Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You
should read the following discussion together with our unaudited condensed consolidated financial statements and the related notes
included elsewhere in this report. This discussion contains forward-looking statements, which involve risks and uncertainties.
Our actual results may differ materially from those we currently anticipate as a result of many factors, including the factors
we describe in this report and our other reports filed with the Securities and Exchange Commission.
Forward
Looking Statements
Some
of the information in this section contains forward-looking statements that involve substantial risks and uncertainties. You can
identify these statements by forward-looking words such as “may,” “will,” “expect,” “anticipate,”
“believe,” “estimate” and “continue,” or similar words. You should read statements that contain
these words carefully because they:
|
●
|
discuss
our future expectations;
|
|
|
|
|
●
|
contain
projections of our future results of operations or of our financial condition; and
|
|
|
|
|
●
|
state
other “forward-looking” information.
|
We
believe it is important to communicate our expectations. However, there may be events in the future that we are not able to accurately
predict or over which we have no control. Our actual results and the timing of certain events could differ materially from those
anticipated in these forward-looking statements as a result of certain factors, including those set forth elsewhere in this Report.
Unless
stated otherwise, the words “we,” “us,” “our,” the “Company” or “Ecosciences”
in this section collectively refer to Ecosciences, Inc. and its wholly-owned subsidiary, Eco-Logical Concepts, Inc., a Delaware
corporation.
Corporate
History
We
were formerly known as On-Air Impact, Inc., a Nevada corporation (“On-Air Impact”). From the date of our inception
on May 26, 2010 until the consummation of the reverse merger described below on May 9, 2014, On-Air Impact had been a “shell
company” (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”)).
On
May 9, 2014, On-Air Impact and its wholly-owned subsidiary, Eco Merger Sub, Inc., a Delaware corporation (“Merger Sub”),
consummated a reverse merger (the “Merger”) with Eco-Logical Concepts, Inc., a Delaware corporation (“Eco-Logical”),
pursuant to the terms and conditions of that certain Agreement and Plan of Merger, dated May 9, 2014 (the “Merger Agreement”),
whereby Merger Sub merged with and into Eco-Logical with Eco-Logical being the surviving corporation and replacing Merger Sub
as On-Air Impact’s wholly-owned subsidiary. Since the Merger, the business and operations of Eco-Logical have been business
and operations of On-Air Impact.
At
the closing of the Merger:
●
|
Every
one hundred (100) shares of Common Stock, par value $0.0001 per share, of Eco-Logical issued and outstanding immediately prior
to the closing of the Merger was converted into one (1) share of Common Stock, par value $0.0001 per share (the “Common
Stock”), of On-Air Impact, rounding up to the nearest whole number for resulting fractional shares; and
|
|
|
●
|
Each
share of Series A Non-Convertible Preferred Stock, par value $0.0001 per share, of Eco-Logical issued and outstanding immediately
prior to the closing of the Merger was converted into one share of Series B Non-Convertible Preferred Stock, par value $0.0001
per share (the “Series B Non-Convertible Preferred Stock”), of On-Air Impact.
|
In
addition, pursuant to the Merger Agreement, on May 9, 2014, Joel Falitz, the President and Chief Executive Officer of Eco-Logical,
was appointed to serve as the Chairman of our Board of Directors for a one-year period until the next annual stockholders’
meeting or until his successor is elected and qualified and as the Chief Executive Officer, President, Secretary and Treasurer
of the Company.
As
a result of the Merger, On-Air Impact ceased to be a shell company. The information contained in our “Super Form 8-K”
filed on May 15, 2014 constitutes the current “Form 10 information” necessary to satisfy the conditions contained
in Rule 144(i)(2) under the Securities Act of 1933, as amended (the “Securities Act”).
The
Merger was intended to be treated as a tax-free reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended,
and has been treated as a recapitalization of the Company for financial accounting purposes. Even though On-Air Impact was the
legal acquirer, Eco-Logical is considered to be the acquirer for accounting purposes, and the Company’s historical financial
statements before the Merger will be replaced with the historical financial statements of Eco-Logical before the Merger in this
Report and all future filings with the SEC.
