limited operating history, we are subject to all of the risks associated with a new business enterprise. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stages of development, especially in challenging and competitive industries. We are unable to give you any assurance that we will generate material revenues or that any revenues generated will be sufficient for us to continue operations or achieve profitability.
We have limited assets.
The Company has incurred an accumulated deficit since inception of $21,416,129 through March 31, 2015, and $12,645,391 through March 31, 2014, and has not yet established an on-going source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations. Our success will initially depend upon continuing our business and growing our business by raising the necessary funds to expand operations.
For future additional capital requirements, we may raise capital by issuing equity or convertible debt securities, and when we do, the percentage ownership of our existing stockholders may be diluted. In addition, any new securities we issue could have rights, preferences and privileges senior to the common shares offered herein.
We are an “emerging growth company” under the Jumpstart Our Business Startups Act. We cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our shares of common stock less attractive to investors.
We are and will remain an “emerging growth company” until the earliest to occur of (a) the last day of the fiscal year during which its total annual revenues equal or exceed $1 billion (subject to adjustment for inflation), (b) the last day of the fiscal year following the fifth anniversary of its initial public offering, (c) the date on which we, during the previous three-year period, issued more than $1 billion in non-convertible debt securities, or (d) the date on which we are deemed a “large accelerated filer” (with at least $700 million in public float) under the Exchange Act.
For so long as we remain an “emerging growth company” as defined in the JOBS Act, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” as described in further detail in the risk factors below. We cannot predict if investors will find its shares of common stock less attractive because we will rely on some or all of these exemptions. If potential investors find our shares of common stock less attractive as a result, there may be a less active trading market for its shares of common stock and its stock price may be more volatile.
Notwithstanding the above, we are also currently a “smaller reporting company”, meaning that we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company and have a public float of less than $75 million and annual revenues of less than $50 million during the most recently completed fiscal year.
If we avail ourselves of certain exemptions from various reporting requirements, the reduced disclosure may make it more difficult for investors and securities analysts to evaluate our Company and may result in less investor confidence.
Conflicts of Interest.
Certain conflicts of interest may exist between our Company and our officers and directors. They have other business interests to which they devote their attention, and may be expected to continue to do so although management time should be devoted to the business of our Company. As a result, conflicts of interest may arise that can be resolved only through exercise of such judgment as is consistent with fiduciary duties to our Company.
Need for Additional Financing.
Our Company has budgeted funds expected to be enough to carry on the proposed business to mid-2016. In the event our Company decides to expand our operations we may have very limited funds to do so. The ultimate success of our Company may depend upon our ability to raise additional capital. Our Company is continuing to assess the need for additional capital. If additional capital is needed, there is no assurance that funds will be available from any source or, if available, that they can be obtained on terms acceptable to our Company. If not available, our Company’s operations will be limited to those that can be financed with its modest capital.
No Assurance of Success or Profitability.
There is no assurance that our Company will ever operate profitably. There is no assurance that we will generate profits, or that the value of our Company’s Shares will be increased thereby.
Lack of Diversification.
Because of the limited financial resources that we have, it is unlikely that we will be able to diversify our operations. Our probable inability to diversify our activities into more than one area will subject us to economic fluctuations within our business or industry and therefore increase the risks associated with our operations.
Dependence upon Management. Limited Participation of Management.
Our Company will be heavily dependent upon our management skills, talents, and abilities, as well as our consultants, to implement our business plan, and may, from time to time, find that our inability to devote full time attention to the business of our Company results in a delay in progress toward implementing our business plan.
Dependence upon Outside Advisors.
To supplement the business experience of our officers and directors, we may be required to employ accountants, technical experts, appraisers, attorneys, or other consultants or advisors. Our Company’s Management, without any input from stockholders, will make the selection of any such advisors. Furthermore, it is anticipated that such persons may be engaged on an “as needed” basis without a continuing fiduciary or other obligation to our Company. In the event our Company considers it necessary to hire outside advisors, they may elect to hire persons who are affiliates, if they are able to provide the required services.
Based on our current cash reserves, we will have relatively small operational budget for the operations which we cannot expand without additional raising capital.
If we are unable to begin to generate enough revenue to cover our operational costs, we will need to seek additional sources of funds. Currently, we have no committed source for any funds as of date hereof. No representation is made that any funds will be available when needed. In the event funds cannot be raised if and when needed, we may not be able to carry out our business plan and could fail in business as a result of these uncertainties.
We cannot give any assurances that we will be able to raise enough capital to fund acquisitions and product development.
We will need to raise additional funds to support not only our budget, but also our expansion operations. We cannot make any assurances that we will be able to raise such funds or whether we would be able to raise such funds with terms that are favorable to us. We may seek to borrow monies from lenders at commercial rates, but such lenders will probably be at higher than bank rates, which higher rates could, depending on the amount borrowed, make the net operating income insufficient to cover the interest.
RISKS RELATED TO CONTROLLED SUBSTANCES
Controlled substance legislation differs between countries and legislation in certain countries may restrict or limit our ability to our product candidates.
Most countries are parties to the Single Convention on Narcotic Drugs 1961, which governs international trade and domestic control of narcotic substances, including cannabis extracts. Countries may interpret and implement their treaty obligations in a way that creates a legal obstacle to our obtaining marketing approval for our products in those countries. These countries may not be willing or able to amend or otherwise modify their laws and regulations to permit our products to be marketed, or achieving such amendments to the laws and regulations may take a prolonged period of time. In the case of countries with similar obstacles, we would be unable to market our product candidates in countries in the near future or perhaps at all if the laws and regulations in those countries do not change.
At some point our products may be developed and be subject to U.S. controlled substance laws and regulations and failure to comply with these laws and regulations, or the cost of compliance with these laws and regulations, may adversely affect the results of our business operations, both during clinical development and post approval, and our financial condition.
Certain products we may develop could contain controlled substances as defined in the federal Controlled Substances Act of 1970, or CSA. Controlled substances that are pharmaceutical products are subject to a high degree of regulation under the CSA, which establishes, among other things, certain registration, manufacturing quotas, security, recordkeeping, reporting, import, export and other requirements administered by the DEA. The DEA classifies controlled substances into five schedules: Schedule I, II, III, IV or V substances. Schedule I substances by definition have a high potential for abuse, no currently “accepted medical use” in the United States, lack accepted safety for use under medical supervision, and may not be prescribed, marketed or sold in the United States. Pharmaceutical products approved for use in the United States may be listed as Schedule II, III, IV or V, with Schedule II substances considered to present the highest potential for abuse or dependence and Schedule V substances the lowest relative risk of abuse among such substances. Schedule I and II drugs are subject to the strictest controls under the CSA, including manufacturing and procurement quotas, security requirements and criteria for importation. In addition, dispensing of Schedule II drugs is further restricted. For example, they may not be refilled without a new prescription. We do not intend to produce “controlled substances” at this time, due to regulatory complications.
RISK FACTORS RELATED TO OUR SECURITIES
We may in the future issue more shares which could cause a loss of control by our present management and current stockholders.
We may issue further shares as consideration for the cash or assets or services out of our authorized but unissued common stock that would, upon issuance, represent a majority of the voting power and equity of our Company. The result of such an issuance would be those new stockholders and management would control our Company, and persons unknown could replace our management at this time. Such an occurrence would result in a greatly reduced percentage of ownership of our Company by our current shareholders, which could present significant risks to investors.
We have not paid dividends but may in the future.
We have not paid dividends on our common stock. While we intend to pay dividends in future after allocating adequate reserves, we do not guarantee, commit and undertake that dividends will be paid in the foreseeable future.
A limited public market exists for our common stock at this time, and there is no assurance of a future market.
There is a limited public market for our common stock, and no assurance can be given that a market will continue or that a shareholder ever will be able to liquidate his investment without considerable delay, if at all. If a market should develop, the price may be highly volatile. Factors such as those discussed in the “Risk Factors” section may have a significant impact upon the market price of the shares offered hereby. Due to the low price of our securities, many brokerage firms may not be willing to effect transactions in our securities. Even if a purchaser finds a broker willing to effect a transaction in our shares, the combination of brokerage commissions, state transfer taxes, if any, and any other selling costs may exceed the selling price. Further, many lending institutions will not permit the use of our shares as collateral for any loans.
The regulation of penny stocks by SEC and FINRA may discourage the tradability of our securities.
We are a “penny stock” company. None of our securities currently trade in any market and, if ever available for trading, will be subject to a Securities and Exchange Commission rule that imposes special sales practice requirements upon broker-dealers who sell such securities to persons other than established customers or Accredited Investors. For purposes of the rule, the phrase “Accredited Investors” means, in general terms, institutions with assets in excess of $5,000,000, or individuals having a net worth in excess of $1,000,000 or having an annual income that exceeds $200,000 (or that, when combined with a spouse’s income, exceeds $300,000). For transactions covered by the rule, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser’s written agreement to the transaction prior to the sale. Effectively, this discourages broker-dealers from executing trades in penny stocks. Consequently, the rule will affect the ability of purchasers of our stock to sell their securities in any market that might develop therefore because it imposes additional regulatory burdens on penny stock transactions.
