Note 1
— Organization and Nature of Operations
Earth Science
Tech, Inc. (“ETST” or the “Company”) was incorporated under the laws of the State of Nevada on April 23,
2010. ETST 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 illnesses and the quality of life
for consumers worldwide. The Company sells its products through its retail store located in Coral Gables Florida and through the
internet. ETST is currently 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 and aging.
ETST products include vitamins, minerals, herbs, botanicals, personal care products, homeopathies, functional foods, and other
products. These products are marketed in various formulations and delivery forms including capsules, tablets, soft gels, chewables,
liquids, creams, sprays, powders, and whole herbs. During 2015, ETST entered into a license and distribution agreement to provide
its Cannabidiol oil to retailers in the vaping industry.
Note 2 — Summary of
Significant Accounting Policies
Basis of presentation
The Company’s
accounting policies used in the presentation of the accompanying consolidated financial statements conform to accounting principles
generally accepted in the United States of America (“US GAAP”) and have been consistently applied.
Principles
of consolidation
The accompanying
consolidated financial statements include all of the accounts of the Company and its wholly-owned subsidiaries. The subsidiaries
include Earth Science Tech Inc, Nutrition Empire Co. Ltd., Earth Science Vapor, Earth Science Pharmaceutical Inc.,Kannabidioid
Inc.
All intercompany
balances and transactions have been eliminated on consolidation.
EARTH
SCIENCE TECH, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
Note 2 — Summary of
Significant Accounting Policies (Continued)
Use of estimates and assumptions
The preparation
of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods.
The Company’s
significant estimates and assumptions include the fair value of financial instruments; the accrual of the legal settlement, the
carrying value recoverability and impairment, if any, of long-lived assets, including the estimated useful lives of fixed assets;
the valuation allowance of deferred tax assets; stock based compensation, the valuation of the inventory reserves and the assumption
that the Company will continue as a going concern. Those significant accounting estimates or assumptions bear the risk of change
due to the fact that there are uncertainties attached to those estimates or assumptions, and certain estimates or assumptions are
difficult to measure or value.
Management bases its estimates
on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from
other sources.
Management
regularly reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience
and reasonable assumptions. After such reviews, and if deemed appropriate, those estimates are adjusted accordingly. Actual results
could differ from those estimates.
Carrying value, recoverability
and impairment of long-lived assets
The Company
follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC’) 360 to
evaluate its long-lived assets. The Company’s long-lived assets, which include property and equipment and a patent, are reviewed
for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
The Company
assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the
related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying
amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally
determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived
assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally
estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.
The Company
considers the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance
or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner
or use of assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes
in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive
pressures; (v) a significant decline in the Company’s stock price for a sustained period of time; and (vi) regulatory changes.
The Company evaluates assets for potential impairment indicators at least annually and more frequently upon the occurrence of such
events. Impairment of changes, if any, is included in operating expenses.
EARTH
SCIENCE TECH, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL
Note
2 — Summary of Significant Accounting Policies (Continued)
Cash
and cash equivalents
The
Company considers all highly liquid investments with a maturity of three months or less to be cash and cash equivalents.
Related
parties
The
Company follows ASC 850 for the identification of related parties and disclosure of related party transactions.
Pursuant
to this ASC related parties include a) affiliates of the Company; b) entities for which investments in their equity securities
would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825-10-15, to
be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and profit-sharing
trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company;
f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating
policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate
interests; and g) other parties that can significantly influence the management or operating policies of the transacting parties
or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that
one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
Commitments
and contingencies
The
Company follows ASC 450 to account for contingencies. Certain conditions may exist as of the date the consolidated financial statements
are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or
fail to occur. This may result in contingent liabilities that are required to be accrued or disclosed in the financial statements.
The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing
loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such
proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived
merits of the amount of relief sought or expected to be sought therein.
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.