To
better reflect our new operations as a result of the Merger, on June 23, 2014, the Company changed its name from “On-Air
Impact” to “Ecosciences, Inc.” On June 23, 2014, we also increased our authorized capital stock from 100 million
shares of Common Stock to 500 million shares; and from 10 million shares of “blank check” Preferred Stock, par value
$0.0001 per share (“Preferred Stock”) to 50 million shares. We also effectuated a 500-for-1 forward stock split of
our outstanding Common Stock on June 23, 2014 (the “Forward Stock Split”).
On
July 21, 2014, the ticker symbol of our Common Stock on the OTCQB was changed from “OAIR” to “ECEZ” to
better reflect our new name.
As
a result of the Merger and the change in our business and operations, a discussion of the past financial results of On-Air Impact,
Inc. is not pertinent, and under generally accepted accounting principles in the United States, the historical financial results
of Eco-Logical, the accounting acquirer, prior to the Merger are considered the historical financial results of the Company.
The
following discussion highlights Eco-Logical’s results of operations and the principal factors that have affected our consolidated
financial condition as well as our liquidity and capital resources for the periods described, and provides information that management
believes is relevant for an assessment and understanding of our consolidated financial condition and results of operations presented
herein. The following discussion and analysis is based on Eco-Logical’s unaudited condensed consolidated financial statements
contained in this Report, which have been prepared in accordance with generally accepted accounting principles in the United States.
You should read the discussion and analysis together with such financial statements and the related notes thereto.
Overview
Our
wholly-owned operating subsidiary, Eco-Logical Concepts Inc. (hereinafter referred to as the “Company,” “Eco,”
“Eco-Logical,” “our,” “we,” “us,” and similar terms), was incorporated in the
state of Delaware on November 30, 2011.
Located
in Jericho, New York, Eco-Logical provides bio-remediation services for sewers, sludge ponds, septic tanks, lagoons, farms, car
washes, portable sanitation facilities, grease tanks, lakes and ponds. We provide a suite of tablet-based products that can be
added to waste systems. The active ingredients in our tablets oxygenate wastewater, remove hydrogen sulfide odors, prevent corrosion
in wastewater systems and initiate aerobic biological breakdown of organic sludge including fats, oils and grease. The tablets
are non-toxic to the environment, non-caustic and comprised of natural ingredients that do not require any special permitting
for use and disposal. The product is simple to use directly by the end consumer.
The
Company’s bioremediation products are sold under the brands Trap-Eze, Sept-Eze, Tank-Eze and Wash-Eze.
The
Company has formulated a business model that management believes can help it grow and achieve economies of scale over time. We
have undertaken the necessary due diligence and prepared a business that will enable us to compete in the market for bio-remediation
services.
The
Company is focused on building, acquiring and investing in businesses around ecological and life sciences. From waste water remediation
to healthcare and more, Ecosciences is committed to building a better living environment for all people.
Product
Development
Growth
Strategy of the Company
Our
mission is to maximize stockholder value through expanding the scope of products offered. We intend to conduct research and development
to bring new, improved products to market to ensure we are competitive in our market space. We intend to focus on growing our
distribution channels using master-distributor relationships, full-line distributors and other similar sales channels. We intend
to build product and brand awareness through a direct retail channel using online marketing and info-commercials, which we believe
will provide a feedback benefit for the growth of our other distribution channels as well as to establish opportunities for indirect
retail sales channels, such as through chain stores and small retailers.
We
have been working to set up regional distributors in several different market segments, such as septic systems, grease traps,
ponds, agricultural and wastewater. Sales this fiscal year have primarily been to Mexico, and we are currently finalizing more
orders locally in New Jersey. All sales were completed in US dollars and have not been subject to any foreign taxes.
During
the last quarter, we commenced developing additional eco-based products in order to expand our product line. During the quarter
ended November 30, 2015, we successfully test marketed a liquid version of our Tank-Eze bioremediation product (“Liquid
Tank-Eze”). Liquid-Eze is different than the regular Tank-Eze in that it does not have the oxygen feature and is designed
to be primarily used in the treatment of drain lines prior to, or in conjunction with, Tank-Eze. As part of its test marketing,
we sold the Liquid Tank-Eze product in a four ounce (4 oz.) concentrated size through our online channels. We intend to increase
our marketing of Liquid Tank-Eze with a wider and more official launch in the near future. We also intend to sell a line of eco-friendly
certified green cleaning solutions, including but not limited to, a multi-surface cleaner and a glass cleaner.
