Notes
to the Unaudited Financial Statements
As
of February 28, 2019
NOTE
1. ORGANIZATION, DESCRIPTION OF BUSINESS, AND GOING CONCERN
Entest
Group, Inc. (the “Company”or “Entest”) was incorporated in the State of Nevada on September 24, 2008 as
JB Clothing Corporation. On July 12, 2009, the Company changed its name to Entest BioMedical, Inc. On February 12, 2018 the Company
changed its name from Entest BioMedical, Inc. to Entest Group, Inc.
The
Company’s current business strategy is to acquire an operating company seeking the perceived advantages of being a publicly
held corporation. No assurance can be given that such an acquisition shall occur or, if such an acquisition were to occur, it
would occur on terms and conditions beneficial to the Company or its shareholders.
Change
of Control
On
November 15, 2018, David Koos, Regen BioPharma Inc., Bostonia Partners Inc., Sherman Family Trust, Dunhill Ross Partners Inc.,
Bio-Technology Partners Business Trust (collectively, the “Sellers”) and Peiwen Yu (the “Buyer”) entered
into a stock purchase agreement (the “SPA”), pursuant to which the Sellers agreed to sell and the Buyer agreed to
purchase an aggregate of 23,733,334 shares of common stock, 667 shares of Series AA preferred stock, 534 shares of Series AAA
preferred stock and 1,001,533 shares of Non-Voting Preferred Stock of Entest from the Seller for an aggregate purchase price of
$325,000. The closing of the transactions contemplated by the SPA occurred on November 27, 2018. The purchase price was paid out
of the Buyer’s personal funds.
As
of the date of the transaction, Entest had 49,170,472 shares of common stock, 728,009 shares of Series B Preferred Stock, 667
shares of Series AA Preferred Stock, 534 shares of Series AAA Preferred Stock and 1,001,533 shares of Non-Voting Convertible Preferred
Stock outstanding. The securities purchased pursuant to the SPA represent 48.3% of the outstanding shares of common stock, 90%
of the outstanding shares of common stock assuming the conversion of the Non-Voting Convertible Preferred Stock on the execution
date of the SPA and 94% of the voting power of Entest.
As
contemplated by the SPA, in November 2018, David Koos resigned as Chairman, Chief Executive Officer, President, Acting Chief Financial
Officer and Secretary of Entest and Peiwen Yu became as a director, Chief Executive Officer and President of Entest. Pursuant
to the SPA, in November 2018, Mr. Koos also resigned as a director of the Company upon compliance by Entest with information statement
delivery requirements pursuant to Rule 14f-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Going
Concern and Liquidity Considerations
The
accompanying unaudited interim financial statements have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business. The Company has not generated any revenues since
the change of control and disposition of its subsidiaries, and has an accumulated deficit of $10,047,087. These factors among
others raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period of time.
The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The
continuing operations of the Company are dependent upon its ability to continue to raise adequate financing and to commence profitable
operations in the future and repay its liabilities arising from normal business operations as they become due.
In
support of the Company’s efforts and cash requirements, it may rely on advances from related parties until such time that
the Company can support its operations or attains adequate financing through sales of its equity or traditional debt financing.
There is no formal written commitment for continued support by shareholders or directors.
NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America for interim financial statements and with the instructions to Form 10-Q and Article 8 of Regulation
S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information
and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements.
In the opinion of the Company’s management, the accompanying unaudited financial statements contain all the adjustments
necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of February 28, 2019
and the results of operations and cash flows for the periods presented. The results of operations for the period ended February
28, 2019 are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited
interim financial statements should be read in conjunction with the financial statements and related notes thereto included in
the Company’s Annual Report on Form 10-K for the year ended August 31, 2018 filed with the Securities and Exchange (the
“SEC”) on November 28, 2018.
Reclassifications
Certain
prior year amounts have been reclassified to conform with the current year presentation.
Recent
Accounting Pronouncements
In
October 2018, FASB issued ASU No. 2018-17,
Consolidation - Targeted Improvements to Related Party Guidance for Variable Interest
Entities (Topic 810).
ASU No. 2018-17 guidance eliminates the requirement that entities consider indirect interests held through
related parties under common control in their entirety when assessing whether a decision-making fee is a variable interest. Instead,
the reporting entity will consider such indirect interests on a proportionate basis. This pronouncement is effective for public
entities for fiscal years ending after December 15, 2019, with early adoption permitted. The Company does not expect the adoption
to have a material impact on its consolidated financial statements.