EARTH
SCIENCE TECH, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL
Note
2 — Summary of Significant Accounting Policies (Continued)
Revenue
recognition
The
Company follows and implemented ASC 606, Revenue from Contracts with Customers for revenue recognition. Although the new revenue
standard is expected to have an immaterial effect, if any, on our ongoing net income, we did implement changes to our processes
related to revenue recognition and the control activities within them. These included the development of new policies based on
the five-step model provided in the new revenue standard, ongoing contract review requirements, and gathering of information provided
for disclosures.
The
Company recognizes revenue from product sales or services rendered when control of the promised goods are transferred to our clients
in an amount that reflects the considerations to which we expect to be entitled in exchange for those goods and services. To achieve
this core principle, we apply the following five steps: identify the contract with the client, identify the performance obligations
in the contract, determine the transaction price, allocate the transaction price to performance obligations in the contract and
recognize when or as the Company satisfies a performance obligation.
The
Company recognizes its retail store revenue at point of sale, net of sales tax.
Inventories
Inventories
consist of various types of nutraceuticals and bioceuticals at the Company’s retail store and main office. Inventories are
stated at the lower of cost or market using the first in, first out (FIFO) method. A reserve is established if necessary to reduce
excess or obsolete inventories to their net realizable value.
Cost
of Sales
Components
of costs of sales include product costs, shipping costs to customers and any inventory adjustments.
Shipping
and Handling Costs
The
Company includes shipping and handling fees billed to customers as revenues and shipping and handling costs for shipments to customers
as cost of revenues.
Research
and development
Research
and development costs are expensed as incurred. The Company’s research and development expenses relate to its engineering
activities, which consist of the design and development of new products for specific customers, as well as the design and engineering
of new or redesigned products for the industry in general.
EARTH
SCIENCE TECH, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL
Note
2 — Summary of Significant Accounting Policies (Continued)
Net
loss per common share
The
Company follows ASC 260 to account for earnings per share. Basic earnings per common share calculations are determined by dividing
net results from operations by the weighted average number of shares of common stock outstanding during the year. Diluted loss
per common share calculations are determined by dividing net results from operations by the weighted average number of common
shares and dilutive common share equivalents outstanding. During periods when common stock equivalents, if any, are anti-dilutive
they are not considered in the computation.
As
of September 30, 2020 the Company has zero warrants that are anti-dilutive and not included in the calculation of diluted loss
per share.
Cash
flows reporting
The
Company follows ASC 230 to report cash flows. This standard classifies cash receipts and payments according to whether they stem
from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation
method (“Indirect method”) as defined by this standard to report net cash flow from operating activities by adjusting
net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating
cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are
included in net income that do not affect operating cash receipts and payments. The Company reports separately information about
investing and financing activities not resulting in cash receipts or payments in the period pursuant this standard.
Stock
based compensation
The
Company follows ASC 718 in accounting for its stock based compensation to employees. This standard states that compensation cost
is measured at the grant date based on the fair value of the award and is recognized over the service period, which is usually
the vesting period. The Company values stock- based compensation at the market price of the Company’s common stock as of
the date in which the obligation for payment of service is incurred.
The
Company accounts for transactions in which service are received from non-employees in exchange for equity instruments based on
the fair value of the equity instrument exchanged in accordance with ASC 505-50.
Property
and equipment
Property
and equipment is recorded at cost net of accumulated depreciation. Depreciation is computed using the straight-line method based
upon the estimated useful lives of the respective assets as follows:
Leasehold
improvements
|
|
Shorter
of useful life or term of lease
|
Signage
|
|
5
years
|
Furniture
and equipment
|
|
5
years
|
|
|
|
Computer
equipment
|
|
5
years
|
The
cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are
retired or disposed of, the cost and accumulated depreciation are removed from accounts and any resulting gains or losses are
included in operations.
EARTH
SCIENCE TECH, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL
Note
3 — Going Concern
The
accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going
concern. At September 30, 2020, the Company had negative working capital, an accumulated deficit of $32,969,291 and was in negotiations
to extend the maturity date on notes payable that are in default. These factors raise 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 to pay its
obligations and support the Company’s daily operations. Management intends to raise additional funds by way of a public
or private offering. Management believes that the actions presently being taken to further implement its business plan and generate
sufficient revenues may provide the opportunity for the Company to continue as a going concern. While the Company believes in
the viability of its strategy to generate sufficient revenues and in its ability to raise additional funds, there can be no assurances
to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further
implement its business plan and generate sufficient revenues.