In addition, the Securities and Exchange Commission has adopted a number of rules to regulate “penny stocks”. Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange Act of 1934, as amended. Because our securities constitute “penny stocks” within the meaning of the rules, the rules would apply to us and to our securities. The rules will further affect the ability of owners of shares to sell our securities in any market that might develop for them because it imposes additional regulatory burdens on penny stock transactions.
Shareholders should be aware that, according to Securities and Exchange Commission, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii) “boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired consequent investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities.
Rule 144 sales in the future may have a depressive effect on our stock price.
Our shareholders may be able to use Rule 144 as an exemption for resale, but resales under Rule 144 could have a depressive effect on the market trading price, if any. Investors will have no effective way to combat this.
Rule 144 Sales, Restrictions.
The shares of our common stock may continue to be thinly-traded on the OTC Markets under the symbol ETST, meaning that the number of persons interested in purchasing our common shares at or near ask prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including the fact that we are a small company which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven, early stage company such as ours or purchase or recommend the purchase of any of our Securities until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our Securities is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on Securities price. We cannot give you any assurance that an active public trading market for our common Securities will ever develop or be sustained, or that any trading levels will be sustained. Due to these conditions, we can give investors no assurance that they will be able to sell their shares at or any prices or at all if they need money or otherwise desire to liquidate their securities of our Company. Our common stock may not be able to be liquidated at or near ask prices in any volume in the markets.
Our common stock market prices may be volatile, which substantially increases the risk that investors may not be able to sell their Securities at or above the price that was paid for the security.
Because of the limited trading market for our common stock and because of the possible price volatility, shareholders may not be able to sell their shares of common stock when desired. The inability to sell Securities in a rapidly declining market may substantially increase the risk of loss because of such illiquidity and because the price for our Securities may suffer greater declines because of our price volatility.
Certain factors, some of which are beyond our control, that may cause our share price to fluctuate significantly include, but are not limited to the following:
|
|
●
|
Variations in our quarterly operating results;
|
|
|
●
|
Loss of a key relationship or failure to complete significant transactions;
|
EARTH SCIENCE TECH, INC.
FINANCIAL STATEMENTS
For the years ended March 31, 2015 and 2014
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
F-1
|
|
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2015 AND MARCH 31, 2014 (RESTATED)
|
F-2
|
|
CONSOLIDATED STATEMENTS OF OPERATIONS AS OF MARCH 31, 2015 AND MARCH 31, 2014 (RESTATED)
|
F-3
|
|
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AS OF MARCH 31, 2015 AND MARCH 31, 2014 (RESTATED)
|
F-5
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS AS OF MARCH 31, 2015 AND MARCH 31, 2014 (RESTATED)
|
F-4
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
F-6
|
|
|
432 Park Avenue South, 10th Floor
New York, NY 10016 / (212) 481-3490
1500 Gateway Boulevard, Suite 202
Boynton Beach, FL 33426 / (561) 752-1721
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of:
Earth Science Tech, Inc. and Subsidiaries
We have audited the accompanying balance sheets of Earth Science Tech, Inc. and Subsidiaries (the “Company”) as of March 31, 2015 (consolidated) and 2014 and the related consolidated statements of operations, changes in stockholders’ equity, and cash flow for the years ended March 31, 2015 and 2014. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly in all material respects, the financial position of Earth Science Tech, Inc. and Subsidiaries as of March 31, 2015 (consolidated) and 2014 and the results of its consolidated operation and its cash flow for the two years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has a net loss of $8,770,738 and used cash in operations of $376,355 and an accumulated deficit of $21,416,129 at March 31, 2015. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans as to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
LIGGETT, VOGT & WEBB, P.A.
Certified Public Accountants
Boynton Beach, Florida
August 4, 2015, except for notes 5, 8, 9, and 11 as to which the date is May 9, 2016
EARTH SCIENCE TECH, INC. AND SUSIDIARIES
BALANCE SHEETS
ASSETS
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
(Consolidated)(Restated)
|
|
|
(Restated)
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
Cash
|
|
$
|
324,378
|
|
|
$
|
376,704
|
|
|
Prepaid expenses
|
|
|
101,619
|
|
|
|
350,000
|
|
|
Inventory
|
|
|
235,588
|
|
|
|
-
|
|
|
Deposits
|
|
|
-
|
|
|
|
178,250
|
|
|
Total current assets
|
|
|
661,585
|
|
|
|
904,954
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Assets
|
|
|
65,854
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Assets:
|
|
|
|
|
|
|
|
|
|
Patent, net
|
|
|
29,078
|
|
|
|
-
|
|
|
Deposits
|
|
|
17,211
|
|
|
|
-
|
|
|
Total other assets
|
|
|
46,289
|
|
|
|
-
|
|
|
Total Assets
|
|
$
|
773,728
|
|
|
$
|
904,954
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS'S EQUITY
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
88,655
|
|
|
$
|
745
|
|
|
Due to related parties
|
|
|
-
|
|
|
|
166,511
|
|
|
Notes payable - related parties
|
|
|
59,558
|
|
|
|
38,605
|
|
|
Total current liabilities
|
|
|
148,213
|
|
|
|
205,861
|
|
|
Total liabilities
|
|
|
148,213
|
|
|
|
205,861
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (See Note 11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred shares, par value $0.001 per share, 10,000,000 shares authorized; 5,200,000 and 0 shares issued and outstanding as of March 31, 2015 and March 31, 2014 respectively
|
|
|
5,200
|
|
|
|
-
|
|
|
Common stock, par value $0.001 per share, 75,000,000 shares authorized; 38,229,829 and 36,733,000 shares issued and outstanding as of March 31, 2015 and March 31, 2014 respectively
|
|
|
38,230
|
|
|
|
36,733
|
|
|
Additional paid-in capital
|
|
|
21,998,214
|
|
|
|
13,307,751
|
|
|
Accumulated deficit
|
|
|
(21,416,129
|
)
|
|
|
(12,645,391
|
)
|
|
Total stockholders' equity
|
|
|
625,515
|
|
|
|
699,093
|
|
|
Total Liabilities and Stockholder's Equity
|
|
$
|
773,728
|
|
|
$
|
904,954
|
|
See the accompanying notes to the consolidated financial statements
EARTH SCIENCE TECH, INC. AND SUBSIDIARIES
STATEMENT OF OPERATIONS
|
|
|
For the Years Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
(Consolidated) (Restated)
|
|
|
(Restated)
|
|
|
Revenue
|
|
$
|
80,279
|
|
|
$
|
7,450
|
|
|
Cost of revenues
|
|
|
77,060
|
|
|
|
900
|
|
|
Gross Profit
|
|
|
3,219
|
|
|
|
6,550
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation - officers
|
|
|
508,000
|
|
|
|
2,700
|
|
|
Marketing
|
|
|
669,228
|
|
|
|
-
|
|
|
General and administrative
|
|
|
115,112
|
|
|
|
6,856
|
|
|
Professional fees
|
|
|
7,444,416
|
|
|
|
12,536,711
|
|
|
Research and development
|
|
|
32,593
|
|
|
|
-
|
|
|
Total operating expenses
|
|
|
8,769,349
|
|
|
|
12,546,267
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(8,766,130
|
)
|
|
|
(12,539,717
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expenses)
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(4,730
|
)
|
|
|
-
|
|
|
Interest income
|
|
|
122
|
|
|
|
-
|
|
|
Foreign currency transaction loss
|
|
|
-
|
|
|
|
(106
|
)
|
|
Total other expenses
|
|
|
(4,608
|
)
|
|
|
(106
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before provision for income taxes
|
|
|
(8,770,738
|
)
|
|
|
(12,539,823
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(8,770,738
|
)
|
|
|
(12,539,823
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Loss per common share:
|
|
|
|
|
|
|
|
|
|
Loss per common share - Basic and Diluted
|
|
$
|
(0.23
|
)
|
|
$
|
(1.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
36,841,897
|
|
|
|
10,758,137
|
|
See the accompanying notes to the consolidated financial statements
EARTH SCIENCE TECH, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
|
|
|
For the Years Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
(Consolidated) (Restated)
|
|
|
(Restated)
|
|
|
Cash Flow From Operating Activities:
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(8,770,738
|
)
|
|
$
|
(12,539,823
|
)
|
|
Adjustments to reconcile net loss to net cash from operating activities:
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
8,411,276
|
|
|
|
12,500,000
|
|
|
Depreciation and amortization
|
|
|
4,481