NOTE
3. RELATED PARTY TRANSACTIONS
On
July 3, 2018, Zander entered into a sublease agreement with Entest whereby Zander would sublet office space located at 4700 Spring
Street, Suite 304, La Mesa, California 91942 from Entest on a month to month basis for $6,000 per month beginning July 5, 2018.
On November 16, 2018 Zander Therapeutics Inc. and the Company agreed to terminate Zander’s sublease with the Company effective
the rental period commencing November, 2018. David R. Koos, who served as Chairman and Chief Executive Officer of Zander as of
that date also served as Chairman and Chief Executive Officer of Entest as of that date. Zander was under common control with
Entest as of that date.
On
November 16, 2018, Entest Group, Inc. and its then Chairman and Chief Executive Officer, David R. Koos, agreed to satisfy any
and all unpaid interest resulting from accrued interest earned on Notes Payable to Koos by Entest from the beginning of time to
November 30, 2018 by transferring to David R. Koos 3,000,000 shares of the Series M Preferred stock of Zander Therapeutics, Inc.
owned by the Company.
Entest
Group, Inc. and Blackbriar Partners (“BP”) agreed to satisfy any and all unpaid interest resulting from accrued interest
earned on Notes Payable to BP by Entest from the Company’s inception to November 30, 2018 by transferring to BP 20,000 shares
of the Series M Preferred stock of Zander Therapeutics, Inc. owned by the Company. BP is controlled by David Koos, as of that
date, the Company’s then Chairman and Chief Executive Officer.
Entest
Group, Inc. and the Bio Matrix Scientific Group, Inc. (“BMSN”) agreed to satisfy any and all unpaid interest resulting
from accrued interest earned on Notes Payable to BMSN by Entest from the Company’s inception to November 30, 2018 by transferring
to BMSN 5,000 shares of the Series M Preferred stock of Zander Therapeutics, Inc. owned by the Company. As of November 16, 2018,
David R. Koos was the Chairman and Chief Executive Officer of the Company and BMSN.
Entest
Group, Inc. and Regen Biopharma, Inc. (“RGBP”) agreed to satisfy any and all unpaid interest resulting from accrued
interest earned on Notes Payable to RGBP by Entest from the beginning of time to November 30, 2018 by transferring to RGBP 250,000
shares of the Series M Preferred stock of Zander Therapeutics, Inc. owned by the Company.
Entest
Group, Inc. and Regen Biopharma, Inc. (“RGBP”) agreed to satisfy any and all rent prepaid by RGBP to Entest from the
beginning of time to November 30, 2018 by transferring to RGBP 475,000 shares of the Series M Preferred stock of Zander Therapeutics,
Inc. owned by the Company. As of November 16, 2018, David R. Koos was the Chairman and Chief Executive Officer of the Company
and RGBP.
In
November 2018, the Company divested itself of Entest BioMedical, Inc., a California corporation, for consideration consisting
of $2,000 paid by an entity controlled by David R. Koos.
The
Company recognized a loss of $6,947 on the disposition based on the difference between the Net Assets of the subsidiary and the
consideration paid.
During
the period ended February 29, 2019, the Company’s sole officer advanced to the Company an amount of $5,550 by issuing an
unsecured and non-interest bearing loan that is payable on demand. As of February 29, 2019 and August 31, 2018, the balance of
such loan was $5,550 and $0, respectively.
NOTE
4. STOCKHOLDERS’ EQUITY
Authorized
Stock
The
Company is authorized to issue an aggregate of 500,000,000 shares of common stock with a par value of $0.0001, 5,000,000 shares
of preferred stock with a par value of $0.0001, and 3,000,000 shares of non-voting convertible preferred stock with a par value
of $1.00. Each share of common stock entitles the holder to one vote on any matter on which action of the stockholders of the
corporation is sought.
Series
AA Preferred Stock
The
Company is authorized to issue 100,000 shares of Series AA Preferred Stock at a par value of $0.0001 per share.
As
of February 28, 2019 and August 31, 2018, 667 shares of Series AA Preferred Stock were issued and outstanding.
Series
B Preferred Stock
The
Company is authorized to issue 4,400,000 shares of Series B Preferred Stock at a par value of $0.0001 per share.
As
of February 28, 2019 and August 31, 2018, 728,009 shares of Series B Preferred Stock were issued and outstanding.
Series
AAA Preferred Stock
The
Company is authorized to issue 300,000 shares of Series AAA Preferred Stock at a par value of $0.0001 per share.