The
condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
Note
4 - Commitments and Contingencies
Legal
Proceeding
On
January 11, 2019, the Company received notice that Strongbow Advisors, Inc. and Robert Stevens (“Stevens”, and together
with Strongbow, the “Receiver”) had been appointed by the Nevada District Court, as Receiver for the Registrant in
Case No. A-18-784952-C (the “Order).
The
Company sought the appointment of the Receiver after it found itself in an imminent danger of insolvency following the issuance
by an arbitration panel of an award (the “Award”) in the sum of $3,994,522 in favor of Cromogen Biotechnology Corporation
(“Cromogen”) in the matter entitled Cromogen Biotechnology Corporation vs. Earth Science Tech, Inc. (the “Cromogen
Litigation”). The Nevada District Court found that the Company was in fact insolvent and ordered the appointment of the
Receiver.
The
Award consisted of a sum for breach of contract against the Company in the amount of $120,265.00, a sum for costs and fees against
the Company in the amount of $111,057.00 and a sum for the claim of tortuous interference and conversion against the Company in
the amount of $3,763,200.00. The District Court in Florida had confirmed the Award granted by the arbitration panel, denying however,
the award of fees that the arbitration panel had granted Cromogen.
Earth
Science Tech, Inc. appealed this decision but Cromogen prevailed in No. 19-10118, United States Court of Appeals for the Eleventh
Circuit on April 14, 2020. The Receiver subsequently allowed Cromogen status as an unsecured creditor in the estate. As of the
date of this filing the Company remains in danger of insolvency if a plan of reorganization is not subsequently approved by the
court that adequately resolves the Cromogen unsecured debt or Cromogen agrees to a settlement. Previous attempts to settle the
amounts with Cromogen have been fruitless.
As
part of the impact of the receivership, the Court issued a Writ of Injunction or “Blanket Stay” covering the Company
and its assets during the time that the Company is in receivership. As a result of the “Blanket Stay” the Company’s
estate is protected from creditors and interference with its administration is prevented while the Company’s financial issues
are being fully analyzed and resolved. As part of this process, creditors will be notified and required to provide claims in writing
under oath on or before the deadline stated in the notice provided by the Receiver or those claims will be barred under NRS §78.675.
The Blanket Stay will remain in place unless otherwise waived by the Receiver, or it is vacated by the Court or alternatively,
lifted by the Court, upon a “motion to lift stay” duly made and approved by the Nevada District Court.
EARTH
SCIENCE TECH, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL
Note 4 - Commitments and Contingencies
(Continued)
The
appointment of the Receiver was approved unanimously by the Board and by a majority of the Company’s shareholders. Strongbow
and Stevens were selected because of their reputation in helping (i) companies restructure and (ii) to execute on their business
plans, albeit under a debt and capital structure that allows them to succeed. Stevens and Strongbow assist companies by helping
them raise the capital needed not only to pay debts, but build and grow their businesses. The Receiver, however, is an agent of
the court, and will be independent and neutral in managing the Company’s operations and trying to preserve the Company’s
value for the creditors and shareholders.
There
are a number of possible outcomes to the receivership, including settlement and payment to creditors, reorganization, or liquidation.
The Receiver was tasked by the Court with bringing to a final settlement all of the unfinished business of the Company. Towards
that end, the Receiver is allowed, under Section 3(p) of the Order, to borrow money, incur debt, and issue stock, debentures and
other financial instruments. The Receiver intends to use the proceeds from our initial sale of shares to GHS to pay and settle
the Company’s debts, while preserving the value of its assets for the benefit of its shareholders. If the Receiver is not
successful in mitigating the Company’s liabilities, or otherwise, the Company’s results could be materially adversely
impacted and the Company may be forced to liquidate its business.