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Decrease in deposits
|
|
|
178,250
|
|
|
|
(178,250
|
)
|
|
Increase in prepaid expenses
|
|
|
(34,735
|
)
|
|
|
-
|
|
|
Increase in inventory
|
|
|
(235,588
|
)
|
|
|
-
|
|
|
Increase in other assets
|
|
|
(17,211
|
)
|
|
|
-
|
|
|
Increase in accounts payable
|
|
|
87,910
|
|
|
|
(23,798
|
)
|
|
Net Cash Used in Operating Activities
|
|
|
(376,355
|
)
|
|
|
(241,871
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
Fixed asset purchases
|
|
|
(68,983
|
)
|
|
|
-
|
|
|
Intangible asset purchases
|
|
|
(30,430
|
)
|
|
|
-
|
|
|
Net Cash Used in Investing Activities
|
|
|
(99,413
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
569,000
|
|
|
|
376,500
|
|
|
Proceeds from notes payable- related party
|
|
|
20,953
|
|
|
|
11,524
|
|
|
Repayment of advances from related party
|
|
|
(166,511
|
)
|
|
|
-
|
|
|
Forgiveness of amounts due to related party
|
|
|
-
|
|
|
|
75,484
|
|
|
Advances from related party
|
|
|
-
|
|
|
|
150,311
|
|
|
Net Cash Provided by Financing Activities
|
|
|
423,442
|
|
|
|
613,819
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Decrease) Increase in Cash
|
|
|
(52,326
|
)
|
|
|
371,948
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash - Beginning of Period
|
|
|
376,704
|
|
|
|
4,756
|
|
|
Cash - End of Period
|
|
$
|
324,378
|
|
|
$
|
376,704
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non cas investing & financing activities:
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Cash paid for interest expense
|
|
$
|
-
|
|
|
$
|
-
|
|
See the accompanying notes to the consolidated financial statements
EARTH SCIENCE TECH, INC. AND SUBSIDIARIES
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 2015 (CONSOLIDATED AND RESTATED) AND 2014 (RESTATED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Preferred Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
Balance - March 31, 2013 (Consolidated)
|
|
|
10,280,000
|
|
|
$
|
10,280
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
32,220
|
|
|
$
|
(105,568
|
)
|
|
$
|
(63,068
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forgiveness of amounts due to related party
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
75,484
|
|
|
|
-
|
|
|
|
75,484
|
|
|
Shares issued for prepaid services
|
|
|
700,000
|
|
|
|
700
|
|
|
|
-
|
|
|
|
-
|
|
|
|
349,300
|
|
|
|
-
|
|
|
|
350,000
|
|
|
Common stock issued for cash
|
|
|
753,000
|
|
|
|
753
|
|
|
|
|
|
|
|
|
|
|
|
375,747
|
|
|
|
|
|
|
|
376,500
|
|
|
Founder shares issued for services to be received
|
|
|
25,000,000
|
|
|
|
25,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,475,000
|
|
|
|
-
|
|
|
|
12,500,000
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(12,539,823
|
)
|
|
|
(12,539,823
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - March 31, 2014 (restated)
|
|
|
36,733,000
|
|
|
|
36,733
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,307,751
|
|
|
|
(12,645,391
|
)
|
|
|
699,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for cash
|
|
|
821,329
|
|
|
|
821
|
|
|
|
-
|
|
|
|
-
|
|
|
|
568,179
|
|
|
|
-
|
|
|
|
569,000
|
|
|
Preferred Shares issued
|
|
|
|
|
|
|
|
|
|
|
5,200,000
|
|
|
|
5,200
|
|
|
|
7,066,800
|
|
|
|
-
|
|
|
|
7,072,000
|
|
|
Common stock issued for services
|
|
|
675,500
|
|
|
|
676
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,055,484
|
|
|
|
-
|
|
|
|
1,056,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(8,770,738
|
)
|
|
|
(8,770,738
|
)
|
|
Balance - March 31, 2015 (Consolidated and Restated)
|
|
|
38,229,829
|
|
|
$
|
38,230
|
|
|
|
5,200,000
|
|
|
$
|
5,200
|
|
|
$
|
21,998,214
|
|
|
$
|
(21,416,129
|
)
|
|
$
|
625,515
|
|
See the accompanying notes to the consolidated financial statements
EARTH SCIENCE TECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2015
Note 1 – Organization and Operations
Earth Science Tech, Inc.
Earth Science Tech, Inc.
F/K/A Ultimate Novelty Sports, Inc. (the “Company”) was incorporated under the laws of the State of Nevada on April 23, 2010. On March 6, 2014 the Board of Directors of the Company approved the name change from Ultimate Novelty Sports, Inc. to Earth Science Tech, Inc. EST is a unique biotechnology company focused on cutting edge nutraceuticals and bioceuticals designed to excel in industries such as health, wellness, nutrition, supplement, cosmetic and alternative medicine to improve the quality of life for consumers worldwide. EST is dedicated in providing natural alternatives to prescription medications that help improve common disorders and illnesses. EST is focused on delivering nutritional and dietary supplements that help with treating symptoms such as: chronic pain, joint pain, inflammation, seizures, high blood pressure, memory loss, depression, weight management, nausea, aging and overall wellness. This may include products such as vitamins, minerals, herbs, botanicals, personal care products, homeopathics, functional foods, and other products. These products will be in various formulations and delivery forms including capsules, tablets, soft gels, chewables, liquids, creams, sprays, powders, and whole herbs. Although, the Company has generated revenues it has incurred operating expenses and expenses associated with implementation of its business plan resulting in net operating losses for the reported periods and accumulated deficit since inception. The Company is devoting substantially all of its efforts on generating revenues from consulting services and implementation of its business plan.
On March 6, 2014, the Board of Directors of Earth Science Tech, Inc. (the “Company”) approved the name change from Ultimate Novelty Sports, Inc. to Earth Science Tech, Inc. The change in the name of the Company was approved by a majority vote of the Shareholders of the Company.
On June 16, 2014, the Company formed a wholly-owned subsidiary, Ultimate Nutrition Technologies, Inc. Ultimate Nutrition Technologies, Inc. was incorporated under the laws of the State of Florida. The name was changed to Nutrition Empire, Inc. on June 23, 2014.
On May 28, 2014 the Financial Industry Regulatory Authority (“FINRA”) approved the name change of the Company to Earth Science Tech, Inc. as well as the new symbol change from UNOV to ETST.
On March 19, 2015, the Company formed a wholly-owned subsidiary, Earth Science Tech Vapor One, Inc. Earth Science Tech Vapor One, Inc. was incorporated under the laws of the State of Florida with its purpose to license and distribute our products in the maturing marketplace of the vaping industry.
Formation of Ultimate Novelty Sports (Canada) Inc.
On May 6, 2010, the Company formed a wholly owned subsidiary, Ultimate Novelty Sports Inc., an Ontario, Canada Corporation (“UNSI Canada”). UNSI Canada uses the U.S. Dollar as its reporting currency as well as its functional currency, however from time to time, UNSI Canada, incurs certain expenses in Canadian Dollars.
On October 30, 2013, the Company sold UNSI Canada to Optimal, Inc., a Nevada corporation 100% of the capital stock of Ultimate Novelty Sports Inc., a corporation organized pursuant to the laws of the province of Ontario, Canada for $1.00.
Change in control
On October 29, 2013, pursuant to the terms of the Affiliate Stock Purchase Agreements (“Stock Purchase Agreements”) between Mrs. Larissa Zabelina, Mrs. Elena Mochkina and Doctor Issa El-Cheikh, Dr. Issa El-Cheikh purchased a combined total of 6,700,000 shares of the Company’s common stock from Mrs. Larissa Zabelina and Mrs. Elena Mochkina, former stockholders and officers of the Company, for cash consideration of $67,000. As a result of the transaction, Dr. Issa El-Cheikh became the Company’s largest stockholder with approximately 65.18% of the total issued and outstanding shares of stock.
Effective October 29, 2013, Mrs. Larissa Zabelina resigned as President and Chief Executive Officer of the Company and Mrs. Elena Mochkina resigned as Treasurer and Chief Financial Officer of the Company. Dr. Issa El-Cheikh was appointed as CEO, CFO, President, Secretary, Treasurer and Director of the Company.
As a result of the foregoing, there was a change in control of the Company on October 29, 2013.
On March 31, 2014 the Company issued 25 million shares to Majorca Group, LTD. See Note 5 below for details. As a result of the foregoing, there was a change in control of the Company on March 31, 2014.
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 as of March 31, 2015 and 2014. UNSI Canada, its wholly owned subsidiary is included as of September 30, 2013, as there was disposition of assets on October 30, 2013.
We operate through two wholly owned subsidiaries which provide products, marketing and distribution. As of December 2014, Nutrition Empire was opened as a brick and mortar retail store that provides health, wellness, sports nutrition and dietary supplement products at competitive prices. In March 2015, Earth Science Tech Vapor One, Inc., a license and distribution company allowing us entry in the maturing marketplace of the vaping industry. Our licensing relationship gives us the market mobility, allowing us to capture the emerging market offering our CBD oil to our retail partners as demand emerges
All intercompany balances and transactions have been eliminated on consolidation.