As
of February 28, 2019 and August 31, 2018, 534 shares of Series AAA Preferred Stock were issued and outstanding.
Non-Voting
Convertible Preferred Stock
The
Company is authorized to issue 3,000,000 shares of Non-Voting Convertible Preferred Stock at a par value of $1.00 per share.
On
October 2, 2018, the Company amended Article 4 of its Articles of Incorporation to change the conversion features of the Company’s
Non -Voting Convertible Preferred Stock. The Conversion Price changed from being equal to the greater of $0.01 per share or seventy
percent (70%) of the lowest closing bid price of its shares of common stock (the “Closing Price”) on its principal
trading market or exchange for the five (5) trading days immediately preceding written receipt by the corporation of the holder’s
intent to convert to being equal to the greater of (i) $0.001 per share and (ii) seventy percent (70%) of the lowest Closing Price
for the five (5) trading days immediately preceding written receipt by the corporation of the holder’s intent to convert.
As
of February 28, 2019 and August 31, 2018, 1,001,533 shares of Non-Voting Convertible Preferred Stock were issued and outstanding.
Common
Shares
The
Company is authorized to issue 500,000,000 shares of Common Stock at a par value of $0.0001 per share.
As
of February 28, 2019 and August 31, 2018, 49,170,472 shares of Common Stock were issued and outstanding.
NOTE
4. DECONSOLIDATION OF ZANDER THERAPEUTICS, INC.
On
May 5, 2018, The Company declared the distribution on a pro rata basis as a dividend in kind of 3,000,000 of the common shares
of Zander Therapeutics, Inc., par value $0.0001, currently owned by Entest Group, Inc. to:
(a)
Holders of record of the outstanding common shares of the Company as of the record date, which is May 30, 2018.
(b)
Holders of record of the shares of any outstanding series of the preferred shares of the Company as of the record date, which
is May 30, 2018.
Shareholders
of the Company shall receive one (1) share of common stock of Zander Therapeutics, Inc. for each 17 shares of the Company’s
common and/or preferred stock held as of the record date for such dividend. The distribution of the 3,000,000 common shares of
Zander Therapeutics, Inc. to the common and preferred shareholders of the Company occurred on June 11, 2018 (“Distribution
Date”).
As
a result of the payment of the abovementioned property dividend, the Company’s percentage of ownership of Zander fell below
50% resulting in the deconsolidation of Zander as of the Distribution Date. As of the Distribution Date all assets and liabilities
attributable to Zander were derecognized by the Company. The Company recognized a $10,034 gain as a result of the deconsolidation.
The Property dividend may be deemed to have occurred with a related party as the recipients were shareholders of Entest, including
the then Chairman and Chief Executive Officer of Entest and Regen Biopharma, Inc. which was a company under common control with
Entest.
The
Company’s remaining shares of Zander, which consisted of 5,000,000 shares of Zander’s Series M Preferred Stock (“Zander
M Stock”) were accounted for under the Equity Method as of the Distribution Date until November 29, 2018. The Zander M Stock
was carried a Fair Value and the carrying value was increased by the Company’s proportionate share of earnings of Zander
and decreased by cash dividends paid by Zander as well as the Company’s proportionate share of losses of Zander up to the
carrying value. As of August 31, 2018, the carrying value of the Zander M Stock was decreased by the Company’s proportionate
share of the losses of Zander and was 0. As of August 31, 2018, Entest beneficially owned 34.82% of the share equity of Zander.
During
the quarter ended November 30, 2018, the Company divested itself of the Zander M Stock as satisfaction of $179,318 of interest
accrued but unpaid owed by the Company and $9,270 of unearned rental payments made to the Company. As the Zander M Stock had a
carrying value of $0, the Company recognized a gain of $188,589 on the disposition.
NOTE
5. DISPOSITION OF ENTEST BIOMEDICAL, INC., A CALIFORNIA CORPORATION
During
the quarter ended November 30, 2018 the Company divested itself of Entest Biomedical, Inc., a California corporation and wholly
owned subsidiary, for consideration consisting of $2,000 paid by an entity controlled by the Company’s then Chairman and
Chief Executive Officer, David R. Koos, as full consideration for Entest Biomedical Inc. as well as any and all furniture, fixtures
and equipment owned by the Company which has a carrying amount of $0.