Critical
Accounting Policies, Estimates, and Judgments
Our
unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the
reported amounts of assets and liabilities, 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. We continually evaluate our estimates and judgments,
our commitments to strategic alliance partners and the timing of the achievement of collaboration milestones. We base our estimates
and judgments on historical experience and other factors that we believe to be reasonable under the circumstances. Materially
different results can occur as circumstances change and additional information becomes known. Besides the estimates identified
above that are considered critical, we make many other accounting estimates in preparing our financial statements and related
disclosures. All estimates, whether or not deemed critical, affect reported amounts of assets, liabilities, revenues and expenses,
as well as disclosures of contingent assets and liabilities. These estimates and judgments are also based on historical experience
and other factors that are believed to be reasonable under the circumstances. Materially different results can occur as circumstances
change and additional information becomes known, even for estimates and judgments that are not deemed critical.
Results
of Operations
Three
Months Ended February 29, 2016 Compared to the Three Months Ended February 28, 2015
The
following table presents Eco-Logical’s results of operations for the periods indicated and as a percentage of total revenue.
Historical results are not necessarily indicative of results for future periods.
|
|
Three-Month Period Ended
|
|
|
|
February
29, 2016
*
|
|
|
February
28, 2015
*
|
|
|
|
$
|
|
|
% of Revenue
|
|
|
$
|
|
|
% of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
$
|
6,127
|
|
|
|
–
|
|
|
$
|
4,805
|
|
|
|
–
|
|
Cost of sales:
|
|
|
(1,898
|
)
|
|
|
(30.98
|
)%
|
|
|
(818
|
)
|
|
|
(17.02
|
)%
|
Gross profit
|
|
|
4,229
|
|
|
|
69.02
|
%
|
|
|
3,987
|
|
|
|
82.98
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
16,006
|
|
|
|
261.24
|
%
|
|
|
3,154
|
|
|
|
65.64
|
%
|
Professional fees
|
|
|
91,331
|
|
|
|
1,490.63
|
%
|
|
|
17,478
|
|
|
|
363.75
|
%
|
Total Expenses
|
|
|
107,337
|
|
|
|
1,751.87
|
%
|
|
|
20,632
|
|
|
|
429.39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before other expenses:
|
|
|
(103,108
|
)
|
|
|
(1,682.85
|
)%
|
|
|
(16,645
|
)
|
|
|
(346.41
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(5,623
|
)
|
|
|
(91.77
|
)%
|
|
|
(4,048
|
)
|
|
|
(84.24
|
)%
|
Net loss
|
|
|
(108,731
|
)
|
|
|
(1,774.62
|
)%
|
|
|
(20,693
|
)
|
|
|
(430.66
|
)%
|
*
Amounts
may not sum due to rounding.
The
following tables present our revenue and operating expenses for the periods indicated.
Revenue
|
|
Three-Month Period Ended
|
|
|
|
|
|
|
February 29, 2016
|
|
|
February 28, 2015
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
6,127
|
|
|
$
|
4,805
|
|
|
|
27.51
|
%
|
Our
Revenue increased 27.51% for the three months ended February 29, 2016 as compared to the three months ended February 28, 2015.
The increase is attributed to more repeat sales and new accounts.
Costs
and Expenses
Costs
of Sales
|
|
Three-Month Period Ended
|
|
|
|
|
|
|
February 29, 2016
|
|
|
February 28, 2015
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of Sales
|
|
$
|
1,898
|
|
|
$
|
818
|
|
|
|
132.03
|
%
|
Our
Costs of Sales increased 132.03% for the three months ended February 29, 2016 as compared to the three months ended February 28,
2015. The increase is due to an increase in sales volume through E-commerce which carries additional shipping and merchant fees.
Operating
Expenses
|
|
Three-Month Period Ended
|
|
|
|
|
|
|
February 29, 2016
|
|
|
February 28, 2015
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
$
|
107,337
|
|
|
$
|
20,632
|
|
|
|
420.25
|
%
|
Our
Operating Expenses increased 420.25% for the three months ended February 29, 2016 as compared to the three months ended February
28, 2015. The increase is attributable to an increase in Management and Professional Fees consisting of legal, accounting and
consulting fees as well as administrative costs.
Interest
Expense
|
|
Three-Month Period Ended
|
|
|
|
|
|
|
February 29, 2016
|
|
|
February 28, 2015
|
|
|
% Change
|
|
Interest Expense
|
|
$
|
5,623
|
|
|
$
|
4,048
|
|
|
|
38.91
|
%
|
Our
Interest Expense increased 38.91% for the three months ended February 29, 2016 as compared to the three months ended February
28, 2015. The increase is attributable to the sale of additional promissory notes to finance operations.