Use of estimates and assumptions
The preparation of 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 period.
The Company’s significant estimates and assumptions include the fair value of financial instruments; the carrying value, recoverability and impairment, if any, of long-lived assets, including the values assigned to and the estimated useful lives of fixed assets; income tax rate, income tax provision and valuation allowance of deferred tax assets; stock based compensation, valuation of inventory 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.
Fair value of financial instruments
The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency ` to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
|
Level 1
|
Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
|
|
|
|
|
Level 2
|
Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
|
|
|
|
|
Level 3
|
Pricing inputs that are generally observable inputs and not corroborated by market data.
|
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amount of the Company’s financial assets and liabilities, such as cash, prepaid expenses, deposits, accounts payable and accrued expenses approximate their fair value because of the short maturity of those instruments.
Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.
It is not however practical to determine the fair value of advances from stockholders due to their related party nature.
Carrying value, recoverability and impairment of long-lived assets
The Company has adopted paragraph 360-10-35-17 of the FASB Accounting Standards Codification for its long-lived assets. The Company’s long-lived assets, which include office equipment, 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 acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.
The impairment charges, if any, is included in operating expenses in the accompanying consolidated statements of income and comprehensive income (loss).
Fiscal year end
The Company elected March 31 as its fiscal year end date.
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
Pursuant to Section 850-10-20 the 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 subtopic 450-20 of the FASB Accounting Standards Codification to report accounting 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. 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 applies paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.
The Company derives its revenues from sales contracts with its customer with revenues being generated upon rendering of products. Persuasive evidence of an arrangement is demonstrated via invoice; products are considered provided when the product is delivered to the customers; and the sales price to the customer is fixed upon acceptance of the purchase order and there is no separate sales rebate, discount, or volume incentive.
Foreign currency transactions
The Company applies the guidelines as set out in Section 830-20-35 of the FASB Accounting Standards Codification (“Section 830-20-35”) for foreign currency transactions. UNSI Canada uses the U.S. Dollar as its reporting currency as well as its functional currency, however from time to time, UNSI Canada, had incurred certain expenses in Canadian Dollars.
Assets and liabilities denominated in a foreign currency are translated into US dollar reporting currency at the exchange rate in effect at the balance sheet date and capital accounts are translated at historical rates. Income statement accounts are translated at the average rates of exchange prevailing during the period. Transactions undertaken in currencies other than the functional currency of the entity are translated using the exchange rate in effect as of the transaction date. Any exchange gains and losses are included in other comprehensive income (loss).
Inventories
Inventories are stated at the lower of cost or market using the first in, first out (FIFO) method. Provisions have been made to reduce excess or obsolete inventories to their net realizable value. The Company's inventory represents finished goods that are sold at our retail location via our website as of March 31, 2015.
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.
Income taxes
The Company follows ASC Topic 740 for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change.
Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse.
The Company applies a more-likely-than-not recognition threshold for all tax uncertainties. ASC Topic 740 only allows the recognition of those tax benefits that have a greater than fifty percent likelihood of being sustained upon examination by the taxing authorities. As of March 31, 2015, the Company reviewed its tax positions and determined there were no outstanding, or retroactive tax positions with less than a 50% likelihood of being sustained upon examination by the taxing authorities, therefore this standard has not had a material effect on the Company.
A reconciliation of income tax expense and the amount computed by applying the statutory federal income tax rate to the income before provision for income taxes is as follows:
|
|
|
March 31, 2015
|
|
|
March 31, 2014
|
|
|
Statutory rate applied to loss before income taxes
|
|
$
|
(3,300,429
|
)
|
|
$
|
(4,995,163
|
)
|
|
Increase (decrease) in income taxes results from:
|
|
|
|
|
|
|
Nondeductible expenses
|
|
|
3,165,332
|
|
|
|
4,979,300
|
|
|
Change in valuation allowance
|
|
|
135,096
|
|
|
|
15,863
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
$
|
-
|
|
|
$
|
-
|
|
The components of income tax expense (benefit) for the years ended:
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities are as follows:
|
|
|
March 31, 2015
|
|
|
March 31, 2014
|
|
|
Deferred Tax Assets
|
|
$
|
|
|
|
$
|
|
|
|
Operating loss carry forwards
|
|
|
189,807
|
|
|
|
57,916
|
|
|
Gross deferred tax assets
|
|
|
189,807
|
|
|
|
57,916
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(189,807
|
)
|
|
|
(57,916
|
)
|
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company has net operating loss carry forwards (NOL) for income tax purposes of approximately $504,000. This loss is allowed to be offset against future income until the year 2035 when the NOL’s will expire. The tax benefits relating to all timing differences have been fully reserved for in the valuation allowance account due to the substantial losses incurred through March 31, 2015. The change in the valuation allowance for the years ended March 31, 2015 and 2014 was an increase of $131,891 and $15,863, respectively.
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.
Loss per common share
The Company follows ASC Topic 260 to account for earnings per share. Basic earnings per common share (“EPS”) calculations are determined by dividing net loss by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share calculations are determined by dividing net loss 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 March 31, 2015 and 2014, the Company has 333,332 and 0 warrants that are anti-dilutive and not included in the calculation of diluted earnings per share.
Recently issued accounting pronouncements
We have reviewed all new accounting pronouncements and do not expect any new pronouncements or guidance to have an impact on our results of operations or financial position:
In May 2014, the FASB issued new accounting guidance regarding revenue recognition under GAAP. This new guidance will supersede nearly all existing revenue recognition guidance, and is effective for public entities for annual and interim periods beginning after December 31, 2016. Early adoption is not permitted. We are currently evaluating the impact of this new guidance on the Company’s consolidated financial statements.
In June 2014, FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “
Revenue from Contracts with Customers”.
The update gives entities a single comprehensive model to use in reporting information about the amount and timing of revenue resulting from contracts to provide goods or services to customers. The proposed ASU, which would apply to any entity that enters into contracts to provide goods or services, would supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Codification. Additionally, the update would supersede some cost guidance included in Subtopic 605-35, Revenue Recognition – Construction-Type and Production-Type Contracts. The update removes inconsistencies and weaknesses in revenue requirements and provides a more robust framework for addressing revenue issues and more useful information to users of financial statements through improved disclosure requirements. In addition, the update improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets and simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer. The update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. This updated guidance is not expected to have a material impact on our results of operations, cash flows or financial condition.
In June 2014, the FASB issued ASU 2014-12, "Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved after the Requisite Service Period." This ASU provides more explicit guidance for treating share-based payment awards that require a specific performance target that affects vesting and that could be achieved after the requisite service period as a performance condition. The new guidance is effective for annual and interim reporting periods beginning after December 15, 2015. We do not expect the adoption of this guidance to have a material impact on the consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern”, which requires management to evaluate, at each annual and interim reporting period, whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued and provide related disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016 and interim periods thereafter. Early application is permitted. The adoption of ASU 2014-15 is not expected to have a material effect on the consolidated financial statements. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.
All other newly issued accounting pronouncements, but not yet effective, have been deemed either immaterial or not applicable.
Fixed Assets
Fixed assets are recorded at cost less accumulated depreciation. Depreciation is provided for on the straight line method over the estimated useful lives of the related assets as follows:
|
Furniture and Equipment
|
5 years
|
|
Computer equipment
|
5 years
|
|
Signage
|
5 years
|
|
Leaseholds and Design
|
10 years
|
The cost of maintenance and repairs is charged to expense in the period incurred. Expenditures that increase the useful lives of assets are capitalized and depreciated over the remaining useful lives of the assets. When items are retired or disposed of, the cost and accumulated depreciation are removed from the accounts and any gain or loss is included in income.
Intangible Assets
In accordance with FASB ASC 350-25,
“Intangibles - Goodwill and Other”
, the Company acquired a patent that is being amortized over its useful life of fifteen years. The Company purchased the patent through a cash payment of $25,000. Additionally, the Company capitalized patent fees of $5,430. The Company’s balance of intangible assets on the balance sheet net of accumulated amortization is $29,078 at March 31, 2015. Amortization expense related to the intangible assets was $1,352 for the year ended March 31, 2015. Amortization expense related to the intangible assets is expected to be approximately $2,029 each subsequent year.
Long-Lived Assets
The Company’s long-lived assets are reviewed for impairment in accordance with the guidance of the FASB ASC 360-10, “Property
, Plant, and Equipment
”, whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Through March 31, 2015, the Company had not experienced impairment losses on its long-lived assets.
Note 3 – Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As reflected in the accompanying consolidated financial statements, the Company had an accumulated deficit at March 31, 2015, a net loss and net cash used in operating activities for the fiscal period then ended. This raises substantial doubt about the Company's ability to continue as a going concern.