The
Company recognized a loss of $6,947 on the disposition based on the difference between the Net Assets of the subsidiary and the
Consideration paid.
|
Cash derecognized in Divestiture
|
|
|
(63
|
)
|
|
Accrued Rent Receivable Derecognized in Divestiture
|
|
|
(12,000
|
)
|
|
Liabilities Derecognized in Divestiture
|
|
|
3,116
|
|
|
|
|
|
|
|
|
Consideration Received in Divestiture
|
|
|
2,000
|
|
|
Loss Recognized in Divestiture
|
|
|
(6,947
|
)
|
NOTE 6. INCOME TAXES
The Company provides for income taxes under
ASC 740,
“Income Taxes.”
Under the asset and liability method of ASC 740, deferred tax assets and
liabilities are recorded based on the differences between the financial statement and tax basis of assets and liabilities and the
tax rates in effect when these differences are expected to reverse. A valuation allowance is provided for certain deferred tax
assets if it is more likely than not that the Company will not realize tax assets through future operations.
The
income tax provision for the periods ended February 28, 2019 and 2018, consists of the following:
|
|
|
February 28,
|
|
|
February 28,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Net income (loss)
|
|
$
|
209,039
|
|
|
$
|
(567,914
|
)
|
|
Effective tax rate
|
|
|
21
|
%
|
|
|
21
|
%
|
|
Income tax expense (benefit)
|
|
|
43,898
|
|
|
|
(119,262
|
)
|
|
Less: valuation allowance
|
|
|
(43,898
|
)
|
|
|
119,262
|
|
|
Income tax expense (benefit)
|
|
$
|
-
|
|
|
$
|
-
|
|
Net deferred tax assets consist of the
following components as of February 28, 2019 and August 31, 2018:
|
|
|
February 28,
|
|
|
August 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Net operating tax carry forwards
|
|
$
|
2,112,754
|
|
|
$
|
2,156,652
|
|
|
Valuation allowance
|
|
|
(2,112,754
|
)
|
|
|
(2,156,652
|
)
|
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (the “Act”) resulting
in significant modifications to existing law including lowering the corporate tax rate from 34% to 21%. In addition to applying
the new lower corporate tax rate in 2018 and thereafter to any taxable income we may have, the legislation affects the way we can
use and carry forward net operating losses previously accumulated and results in a revaluation of deferred tax assets and liabilities
recorded on our balance sheet. The Company has completed the accounting for the effects of the Act during the period ended February
28, 2019. Given that current deferred tax assets are offset by a full valuation allowance, these changes will have no impact on
the balance sheet.
As of February 28, 2019, the Company had approximately $10,060,734 of net operating loss (“NOL”)
carry forwards, the tax effect of which is approximately $2,122,754. These carry forwards begin to expire in 2029.
The NOL carry forwards are subject to certain
limitations due to the change in control of the Company pursuant to Internal Revenue Code Section 382. The Company experienced
a change in control for tax purposes in November 2018 (see Note 1). The Company has not performed a study to determine if the NOL
carry forwards are subject to these Section 382 limitations.
NOTE 7 - EARNING (LOSS) PER SHARE
The following is a reconciliation of the numerator and denominator
used in the basic and diluted earnings per share ("EPS") calculations.
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
February 28,
|
|
|
February 28,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(10,972
|
)
|
|
$
|
(409,808
|
)
|
|
$
|
209,039
|
|
|
$
|
(567,914
|
)
|
|
Earnings allocated to participating securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Income (loss) available to common stockholders
|
|
$
|
(10,972
|
)
|
|
$
|
(409,808
|
)
|
|
$
|
209,039
|
|
|
$
|
(567,914
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares of common stock
|
|
|
49,170,472
|
|
|
|
49,170,472
|
|
|
|
49,170,472
|
|
|
|
49,073,250
|
|
|
Dilutive effect of convertible instruments
|
|
|
-
|
|
|
|
-
|
|
|
|
204,394,490
|
|
|
|
-
|
|
|
Diluted weighted-average of common stock
|
|
|
49,170,472
|
|
|
|
49,170,472
|
|
|
|
253,564,962
|
|
|
|
49,073,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.01
|
)
|
|
Diluted:
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.01
|
)
|
For the three months ended February 28,
2019 and periods ended February 28, 2018, the convertible instruments are anti-dilutive and therefore, have been excluded from
earnings (loss) per share.
For the six months ended February 28, 2019,
diluted earnings per share is calculated using net income available to common stockholders divided by the diluted weighted average
number of common shares outstanding during each period determined using the if-converted method.
NOTE 8 - SUBSEQUENT EVENTS
Management
has evaluated subsequent events through the date these financial statements were available to be issued. Based on our evaluation
no material events have occurred that require disclosure.