Nine
Months Ended February 29, 2016 Compared to the Nine Months Ended February 28, 2015
The
following table presents Eco-Logical’s results of operations for the periods indicated and as a percentage of total revenue.
Historical results are not necessarily indicative of results for future periods.
|
|
Nine-month Period Ended
|
|
|
|
February
29, 2016
*
|
|
|
February
28, 2015
*
|
|
|
|
$
|
|
|
% of Revenue
|
|
|
$
|
|
|
% of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
$
|
12,864
|
|
|
|
–
|
|
|
$
|
12,999
|
|
|
|
–
|
|
Cost of sales:
|
|
|
(5,843
|
)
|
|
|
(45.42
|
)%
|
|
|
(4,713
|
)
|
|
|
(36.26
|
)%
|
Gross profit
|
|
|
7,021
|
|
|
|
54.58
|
%
|
|
|
8,286
|
|
|
|
63.74
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
100,751
|
|
|
|
783.20
|
%
|
|
|
31,358
|
|
|
|
241.24
|
%
|
Professional fees
|
|
|
267,527
|
|
|
|
2,079.66
|
%
|
|
|
112,442
|
|
|
|
865.01
|
%
|
Total Expenses
|
|
|
368,278
|
|
|
|
2,862.86
|
%
|
|
|
143,800
|
|
|
|
1,106.24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before other expenses:
|
|
|
(361,257
|
)
|
|
|
(2,808.28
|
)%
|
|
|
(135,514
|
)
|
|
|
(1,042.50
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(16,084
|
)
|
|
|
(125.03
|
)%
|
|
|
(11,570
|
)
|
|
|
(89.01
|
)%
|
Net (loss) income
|
|
|
(377,341
|
)
|
|
|
(2,933.31
|
)%
|
|
|
(147,084
|
)
|
|
|
(1,131.50
|
)%
|
*
Amounts
may not sum due to rounding.
The
following tables present our revenue and operating expenses for the periods indicated.
Revenue
|
|
Nine-month Period Ended
|
|
|
|
|
|
|
February 29, 2016
|
|
|
February 28, 2015
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
12,864
|
|
|
$
|
12,999
|
|
|
|
(1.03
|
)%
|
Our Revenue decreased 1.03% for the nine months
ended February 29, 2016 as compared to the nine months ended February 28, 2015. The decrease is attributed to less repeat sales
and new accounts.
Costs
and Expenses
Costs
of Sales
|
|
Nine-month Period Ended
|
|
|
|
|
|
|
February 29, 2016
|
|
|
February 28, 2015
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of Sales
|
|
$
|
5,843
|
|
|
$
|
4,713
|
|
|
|
23.98
|
%
|
Our
Costs of Sales increased 23.98% for the nine months ended February 29, 2016 as compared to the nine months ended February 28,
2015. The increase is due to an increase in sales commissions and merchant fees as compared to the prior period.
Operating
Expenses
|
|
Nine-month Period Ended
|
|
|
|
|
|
|
February 29, 2016
|
|
|
February 28, 2015
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
$
|
368,278
|
|
|
$
|
143,800
|
|
|
|
156.10
|
%
|
Our Operating Expenses increased 156.10% for
the nine months ended February 29, 2016 as compared to the nine months ended February 28, 2015. The increase is attributable to
an increase in Management and Professional Fees consisting of legal, accounting and consulting fees as well as administrative
costs.
Interest
Expense
|
|
Nine-month Period Ended
|
|
|
|
|
|
|
February 29, 2016
|
|
|
February 28, 2015
|
|
|
% Change
|
|
Interest Expense
|
|
$
|
16,084
|
|
|
$
|
11,570
|
|
|
|
39.01
|
%
|
Our
Interest Expense increased 39.01% for the nine months ended February 29, 2016 as compared to the nine months ended February 28,
2015. The increase is attributable to the sale of additional promissory notes to finance operations.
Financial
Condition, Liquidity and Capital Resources
At
February 29, 2016, we had $1,770 in cash on hand and an accumulated deficit of $822,281; and had $12,864 in revenues for the nine-month
period ended February 29, 2016. In their report for the fiscal year ended May 31, 2015, our auditors have expressed that there
is substantial doubt as to our ability to continue as a going concern. We have incurred operating losses since our formation and
expect to incur losses and negative operating cash flows for the foreseeable future. We expect to incur substantial losses for
the foreseeable future and may never become profitable. We also expect to continue to incur significant operating and capital
expenditures for the next several years and anticipate that our expenses will increase substantially in the foreseeable future.