While the Company is attempting to generate sufficient revenues, the Company’s cash position may not be sufficient enough to 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 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. The 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 Transactions
On April 15, 2014 the Company entered into an Employment Agreement with its Chief Executive Officer Harvey Katz. The Agreement calls for issuance of 100,000 common shares per quarter to compensate for his services. During the year ended March 31, 2015, the Company issued 400,000 shares of common stock to its CEO for services at fair value of $477,000 under the said employment agreement and paid cash of $57,000.
During the years ended March 31, 2015 and 2014, a former stockholder provided $20,953 and $11,524 in notes to the Company. The notes are payable on September 30, 2014, unsecured and bear interest at 8%. As of March 31, 2015 and March 31, 2014, the Company had $59,558 and $38,605 of notes payable outstanding from related party. As of March 31, 2015, the notes are in default. The Company is in current negotiations with the lender to extend the notes for an additional year.
In March 2014, the Company issued 700,000 shares of common stock at par value of $.001 per share to a majority shareholder for services with a fair value of $350,000 based on recent cash offering prices.
During the year ended March 31, 2014 a related party advanced $150,311 and forgave $75,484.
During the year ended March 31, 2015, the Company issued 50,000 shares of common stock pursuant to Royal Palm’s consulting agreement. The shares were valued at fair value of $57,500. As of March 31, 2015, the Company has amortized $14,375 and the remaining balance of $43,125 is recorded as a prepaid expense.
During the year ended March 31, 2015 the Company paid $166,511 to a related party for prior year advances.
During the year ended March 31, 2014 the Company issued 25,000,000 shares of common stock with a fair value of $12,500,000 to the majority shareholder for services based on recent cash offering prices.
During the year ended March 31, 2015 the company issued 5,200,000 preferred A shares with a fair value of $7,072,000 to a majority stockholder for services.
Note 5 – Stockholders’ Equity
Shares authorized
Upon formation the total number of shares for all classes of stock which the Company is authorized to issue preferred stock in the amount of ten million (10,000,000), par value $.001 per share and issue common stock in the amount of seventy-five million (75,000,000), par value $.001 per share.
Common stock
Effective March 24, 2014 25,000,000 shares were issued to Majorca Group Ltd. for services to be received as described in a Founder Agreement between the Company and Majorca Group Ltd. The shares were valued at fair value of $12,500,000. The Founder agrees to render services to Company in product development including idea generation, performing and designing formulations for products to be used in the health and nutrition market as well as marketing and sales of products to distributors and retailers. All these shares were valued at $0.50 per share, being the cash price of immediately preceding share issuance to un-related parties.
Effective March 17, 2014 Company issued 700,000 shares to Royal Palm Consulting Service, LLC for services to be rendered as described in a Consulting Agreement between the Company and Royal Palm Consulting Service, LLC. These shares were valued at fair value of $350,000. The agreement terminated on March 17, 2015. The Consultant agreed to serve as a consultant to assist the Company with bona fide consulting services in general corporate activities including not limited to the following areas. Business Development, Strategies and Planning as well as Research venues for product advertisement, Identify strategic partners and retail client development. All these shares were valued at $0.50 per share, being the cash price of immediately preceding share issuance to un-related parties. As indicated in the agreement, Royal Palm has the authority to subsequently request additional compensation in shares for services performed. In addition, the Company issued 275,000 common shares on June 25, 2015 for marketing services that were performed as of March 31, 2015. The shares were valued at $261,250 and recorded as of March 31, 2015.
During the year ended March 31, 2015, the Company issued 50,000 shares of common stock pursuant to Royal Palm’s consulting agreement for web marketing services for the period December 2014 through December 2015. The fair value of the shares will be re-measured until performance is complete and the related expense will be recorded over the service period. The fair value of the shares at March 31, 2015 was $57,500. As of March 31, 2015, the Company has expensed $14,375 and the remaining balance of $43,125 is recorded as a prepaid expense.
During the year ended March 31, 2014, the Company had sold 753,000 common shares at $0.50 per share for total proceeds of $376,500.
During the year ended March 31, 2015, the Company had sold 821,329 common shares and issued 333,332 warrants for cash at $0.50 to $.75 per share for total proceeds of $569,000.
During the year ended March 31, 2015, the Company issued 225,500 common shares with fair value of $260,410 to non-related parties for services.
During the year ended March 31, 2015, the Company issued 400,000 common shares with fair value of $477,000 to Officer (See Note 4).
Preferred Stock
On June 6, 2014 the Company filed with the State of Nevada Articles of Amendment creating a Preferred A class of stock with 10,000,000 Preferred A shares having a par value of $0.001 per share.
On July 18, 2014, the company issued 5,200,000 Preferred Class “A” stock with a fair value of $7,072,000 to our majority stockholder for services. The preferred stock is non-dilutive and shall rank senior to all classes of common stock of the Company. The preferred stock has ten votes to the common stock per one share of preferred stock. The preferred stock carries a one for one conversion right for holders of the preferred stock into common stock. Conversion right will apply after one year has passed from issuance of the preferred stock.
Note 6 – Stock Purchase Warrants
During the year ended March 31, 2015, the Company issued warrants (each warrant is exercisable into one share of Company restricted common stock) in connection with the issuance of an equity investment.
A summary of the change in stock purchase warrants for the years ended March 31, 2015 and 2014 are as follows:
|
|
|
Warrants Outstanding
|
|
|
Exercise Price
|
|
|
Contractual
Life (Years)
|
|
|
Warrants outstanding–2014
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Warrants issued-2014
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Warrants outstanding–2015
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Warrants issued-2015
|
|
|
333,332
|
|
|
|
.75
|
|
|
|
.90
|
|
|
Balance, March 31, 2015
|
|
|
333,332
|
|
|
$
|
.75
|
|
|
|
.90
|
|
The balance of outstanding and exercisable common stock warrants at March 31, 2015 is as follows:
|
Number of Warrants Outstanding
|
|
Exercise Price
|
|
Remaining Contractual Life (Years)
|
|
333,332
|
|
$0.75
|
|
.90
|
Note 7-Reclassification
Certain amounts from prior periods have been reclassified to conform to the current period presentation.
Note 8-Restatement
The Company had restated the March 31, 2014 balance sheet, income statement and cash flow statement as originally presented in its financial statement filed with its 2014 10-K filed on July 16, 2014 to correct the common shares issued pursuant to the agreements with Officer and consultants and to properly record the value of common shares issued at fair value.
Changes to Balance Sheet
|
|
|
March 31, 2014
|
|
|
|
|
As Previously Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
|
Prepaid Expense
|
|
$
|
-
|
|
|
$
|
350,000
|
|
|
$
|
350,000
|
|
|
Services Receivable
|
|
$
|
(12,850,000
|
)
|
|
$
|
12,850,000
|
|
|
$
|
-
|
|
|
Accumulated Deficit
|
|
$
|
(145,391
|
)
|
|
$
|
(12,500,000
|
)
|
|
$
|
(12,645,391
|
)
|
Changes to Statement of Operations
|
|
|
For the Year Ended
|
|
|
|
|
March 31, 2014
|
|
|
|
|
As Previously Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
|
Professional Fees
|
|
$
|
36,711
|
|
|
$
|
12,500,000
|
|
|
$
|
12,536,711
|
|
Changes to Statement of Cash Flow
|
|
|
For the Year Ended
|
|
|
|
|
March 31, 2014
|
|
|
|
|
As Previously Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
|
Net loss
|
|
$
|
(39,823
|
)
|
|
$
|
(12,500,000
|
)
|
|
$
|
(12,539,823
|
)
|
|
Stock-based compensation
|
|
$
|
-
|
|
|
$
|
12,500,000
|
|
|
$
|
12,500,000
|
|
|
Changes in advances from officers
|
|
$
|
198,150
|
|
|
$
|
(198,150
|
)
|
|
$
|
-
|
|
|
Proceeds from notes payable - related party
|
|
$
|
39,169
|
|
|
$
|
(27,645
|
)
|
|
$
|
11,524
|
|
|
Forgiveness of amounts due to related parties
|
|
$
|
-
|
|
|
$
|
75,484
|
|
|
$
|
75,484
|
|
|
Advances from related parties
|
|
$
|
-
|
|
|
$
|
150,311
|
|
|
$
|
150,311
|
|
|
Net Cash Used in Operating Activities
|
|
$
|
(43,721
|
)
|
|
$
|
(198,150
|
)
|
|
$
|
(241,871
|
)
|
|
Net Cash Provided by Financing Activities
|
|
$
|
415,669
|
|
|
$
|
198,150
|
|
|
$
|
613,819
|
|
The Company had restated the March 31, 2015 balance sheet, income statement and cash flow statement as originally presented in its financial statement filed with its 2015 10-K filed on August 5, 2015 to correct the valuation of common shares issued pursuant to the agreements with consultants and to properly record the value of common shares issued at fair value. The issuance of the stock should have been recorded in the quarter ended March 31, 2015 while the correction of the share-based payment which was not valued in accordance with Generally Accepted Accounting Principles should have been reported during the period then ended. (See note 5)
Changes to Balance Sheet
|
|
|
March 31, 2015
|
|
|
|
|
As Previously Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
|
Prepaid Expense
|
|
$
|
125,379
|
|
|
$
|
(23,760
|
)
|
|
$
|
101,619
|
|
|
Additional paid in capital
|
|
$
|
21,766,964
|
|
|
$
|
231,250
|
|
|
$
|
21,998,214
|
|
|
Accumulated Deficit
|
|
$
|
(21,161,119
|
)
|
|
$
|
(255,010
|
)
|
|
$
|
(21,416,129
|
)
|
Changes to Statement of Operations
|
|
|
For the Year Ended
|
|
|
|
|
March 31, 2015
|
|
|
|
|
As Previously Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
|
Marketing Fees
|
|
$
|
414,218
|
|
|
$
|
255,010
|
|
|
$
|
669,228
|
|
|
Net loss
|
|
|
(8,515,728
|
)
|
|
|
(255,010
|
)
|
|
|
(8,770,738
|
)
|
Changes to Statement of Cash Flow
|
|
|
For the Year Ended
|
|
|
|
|
March 31, 2015
|
|
|
|
|
As Previously Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
|
Net loss
|
|
$
|
(8,515,728
|
)
|
|
$
|
(255,010
|
)
|
|
$
|
( 8,770,738
|
)
|
|
Stock based compensation
|
|
$
|
8,180,026
|
|
|
$
|
255,010
|
|
|
$
|
8,435,036
|
|
|
Increase in prepaid
|
|
$
|
(58,495
|
)
|
|
$
|
23,760
|
|
|
$
|
(34,735
|
)
|
Note 9 – Prepaid Expenses
Prepaid Expenses represents the unamortized costs for the use of certain consultants pursuant to agreements executed and retainer for professional services during the fiscal year ending March 2015. In consideration for these services, under certain consulting agreements, the Company issued 50,000 and 700,000 shares of common stock to consultants with fair value of $57,500 and $350,000 during the years ended March 31, 2015 and 2014, respectively. The unamortized prepaid expense was $43,125 and $350,000 at March 31, 2015 and 2014, respectively.