On
November 7, 2019 the Receiver for Earth Science Tech, Inc., a Nevada corporation (the “Company”) filed a motion for
preliminary injunction against Majorca Group Ltd. in the 8th Judicial District in Clark County, Nevada. The filing requests a
show cause hearing whereby the Company will request the Court grants it motion to cancel certain shares and class of stock and
to nullify certain amendments of the Articles of Incorporation. Specifically, the Company is asking that Majorca Group Ltd. be
restricted from selling, transferring, converting, encumbering, hypothecating, obtaining loans against or in any fashion or in
any way transferring their shares of common and preferred stock in the Company. Additionally the motion seeks a Freezing Injunction
over any broker, bank, any financial institution, attorney, or agent holding shares of the Company as well as any proceeds from
shares of the Company.
On
January 27, 2020 Earth Science Tech, Inc., a Nevada corporation (the “Company”) reached a confidential settlement
with Majorca Group, Ltd (“Majorca”). The Receiver will withdraw its motion for injunction over the Majorca common
and preferred shares. The Settlement Agreement provides that Majorca Group, Ltd. and all relevant parties will, within 10 days
of execution of the settlement agreement, return 18,000,000 common shares and 5,200,000 Series A Preferred Stock held by Majorca
for cancellation. The Series A Preferred Stock class will be cancelled completely. The remaining 6,520,000 common shares held
by Majorca is subject to lockup agreement and thereafter, sales will be made only pursuant to a limited strict bleed-out agreement
administered by a third party.
On
May 19, 2020 to effect a holding company reorganization (the “Delaware Reorg”), which will result in a newly formed
Delaware corporation, ETST Holdings, Inc., (“ETST Delaware “), owning all the capital stock of Earth Science Tech,
Inc. ETST Delaware will initially be a direct, wholly owned subsidiary of Earth Science Tech, Inc. Pursuant to the Delaware Reorg,
a newly formed entity (“Merger Sub”), a direct, wholly owned subsidiary of ETST Delaware and an indirect, wholly owned
subsidiary of Earth Science Tech, Inc., will merge with and into Earth Science Tech, Inc., with Earth Science Tech, Inc. surviving
as a direct, wholly owned subsidiary of ETST Delaware. Each share of each class of Earth Science Tech, Inc. stock issued and outstanding
immediately prior to the ETST Delaware Merger will automatically convert into an equivalent corresponding share of ETST Delaware
stock, having the same designations, rights, powers and preferences and the qualifications, limitations and restrictions as the
corresponding share of Earth Science Tech, Inc. stock being converted. Accordingly, upon consummation of the ETST Delaware Merger,
Earth Science Tech, Inc.’s current stockholders will become stockholders of ETST Delaware. The stockholders of Earth Science
Tech, Inc. will not recognize gain or loss for U.S. federal income tax purposes upon the conversion of their shares in the ETST
Delaware Merger.
The ETST Delaware Merger
was conducted pursuant to Section 251(g) of the General Corporation Law of the State of Delaware, which provides for the formation
of a holding company without a vote of the stockholders of the constituent corporations. Effective upon the consummation of the
ETST Delaware Merger, ETST Delaware will adopt an amended and restated certificate of incorporation and amended and restated bylaws
that are identical to those of Earth Science Tech, Inc. immediately prior to the consummation of the ETST Delaware Merger, except
for the change of the name of the corporation as permitted by Section 251(g). Furthermore, the conversion will occur automatically
without an exchange of stock certificates. Stock certificates previously representing shares of a class of Earth Science Tech,
Inc. stock will represent the same number of shares of the corresponding class of ETST Delaware stock after the ETST Delaware Merger.
Following the consummation of the ETST Delaware Merger shares of our Common Stock will continue to trade on the under the symbol
ETST on the OTC Markets.