We also expect to experience negative cash flow for the foreseeable future as we fund our operating losses and capital expenditures.
As a result, we will need to generate significant revenues in order to achieve and maintain profitability. We may not be able
to generate these revenues or achieve profitability in the future. Our failure to achieve or maintain profitability could negatively
impact the value of our Common Stock.
To
date, we have financed our operations primarily through the sale of Convertible Promissory Notes to Joel Falitz and other non-affiliated
third parties and the issuance and sale of equity securities for cash consideration. As of February 29, 2016, we have financed
our operations by the following:
●
|
On
December 22, 2011, the Company entered into two Convertible Promissory Note agreements for an aggregate of $4,000. The Notes
bear interest at 10% per annum, and the principal amount and any interest thereon are due 60 days following demand. Pursuant
to the agreements, the Notes are convertible into shares of Common Stock at a conversion price equal to $0.01 per share. At
February 29, 2016, the outstanding principal and accrued interest of each Note was $2,838, for a total of $5,677.
|
|
|
●
|
On
December 22, 2011, the Company entered into a Convertible Promissory Note agreement for $10,000. The Note bears interest at
10% per annum, and the principal amount and any interest thereon are due 60 days following demand. Pursuant to the Note, the
Note is convertible into shares of Common Stock at a conversion price equal to $0.01 per share. In addition, as a condition
precedent to the right to convert the debt to Common Stock of the Company, the holder must purchase 3,000,000 shares of Common
Stock at $0.01 per share. On December 27, 2012, the Company repaid $4,005 towards the principal balance and $995 towards accrued
interest. On April 19, 2013, the Company repaid $4,818 towards the principal balance and $182 towards accrued interest. At
February 29, 2016, the outstanding principal and accrued interest of the Note was $1,514.
|
|
|
●
|
On
December 28, 2011, the Company entered into two Convertible Promissory Note agreements for an aggregate of $6,000, of which
$5,000 is due to the President of the Company. The Notes bear interest at 10% per annum, and the principal amount and any
interest thereon are due 60 days following demand. Pursuant to the agreements, the Notes are convertible into shares of Common
Stock at a conversion price equal to $0.0001 per share. On October 27, 2012, the Company issued 50,000,000 shares of Common
Stock to the President of the Company upon the conversion of the principal amount of $5,000. At February 29, 2016, the outstanding
principal and accrued interest of the outstanding Note was $1,417.
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On
April 12, 2013, the Company entered into a Promissory Note for the principal amount of $20,000 with an unaffiliated third
party, as the lender. The Note bears interest at the rate of 10% per annum and interest shall be paid semi-annually on the
1st day of each calendar quarter commencing on November 1, 2013. All principal and unpaid and accrued interest is due sixty
(60) days after demand. The Note may be prepaid without penalty. At February 29, 2016, the outstanding principal and accrued
interest of the outstanding Note was $25,770.