Note 10-Fixed Assets
At March 31, 2015 and 2014, fixed assets consisted of the following:
|
|
|
2015
|
|
|
2014
|
|
|
Sign
|
|
$
|
6,500
|
|
|
$
|
-
|
|
|
Furniture and Equipment
|
|
|
1,509
|
|
|
|
-
|
|
|
Software
|
|
|
974
|
|
|
|
-
|
|
|
Leasehold improvements
|
|
|
51,300
|
|
|
|
-
|
|
|
Architectural and Design
|
|
|
8,700
|
|
|
|
-
|
|
|
|
|
|
68,983
|
|
|
|
|
|
|
Less accumulated depreciation
|
|
|
(3,129
|
)
|
|
|
-
|
|
|
|
|
$
|
65,854
|
|
|
$
|
-
|
|
Depreciation expense for the year ended March 31, 2015 was $3,129.
Note 11-Commitments
Legal Proceedings
Earth Science Tech, Inc. (“the Company”) is presently engaged in a legal controversy with one of its suppliers, Cromogen, Cromogen’s principals and a related company. Cromogen did not perform in accordance with its contract for supplying hemp oil in terms of timing, quality and consistency in the opinion of the company as a result of which the company notified Cromogen. At the same time and because the commitment to arbitrate extends only to the companies involved, the company has filed a legal action in the courts of Florida in which the principals of Cromogen have been named as Defendants and wherein fraud is alleged in connection with Cromogen’s representations regarding the formulation and quality of the hemp oil it supplied and damages sought accordingly. (It is to be noted that, although the lack of performance by Cromogen has engendered litigation, the company has secured alternative sources for hemp oil and will mitigate its damages to the extent possible as a practical and legal matter). Cromogen, under the terms of the contract, demurred and filed for arbitration. That arbitration, in its very early stages, is now pending in New York (as the contract provided). Cromogen is claiming alleged damages of a direct and consequential nature. The company will be counterclaiming for damages sustained as a proximate result of deficient and defective performance.
Employment Agreement
On April 15, 2014 the Company entered into an Employment Agreement with its Chief Executive Officer Harvey Katz. The Agreement calls for issuance of 100,000 restricted common shares per quarter to compensate his services. During the year ended March 31, 2015, the company issued 400,000 shares of common stock to its CEO for services at fair value at of $477,000 under the said employment agreement and paid cash of $57,000. The agreement was terminated on May 10, 2015.
In May 2015 the Company entered into an Employment Agreement with its CEO Matthew J. Cohen. The Agreement calls for an annual salary of $120,000 for the first and only year of the contract.
Consulting Agreements
Effective March 24, 2014 25,000,000 shares were issued to Majorca Group Ltd. for services to be received as described in a Founder Agreement between the Company and Majorca Group Ltd. The shares were valued at fair value of $12,500,000.
Effective March 17, 2014 Company issued 700,000 shares to Royal Palm Consulting Service, LLC for services to be rendered as described in a Consulting Agreement between the Company and Royal Palm Consulting Service, LLC. The shares were valued at fair value of $350,000. The agreement terminated on March 17, 2015. The Consultant agreed to serve as a consultant to assist the Company with bona fide consulting services in general corporate activities including not limited to the following areas. Business Development, Strategies and Planning as well as Research venues for product advertisement, Identify strategic partners and retail client development. All these shares were valued at $0.50 per share, being the cash price of immediately preceding share issuance to un-related parties. As of March 31, 2015, the consulting fees have been fully amortized. In addition, the Company issue 275,000 common shares on June 25, 2015 for marketing services that were performed as of March 31, 2015. The shares were valued at $261,250 and recorded as of March 31, 2015.
During the year ended March 31, 2015, the Company issued 50,000 shares of common stock pursuant to Royal Palm’s consulting agreement for web marketing services for the period December 2014 through December 2015. The fair value of the shares will be re-measured until performance is complete and the related expense will be recorded over the service period. The fair value of the shares at March 31, 2015 was $57,500. As of March 31, 2015, the Company has expensed $14,375 and the remaining balance of $43,125 is recorded as a prepaid expense.
Effective November 25, 2014, the Company issued 10,000 shares to David Van Brunt for services rendered as described in a consulting agreement between the Company and consultant. The shares were valued at fair value of $20,000. The consultant agrees to assist in social media and act as a liaison with respect to the acquisition of distributors for our CBD oil.
On March 6, 2015, Earth Science Tech, Inc. entered into a License and Distribution Agreement with I Vape Vapor, Inc. a Minnesota corporation. The purpose of the License and Distribution Agreement is for Earth Science Tech, Inc. to license to I Vape Vapor, Inc. its use of Earth Science Tech’s “Ultra-High Grade CBD Rich Hemp Oil,” for use in I Vape Vapor, Inc.’s E-Cigarettes within the United States of America, its territories and possessions only. I Vape Vapor shall pay for the bottling, formulating, flavoring, labels, and any other elements necessary to produce the finished e-liquid consumable with Earth Science Tech agreeing to reimburse I Vape Vapor for its costs off the top. After deduction of the respective cost elements of the parties and reimbursement thereof, the parties shall divide the net proceeds 50% to Earth Science Tech and 50% to I Vape Vapor except where sales have been originated, produced or referred by Earth Science Tech, in which case the division shall be 65% to Earth Science Tech and 35% to I Vape Vapor. As of March 31, 2015, no proceeds have been earned by the Company.
On March 28, 2015, Earth Science Tech, Inc. entered into a Distribution Agreement with Medics USA Inc. a New Jersey corporation. The purpose of this Distribution Agreement is for Earth Science Tech, Inc. to supply its “Ultra-High Grade CBD Rich Hemp Oil,” for use in an awarded exclusive territory within the United States of America and the Sovereign State of Pakistan. To maintain exclusivity, Medics USA, Inc. is required to meet successive year sales milestones within the three year term of the agreement As of March 31, 2015, no milestones have been reached under this agreement.
On March 28, 2015, Earth Science Tech, Inc. entered into a Distribution Agreement with Medics USA Inc. a New Jersey corporation. The purpose of this Distribution Agreement is for Earth Science Tech, Inc. to supply its “Ultra-High Grade CBD Rich Hemp Oil,” for use in an awarded exclusive territory within the United States of America and the Sovereign State of Pakistan. To maintain exclusivity, Medics USA, Inc. is required to meet successive year sales milestones within the three-year term of the agreement as of March 31, 2015, no milestones have been reached under this agreement.
Lease Agreements
On July 18, 2014, the Company’s wholly owned subsidiary, Nutrition Empire entered into a five-year retail store lease agreement in Coral Gables, Florida commencing December 1, 2014 through November 30, 2019 for aggregate rent of $223,725 The amount is to be paid monthly over the term of the lease term. A deposit of $17,211 was tendered to secure the lease.