EARTH
SCIENCE TECH, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL
Note
4 - Commitments and Contingencies (Continued)
We
lease all our office space used to conduct our business. We adopted ASC 842 effective January 1, 2019. For contracts entered into
on or after the effective date, at the inception of a contract we assess whether the contract is, or contains, a lease. Our assessment
is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially
all the economic benefit from the use of the asset throughout the period, and (3) whether we have the right to direct the use
of the asset. At inception of a lease, we allocate the consideration in the contract to each lease component based on its relative
stand-alone price to determine the lease payments.
Leases
are classified as either finance leases or operating leases. A lease is classified as a finance lease if any one of the following
criteria are met: the lease transfers ownership of the asset by the end of the lease term, the lease contains an option to purchase
the asset that is reasonably certain to be exercised, the lease term is for a major part of the remaining useful life of the asset
or the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease is classified
as an operating lease if it does not meet any one of these criteria. All our operating leases are comprised of office space leases.
For
all leases at the lease commencement date, a right-of-use asset and a lease liability are recognized. The right-of-use asset represents
the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under
the lease.
Lease
Agreements
On
August 14, 2017, the Company entered into an office lease covering its new Doral, Florida headquarters, with landlord Doral Flex.
The Lease term is for 37 months commencing on September 1, 2017 and ending on September 30, 2020. The monthly rent, including
sales tax is $1,990, $2,056 and $2,124 for the years ending 9/30/2018, 9/30/2019 and 9/30/2020 respectively. A deposit of $6,191
was tendered to secure the lease. Rent expense for the three months ended September 30, 2020 was $6,995.
EARTH
SCIENCE TECH, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL
Note
5 - Balance Sheet and Income Statement Footnotes
Accounts
receivable represent normal trade obligations from customers that are subject to normal trade collection terms, without discounts
or rebates. If collection is expected in one year or less they are classified as current assets. If not, they are presented as
non-current assets. Notwithstanding, these collections, the Company periodically evaluates the collectability of accounts receivable
and considers the need to establish an allowance for doubtful debts based upon historical collection experience and specifically
identifiable information about its customers. As of September 30, 2020, the Company had allowances of $101,404. The Company used
an allowance of 40% of receivables over 90 days to charge bad debt expense.
Accounts
payable are obligations to pay for goods and services that have been acquired in the ordinary course of business from suppliers.
Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle
of the business if longer). If not, they are presented as non-current liabilities
Accrued
expenses of $191,935 as of September 30, 2020 mainly represent $30,935 of accrued interest on notes payable and accrued payroll
for Michel Aube and Nickolas Tabraue for $161,000.
As
September 30, 2020, ROU Asset was $25,105 and Lease Liability-Current was $25,105.
Convertible
Note 1-GHS resulted in a conversion on 8/28/20 reducing principal balance from $76,927 to $ 51,372. 1,500,000 shares of common
stock were issued to satisfy $25,555 in principal and $5,945 in interest for a total of $31,500.
On
July 27, 2020 a SBA loan was established for $106,800 at a rate of 3.75% per annum for 30 years. A monthly payment of $521 including
principal and interest will begin 7/27/21.
General
and administrative expenses were $74,020 and $121,362 for the three months ended September 30, 2020 and 2019 respectively and
$148,417 and $328,484 for the six months ended September 30, 2020 and 2019 respectively. For the three months ended September
30, 2020, the majority comprised of receiver admin fees in the amount of $18,950 and accounting fees of $27,800. The remainder
of, $27,270 was for employee compensation, rent, and other expenses. For the six months ended September 30, 2020 the majority
comprised of receiver admin fees in the amount of $48,950 and accounting fees of $37,800. The remainder of $61,667 was for employee
compensation, rent and other expenses.
Professional
fees were $7,400 for the three months ended September 30, 2020. The bulk of these expenses were paid to OTC Markets in the amount
of $6,500.
Cost
of legal proceedings was $5,000 for the three months ended September 30, 2020. Legal expenses were for corporate attorney fees.
Interest
expense was $12,495 and $12,720 for three months ended September 30, 2020 and 2019. Interest expense for three months ended September
30, 2020 was mainly $11,304 for Convertible Notes-GHS.
Note
6 - Subsequent Events
There
were no subsequent events.