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On
May 8, 2014, Eco-Logical sold a one-year promissory note to Maverick, LLC (“Maverick”) for the principal amount
of $25,000 and bearing interest at rate of 8% per annum. Pursuant to the terms of the promissory note, simultaneously with
the sale of all or substantially all of the assets of Eco-Logical, upon the merger or combination of Eco-Logical with another
entity (other than for changing domicile), or change of control of Eco-Logical, the outstanding principal and accrued interest
thereon under the promissory note automatically converted, without any action being taken by Eco-Logical or Maverick, into
a number of shares of Common Stock and/or preferred stock of Eco-Logical which would enable Maverick to have voting and dispositive
control of Eco-Logical. On May 9, 2014, the promissory note issued to Maverick was converted into 5,000,000 shares of Eco-Logical’s
Common Stock and 200,000 shares of Eco-Logical’s Series A Preferred Stock. Pursuant to Eco-Logical’s Series A
Certificate of Designation filed with the Secretary of State of the State of Delaware, the outstanding shares of Series A
Non-Convertible Preferred Stock voted together with the shares of Common Stock and other voting securities of Eco-Logical
as a single class and, regardless of the number of shares of Series A Non-Convertible Preferred Stock outstanding and as long
as at least one of such shares of Series A Non-Convertible Preferred Stock is outstanding, represented eighty percent (80%)
of all votes entitled to be voted at any annual or special meeting of stockholders of Eco-Logical or action by written consent
of stockholders. Each outstanding share of the Series A Non-Convertible Preferred Stock shall represent its proportionate
share of the 80% which is allocated to the outstanding shares of Series A Non-Convertible Preferred Stock. Upon the consummation
of the Merger, Maverick’s 5,000,000 shares of Eco-Logical Common Stock and 200,000 shares of Eco-Logical Series A Non-Convertible
Preferred Stock converted into 50,000 shares of our Common Stock and 200,000 shares of our Series B Non-Convertible Preferred
Stock, respectively. The voting rights of shares of our Series B Non-Convertible Preferred Stock are identical to the voting
rights Eco-Logical’s Series A Non-Convertible Preferred Stock. Therefore, as a result of the Merger, Maverick has voting
control over the Company. As a result of the 500-for-1 Forward Stock Split of the Company’s outstanding Common Stock
on June 23, 2014, the 50,000 shares of Common Stock held by Maverick resulted in Maverick owning 25,000,000 shares of the
Company’s Common Stock.
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On
May 9, 2014, the Company entered into that certain Master Loan Agreement, dated May 9, 2014 (the “Loan Agreement”),
with Baccarat Holdings, Inc., an unaffiliated third party lender (“Baccarat” or the “Lender”). Subject
to the terms and conditions set forth in the Loan Agreement, Baccarat agreed, from time to time to purchase from the Company,
and the Company agreed to sell and issue to Baccarat, one or more Promissory Notes for the account of the Company, provided,
however, that the aggregate principal amount of all Promissory Notes then outstanding shall not exceed the $500,000 and that
no Event of Default has occurred and has remained uncured. Amounts borrowed under the Loan Agreement shall be evidenced by
an unsecured, non-recourse Promissory Note, bear interest at a rate of 8% per annum, mature on the first anniversary date
thereof, and may be prepaid by the Company before the maturity date thereof. Amounts borrowed under the Loan Agreement and
repaid or prepaid may not be re-borrowed. The Loan Agreement shall automatically terminate and be of no further force and
effect upon the earlier to occur of (i) the satisfaction of all indebtedness, including the promissory notes and any additional
indebtedness issued thereafter, between the Company and Baccarat and (ii) written termination notice is delivered by the Company
or Baccarat to the other party. There can be no assurances that any additional funds will be available to us under the Loan
Agreement since it provides that the Lender may terminate this Agreement at any time.
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As
of February 29, 2016, the Company had sold the following promissory notes to Bacarat pursuant to the Loan Agreement. The Company
is currently renegotiating with Bacarat to extend the maturity date of the Notes:
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As of February 29, 2016
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Issue Date
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Maturity Date
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Principal
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Interest Rate
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Accrued Interest
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Total Outstanding
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05/09/14
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05/09/15
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$
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50,000
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8.0
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%
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$
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7,503
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$
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57,503
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05/19/14
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05/19/15
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$
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45,000
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8.0
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%
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$
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6,647
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$
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51,647
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06/06/14
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06/06/15
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$
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30,000
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8.0
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%
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$
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4,303
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$
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34,303
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08/11/14
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08/11/15
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$
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25,000
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8.0
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%
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$
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3,195
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$
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28,195
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08/18/14
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08/18/15
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$
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10,000
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8.0
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%
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$
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1,262
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$
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11,262
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08/25/14
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08/25/15
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$
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10,000
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8.0
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%
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$
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1,245
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$
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11,245
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$
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170,000
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$
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24,155
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$
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194,155
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On
August 26, 2014, the Company sold a one-year promissory note to unaffiliated third party for the principal amount of $2,500,
bearing interest at the rate of 8% per annum and maturing on the one-year anniversary of the date thereof. The Company may
prepay all or any portion of the promissory note at any time and from time to time without premium or penalty. Any such prepayment
shall first be applied against the installments of principal due under the note in the inverse order of their maturity and
shall be accompanied by payment of accrued interest on the amount prepaid to the date of prepayment. At February 29, 2016,
the outstanding principal and accrued interest of the outstanding Note was $2,811. The Company intends to renegotiate with
the lender to extend the maturity date of the Note.