Future minimum lease payments for this office space are as follows:
|
Year
|
|
Amount
|
|
|
2015
|
|
$
|
41,306
|
|
|
2016
|
|
|
42,958
|
|
|
2017
|
|
|
44,676
|
|
|
2018
|
|
|
46,463
|
|
|
2019
|
|
|
48,322
|
|
|
|
|
$
|
223,725
|
|
In June, 2014, the Company entered into an office lease covering its Boca Raton, Florida headquarters. The lease term is for one year commencing on June 1, 2014. The estimated monthly rent including sales tax is $1,546. The lease expired on July, 1 2015.
In April, 2015, the Company entered into an office lease covering its new Boca Raton, Florida headquarters. The lease term is for three years commencing on July 1, 2015. The monthly rent including sales tax is $1,908 and fixed at this amount for the next three years.
Intellectual Property Agreements
The Company has secured a new provisional patent with the United States Patent and Trademark Office (USPTO) for Hemp Oil Enriched with CBD (Cannabidiol) and Hemp Oil Enriched with Proprietary Additives Pursuant to an Intellectual Property Exploitation Agreement, consideration of $25,000 was agreed upon for the execution of the assignment. The patent was filed on October 8, 2014 by the inventors Dr. Harvey Katz the CEO of Earth Science Tech and Dr. Wei R. Chen the assistant dean of the College of Mathematics and Science at the University of Central Oklahoma (UCO).
Note 12 – Subsequent Events
Earth Science Tech, Inc. (“the Company”) is presently engaged in a legal controversy with one of its suppliers, Cromogen, Cromogen’s principals and a related company. Cromogen did not perform in accordance with its contract for supplying hemp oil in terms of timing, quality and consistency in the opinion of the company as a result of which the company notified Cromogen. At the same time and because the commitment to arbitrate extends only to the companies involved, the company has filed a legal action in the courts of Florida in which the principals of Cromogen have been named as Defendants and wherein fraud is alleged in connection with Cromogen’s representations regarding the formulation and quality of the hemp oil it supplied and damages sought accordingly. (It is to be noted that, although the lack of performance by Cromogen has engendered litigation, the company has secured alternative sources for hemp oil and will mitigate its damages to the extent possible as a practical and legal matter). Cromogen, under the terms of the contract, demurred and filed for arbitration. That arbitration, in its very early stages, is now pending in New York (as the contract provided). Cromogen is claiming alleged damages of a direct and consequential nature. The company has filed a counterclaim for damages sustained as a proximate result of deficient and defective performance.
Employment Agreement
In May, 2015 the Company entered into an Employment Agreement with its Chief Financial Officer Matthew J. Cohen. The Agreement calls for an annual salary of $120,000 dollars for the first and only year of the contract. On May 9, 2015 Mr. Cohen was promoted to CEO and Director.
In May, 2015 the Company entered into an Employment Agreement with its Chief Operating Officer and Director Thomas Wright. The Agreement calls for no annual salary with the issuance of 2,500 common shares of stock per quarter.
Lease Agreements
In April, 2015, the Company entered into an office lease covering its new Boca Raton, Florida headquarters. The lease term is for three years commencing on July 1, 2015. The monthly rent including sales tax is $1,908 and fixed at this amount for the next three years.
Stock Sales
Subsequent to year end the Company issued 284,500 shares of common stock at a fair value of $1.00 per share totaling $284,500 and 28,875 of common stock at a fair value of $0.75 per share totaling $21,656.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
On February 25, 2015, the Board of Directors of Earth Science Tech, Inc. received De Joya Griffith LLC’s (“DeJoya”) resignation as independent auditors for the Company as the latest 10-Q filed by the Company was filed without De Joya Griffith’s approval.
De Joya’s report on the Company’s financial statements for the year ended March 31, 2014 did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles except for the going concern disclosure.
There have been no disagreements with De Joya on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of DeJoya, would have caused it to make reference to the subject matter of the disagreement in connection with its report. None of the events described in Item 304(a)(1)(v) of Regulation S-K has occurred with respect to DeJoya.
On March 2, 2015, the Board of Directors approved the Company’s engagement of Liggett and Webb, P.A., F/K/A Liggett, Vogt and Webb P.A. as independent auditors for the Company and its subsidiaries. The Company engaged Liggett and Webb P.A. on March 2, 2015.
Neither the Company nor anyone on its behalf consulted Liggett and Webb P.A. regarding (i) the application of accounting principles to a specific completed or contemplated transaction, (ii) the type of audit opinion that might be rendered on the Company’s financial statements, or (iii) any matter that was the subject of a disagreement or event identified in response to Item 304(a)(2) of Regulation S-K (there being none).
On February 25, 2015, the Company was advised by De Joya Griffith KKC (“De Joya”), its independent registered public accounting firm, that the Company’s previously issued unaudited financial statements for the period ended December 31, 2014 (the “Third Quarter 10-Q”) could not be relied on because they were not reviewed by an independent registered public accounting firm in accordance with Statement on Auditing Standards No. 100, Interim Financial Information (“SAS 100”). In addition, they advised us that the financial statements as of June 30, 2014 and September 30, 2014 can’t be relied upon due to an error discovered during the December 31, 2014 review.
Item 9A. Controls and Procedures.
EVALUATION OF DISCLOSURE CONTROLS & PROCEDURES
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as required by Sarbanes-Oxley (SOX) Section 404 A. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
As of March 31, 2015, management assessed the effectiveness of the Company’s internal control utilizing Integrated Framework, 2013 version over financial reporting based on the criteria for effective internal control over financial reporting established in SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of our internal control over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The matters involving internal controls and procedures that the Company’s management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee and lack of a majority of outside directors on the Company’s board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives; (3) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements; and (4) ineffective controls over period end financial disclosure and reporting processes. The aforementioned material weaknesses were identified by the Company’s Chief Financial Officer in connection with the audit of our financial statements as of March 31, 2015 and communicated the matters to our management.
Management believes that the material weaknesses set forth in items (2), (3) and (4) above did not have an effect on the Company’s financial results. However, management believes that the lack of a functioning audit committee and lack of a majority of outside directors on the Company’s board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures can result in the Company’s determination to its financial statements for the future years.
We are committed to improving our financial organization. As part of this commitment, we will create a position to segregate duties consistent with control objectives and will increase our personnel resources and technical accounting expertise within the accounting function when funds are available to the Company: i) Appointing one or more outside directors to our board of directors who shall be appointed to the audit committee of the Company resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures; and ii) Preparing and implementing sufficient written policies and checklists which will set forth procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements.
Management believes that the appointment of one or more outside directors, who shall be appointed to a fully functioning audit committee, will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on the Company’s Board. In addition, management believes that preparing and implementing sufficient written policies and checklists will remedy the following material weaknesses (i) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements; and (ii) ineffective controls over period end financial close and reporting processes. Further, management believes that the hiring of additional personnel who have the technical expertise and knowledge will result proper segregation of duties and provide more checks and balances within the department. Additional personnel will also provide the cross training needed to support the Company if personnel turn over issues within the department occur. This coupled with the appointment of additional outside directors will greatly decrease any control and procedure issues the company may encounter in the future.
We will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
This annual report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 under the Exchange Act that occurred during the issuer’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The Company does not, at present, have any employees other than the current officers and directors. We have not entered into any employment agreements, as we currently do not have any employees other than the current officers and directors.
Family Relations Identification of Directors and Executive Officers
|
Name
|
|
Age
|
|
Term Served
|
|
Title
|
|
Dr. Harvey Katz
|
|
67
|
|
Since Apr 15, 2014 Terminated as of May 10, 2015
|
|
CEO, President, and Director
|
|
Matthew J. Cohen
|
|
57
|
|
Since Feb 15, 2015 and CEO, Director May, 9, 2015
|
|
CEO, CFO and Director
|
|
Thomas H. Wright III
|
|
47
|
|
May 9, 2015
|
|
COO and Director
|
There are no other persons nominated or chosen to become directors or executive officers, nor do we have any employees other than above mentioned officers and directors.
On April 15, 2014 the Company entered into an Employment Agreement with its Chief Executive Officer Harvey Katz. The Agreement calls for issuance of 100,000 common shares per quarter to compensate for his services and payment of $57,000. During the year ended March 31, 2015, the Company issued 400,000 shares of common stock to its CEO for services at fair value of $477,000 under the said employment agreement. As of May 10, 2015, Mr. Katz was terminated.
In February 2015, the Company entered into an Employment Agreement with its Chief Financial Officer Matthew J. Cohen. The Agreement calls for an annual salary of $120,000 dollars for the first and only year of the contract. On May 9, 2015 Mr. Cohen was promoted to CEO and Director concurrent with the termination of Harvey Katz.