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On
March 16, 2015, the Company sold a one-year promissory note to unaffiliated third party for the principal amount of $15,000,
bearing interest at the rate of 8% per annum and maturing on the one-year anniversary of the date thereof. The Company may
prepay all or any portion of the promissory note at any time and from time to time without premium or penalty. Any such prepayment
shall first be applied against the installments of principal due under the note in the inverse order of their maturity and
shall be accompanied by payment of accrued interest on the amount prepaid to the date of prepayment. At February 29, 2016,
the outstanding principal and accrued interest of the outstanding Note was $16,151.
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On
April 28, 2015, the Company sold a nine-month promissory note to unaffiliated third party for the principal amount of $19,000,
bearing interest at the rate of 8% per annum and maturing on the nine-month anniversary of the date thereof. The Company may
prepay all or any portion of the promissory note at any time and from time to time without premium or penalty. Any such prepayment
shall first be applied against the installments of principal due under the note in the inverse order of their maturity and
shall be accompanied by payment of accrued interest on the amount prepaid to the date of prepayment. During the three months
ended November 30, 2015, the Company made payments totaling $10,950. During the three months ended February 29, 2016, the
Company made payments totaling $4,700. At February 29, 2016, the outstanding principal and accrued interest of the outstanding
Note was $4,331. The Company intends to renegotiate with the Noteholder to extend the maturity date of the Note.
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On
June 18, 2015, the Company sold a nine-month promissory note to unaffiliated third party for the principal amount of $4,000,
bearing interest at the rate of 8% per annum and maturing on the nine-month anniversary of the date thereof. The Company may
prepay all or any portion of the promissory note at any time and from time to time without premium or penalty. Any such prepayment
shall first be applied against the installments of principal due under the note in the inverse order of their maturity and
shall be accompanied by payment of accrued interest on the amount prepaid to the date of prepayment. At February 29, 2016,
the outstanding principal and accrued interest of the outstanding Note was $4,224.
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On
October 2, 2015 the Company sold a one-year promissory note to unaffiliated third party for the principal amount of $10,000,
bearing interest at the rate of 8% per annum and maturing on the one-year anniversary of the date thereof. The Company may
prepay all or any portion of the promissory note at any time and from time to time without premium or penalty. Any such prepayment
shall first be applied against the installments of principal due under the note in the inverse order of their maturity and
shall be accompanied by payment of accrued interest on the amount prepaid to the date of prepayment. At February 29, 2016,
the outstanding principal and accrued interest of the outstanding Note was $10,328.
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On
October 29, 2015 the Company sold a one-year promissory note to unaffiliated third party for the principal amount of $10,000,
bearing interest at the rate of 8% per annum and maturing on the one-year anniversary of the date thereof. The Company may
prepay all or any portion of the promissory note at any time and from time to time without premium or penalty. Any such prepayment
shall first be applied against the installments of principal due under the note in the inverse order of their maturity and
shall be accompanied by payment of accrued interest on the amount prepaid to the date of prepayment. At February 29, 2016,
the outstanding principal and accrued interest of the outstanding Note was $10,270.
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On
November 9, 2015 the Company sold a nine-month promissory note to unaffiliated third party for the principal amount of $12,000,
bearing interest at the rate of 8% per annum and maturing on the one-year anniversary of the date thereof. The Company may
prepay all or any portion of the promissory note at any time and from time to time without premium or penalty. Any such prepayment
shall first be applied against the installments of principal due under the note in the inverse order of their maturity and
shall be accompanied by payment of accrued interest on the amount prepaid to the date of prepayment. At February 29, 2016,
the outstanding principal and accrued interest of the outstanding Note was $12,295.
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On
September 19, 2015, the Company consummated a sale under a Stock Purchase Agreement, dated September 11, 2015, with an unaffiliated
third party “accredited investor” pursuant to which such investor purchased 125,000 shares of Series A Convertible
Preferred Stock from the Company for $0.20 per share (or an aggregate of $25,000). The Company issued the foregoing securities
pursuant to the exemption from the registration requirements of the Securities Act of 1933, as amended, available to the Company
under Section 4(a)(2) promulgated thereunder due to the fact that such issuances did not involve a public offering of securities,
the shares were issued to one accredited investor and no solicitation or advertisement was made in connection therewith.