On May 9, 2015, Mr. Thomas Wright was appointed COO and Director of the Company and will serve pursuant to a 1 year agreement.
Our directors hold office until the next annual meeting of shareholders and the election and qualification of their successors. Directors receive no compensation for serving on the board of directors other than the reimbursement of reasonable expenses incurred in attending meetings. Officers are appointed by the board of directors and serve at the discretion of the board.
Officer and Director Background:
Dr. Harvey Katz – Former CEO and Director
Dr. Katz has a PhD in Environmental Science, a Masters of Business Management and Bachelors in Business Administration. As an entrepreneur, Dr. Katz has held leadership and management roles in several companies and served as Chief Executive Officer of International Foam Solutions, Inc. (a recycling chemical and equipment manufacturer) in that capacity, he developed the company’s marketing and strategic plans and oversaw the manufacturing operations. He started and developed International Foam Solutions, a recycling and manufacturing company. The company went public in 1999 and Dr. Katz was president of the company. During his tenure as president of IFS, the company never had any shareholder suits of any kind.
Dr. Katz holds several patents he developed while operating these companies. Dr. Katz is named as a co-inventor of a patented cancer drug as well. He also has over twenty-eight (28) years’ experience in chemical and equipment manufacturing. These businesses were sold.
Dr. Katz has given numerous lectures at Universities and companies such as University of Florida (Gainesville), UNLV, Virginia Tech, and Reynolds Tobacco Corp. on polystyrene recycling.
Dr. Katz was educated at Loop City College, Loyola University, and the University of Chicago, all in Chicago, Illinois and Stafford University. He majored in Business and Environmental Science. Dr. Katz has had articles published and lectured at the University of Florida, Department of Plastics, University of Nevada Las Vegas, Virginia Tech and others. Currently he is affiliated with the University of Texas-Center for Electro Mechanics. He was the Honorary Chairman of the Republican Committee in Florida while President Bush (43rd.) was in office. He was asked and accepted an appointment to an economic committee and was honored with a presidential medal for his contributions to the party and country.
Dr. Katz represented Earth Science Tech as a member of the “International Cannabinoid Research Society (ICRS),” he’s a member of Congressional Research Service, Society of Petroleum Engineers, American Chemical Society, and has been a member of other nonprofessional organizations such as Society of Military Engineers, Who’s Who in America. On May 10, 2015, Mr. Katz was terminated.
Matthew J. Cohen –CEO, CFO, Director
Mr. Cohen was appointed as an officer March 24, 2009 of Latitude Solutions, Inc. and to the board on April 30, 2010. He resigned July 3, 2012 from Latitude Solutions, Inc. Mr. Cohen formerly served as Chief Financial Officer of Cavit Sciences from July 2008 to June 2009; a publicly traded company, and has also been the Chief Executive Officer and Chief Financial Officer of Genio Group, Inc., from July 2004 to June 2006, a public company, as well as a member of its board of directors. Prior to these engagements, Mr. Cohen served as the Chief Financial Officer for several companies across a variety of industries including Sea Aerosupport, Inc. from June 2004 to July 2006, and Life Imaging Corporation from September 2002 to December 2003 a provider of diagnostic services and Interactive Technologies.com, Ltd., a publicly traded benefit and services company, where he continues today as a member of its board of directors. Mr. Cohen has a B.B.A. degree in Accounting from New Paltz State University, New York earned in 1980. Mr. Cohen was CFO for Kerr Utility, Inc. from 2013 to early 2015. Mr. Cohen was appointed CFO of Earth Science Tech, Inc. on February 15, 2015 and CEO on May 10, 2015.
Thomas H. Wright III, COO, Director
Mr. Wright is a partner at the law firm Siegel Siegel & Wright, and heads up the civil litigation division. He has been a practicing attorney since 2001 Mr. Wright has experience handling a wide variety of legal matters including: family law, personal injury, corporate contractual matters, patent infringement, entertainment law, drug crimes, sex crimes, and chemical compliance matters. He studied mechanical engineering at both the Georgia Institute of Technology and the University of Miami. He then pursued both digital and analog recording arts at Miami-Dade Community College before transferring to Florida State University where he obtained degrees in both English and Business in 1994. He then worked as Editor I at the Florida House of Representatives before attending law school at Nova Southeastern University. In addition to studies in the United States, Mr. Wright attended law school through Notre Dame University in London, England, and through Hofstra University in Nice, France.
Committees of The Board of Directors
The Company is managed under the direction of its board of directors.
The Company does not have an executive committee, at this time.
The Company does not have an audit committee at this time.
Conflicts of Interest – General
The Company’s directors and officers are, or may become, in their individual capacities, officers, directors, controlling shareholder and/or partners of other entities engaged in a variety of businesses. Thus, there exist potential conflicts of interest including, among other things, time, efforts and corporation opportunity, involved in participation with such other business entities. While each officer and director of the Company’s business is engaged in business activities outside of its business, the amount of time they devote to our business will be up to approximately 25 hours per week. Mr. Katz, the Company’s Chief Executive Officer during FY2015, devoted up to 25 hours per week to the Company’s business.
CONFLICTS OF INTEREST - CORPORATE OPPORTUNITIES
Presently no requirement contained in the Company’s Articles of Incorporation, Bylaws, or minutes which requires officers and directors of the Company’s business to disclose to the Company business opportunities which come to their attention. The Company’s officers and directors do, however, have a fiduciary duty of loyalty to Earth Science Tech to disclose to it any business opportunities which come to their attention, in their capacity as an officer and/or director or otherwise. Excluded from this duty would be opportunities which the person learns about through his involvement as an officer and director of another company. The Company has no intention of merging with or acquiring an affiliate, associate person or business opportunity from any affiliate or any client of any such person.
Involvement in Legal Proceedings
No executive Officer or Director of the Company has been convicted in any criminal proceeding (excluding traffic violations) or is the subject of a criminal proceeding that is currently pending.
No executive Officer or Director of the Company is the subject of any pending legal proceedings.
No Executive Officer or Director of the Company is involved in any bankruptcy petition by or against any business in which they are a general partner or executive officer at this time or within two years of any involvement as a general partner, executive officer, or Director of any business.
Item 11. Executive Compensation.
The following table sets forth the compensation paid to officers during the fiscal years ended March 31, 2015 and 2014. The table sets forth this information for Earth Science Tech, Inc. including salary, bonus, and certain other compensation to the named executive officers for the past three fiscal years.
|
Name and Position
|
|
Year
|
|
Fees Earned or Paid in Cash ($)
|
|
Stock Awards ($)
|
|
Option Awards ($)
|
|
Non-Equity Incentive Plan Compensation ($)
|
|
|
|
All Other Compensation ($)
|
|
|
|
|
|
|
|
|
|
(e)
|
|
(f)
|
|
(g)
|
|
(h)
|
|
(i)
|
|
(j)
|
|
Dr. Harvey Katz (1)
|
|
2015
|
|
57,000
|
|
|
|
477,000
|
|
0
|
|
0
|
|
-
|
|
534,000
|
|
Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Matthew J. Cohen
|
|
2015
|
|
10,500
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
|
10,500
|
|
Chief Financial
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas H. Wright
|
|
2015
|
|
0
|
|
1,210
|
|
0
|
|
0
|
|
0
|
|
0
|
|
1,210
|
|
Chief Operating Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Terminated as Officer on May 10, 2015
|
On April 15, 2014 the Company entered into an Employment Agreement with its Chief Executive Officer Harvey Katz. The Agreement calls for issuance of 100,000 common shares per quarter to compensate for his services. During the year ended March 31, 2015, the Company issued 400,000 shares of common stock to its CEO for services at fair value of $477,000 under the said employment agreement.
In February 2015, the Company entered into an Employment Agreement with its Chief Financial Officer Matthew J. Cohen. The Agreement calls for an annual salary of $120,000 for the first and only year of the contract. Mr. Cohen was promoted to CEO and Director concurrent with the termination of Harvey Katz.
In May, 2015 the Company entered into an Employment Agreement with its Chief Operating Officer and Director Thomas Wright. The Agreement calls for no annual salary with the issuance of 2,500 common shares of stock per quarter
There are no other employment agreements between the Company and its executive officers or directors. Our executive officers and directors has the responsibility of determining the timing of remuneration programs for key personnel based upon such factors as positive cash flow, shares sales, product sales, estimated cash expenditures, accounts receivable, accounts payable, notes payable, and a cash balances. At this time, management cannot accurately estimate when sufficient revenues will occur to implement this compensation, or the exact amount of compensation.
There are no annuity, pension or retirement benefits proposed to be paid to officers, directors or employees of the corporation in the event of retirement at normal retirement date pursuant to any presently existing plan provided or contributed to by Company.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
None.
OPTION/SAR GRANTS IN THE LAST FISCAL YEAR
None.
CONSULTING AGREEMENTS WITH OFFICERS AND DIRECTORS
None.