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On
January 15, 2016 the Company sold a six-month promissory note to unaffiliated third party for the principal amount of $4,700,
bearing interest at the rate of 10% per annum and maturing on the six-month anniversary of the date thereof. The Company may
prepay all or any portion of the promissory note at any time and from time to time without premium or penalty. Any such prepayment
shall first be applied against the installments of principal due under the note in the inverse order of their maturity and
shall be accompanied by payment of accrued interest on the amount prepaid to the date of prepayment. At February 29, 2016,
the outstanding principal and accrued interest of the outstanding Note was $4,758.
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On
February 1, 2016 the Company sold a six-month promissory note to unaffiliated third party for the principal amount of $1,000,
bearing interest at the rate of 10% per annum and maturing on the six-month anniversary of the date thereof. The Company may
prepay all or any portion of the promissory note at any time and from time to time without premium or penalty. Any such prepayment
shall first be applied against the installments of principal due under the note in the inverse order of their maturity and
shall be accompanied by payment of accrued interest on the amount prepaid to the date of prepayment. At February 29, 2016,
the outstanding principal and accrued interest of the outstanding Note was $1,008.
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On
February 12, 2016 the Company sold a six-month promissory note to unaffiliated third party for the principal amount of $1,200,
bearing interest at the rate of 10% per annum and maturing on the six-month anniversary of the date thereof. The Company may
prepay all or any portion of the promissory note at any time and from time to time without premium or penalty. Any such prepayment
shall first be applied against the installments of principal due under the note in the inverse order of their maturity and
shall be accompanied by payment of accrued interest on the amount prepaid to the date of prepayment. At February 29, 2016,
the outstanding principal and accrued interest of the outstanding Note was $1,206.
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On
February 19, 2016, the Company sold a six-month promissory note to unaffiliated third
party for the principal amount of $2,000, bearing interest at the rate of 8% per annum
and maturing on the six-month anniversary of the date thereof. The Company may prepay
all or any portion of the promissory note at any time and from time to time without premium
or penalty. Any such prepayment shall first be applied against the installments of principal
due under the note in the inverse order of their maturity and shall be accompanied by
payment of accrued interest on the amount prepaid to the date of prepayment. At February
29, 2016, the outstanding principal and accrued interest of the outstanding Note was
$2,004.
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On
February 19, 2016, the Company entered into a Convertible Promissory Note agreement for $14,000. The Note bears interest at
8% per annum, and the principal amount and any interest thereon are due one year following the borrowing date. Pursuant to
the agreement, the Note is convertible into shares of common stock at a conversion price to be mutually finalized between
the Company and the holder of the Convertible Promissory Note within 48 hours of the conversion request. At February 29, 2016,
the outstanding principal and accrued interest of the outstanding Note was $14,030
.
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Working
Capital
Since
the Company’s inception, we have incurred recurring net losses and negative cash flows from operations. As of February 29,
2016, we had a working capital deficit of $702,439, an accumulated deficit of $822,281 and a stockholders’ deficit of $702,439.
At
February 29, 2016, the Company was indebted to the President of the Company and a company controlled by the President of the Company
for $34,021. The amount is unsecured, non-interest bearing and due on demand.
We
do not believe our cash resources are sufficient to implement our current business plan, support operations and meet current obligations
for the next 12 months. We plan to raise additional capital to finance our operations. There can be no assurance that financing
will be available when required in sufficient amounts, on acceptable terms or at all. In the event that the necessary additional
financing is not obtained, we may be required to reduce our discretionary overhead costs substantially, including research and
development, general and administrative and sales and marketing expenses or otherwise curtail operations.
Cash
and Cash Equivalents
The
following table summarizes the sources and uses of cash for the periods stated. The Company held no cash equivalents for any of
the periods presented.
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For the Nine Months Ended
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|
|
February 29, 2016
|
|
|
February 28, 2015
|
|
Cash, beginning of period
|
|
$
|
381
|
|
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$
|
19,238
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Net cash used in operating activities
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|
|
(71,270
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)
|
|
|
(32,560
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)
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Net cash provided by investing activities
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|
|
–
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|
–
|
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Net cash provided by financing activities
|
|
|
72,659
|
|
|
|
17,500
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Cash, end of period
|
|
$
|
1,770
|
|
|
$
|
4,178
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Off-Balance
Sheet Operations
The
Company does not have any off-balance sheet transactions.