NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2021
(UNAUDITED)
Note
1 — Organization and Nature of Operations
Earth
Science Tech, Inc. (“ETST” or the “Company”) was incorporated under the laws of the State of Nevada on April
23, 2010. ETST has changed its immediate focus from researching and developing innovative hemp extracts and making them accessible worldwide;
with plans to be a supplier of high quality hemp oil enriched with high-grade CBD. Its primary goal had been to advance different high
quality hemp extracts with a broad profile of cannabinoids and additional natural molecules found in industrial hemp and to identify
their distinct properties. Initially our missions were to educate the public on the many and varied nutritional and health benefits of
CBD-rich hemp oil, to optimize purity in formulation, and to find new product delivery systems. With the decline in CBD sales due to
the number of factors described in the Registrant’s periodic report filed with the SEC on Form 10-K for the period ending
March 31, 2021, we determined that the most efficient means to increase shareholder value would be the acquisition of a complimentary
business that would bring revenues sufficient to support its own operations but that would allow the business to expand and for the Company
to rebuild its CBD business. The opportunity that the Company is currently pursuing is the acquisition of JBC Medical Equipment, Inc.
together with RxCompoundStore.com, LLC and Peaks Curative, LLC. The acquisition of all three businesses would give the Company the ability
to cross-sell among the businesses as well as our current customers. There are also some areas that have been identified in these companies
that are at the point where the revenue levels are at a point where allocating minimal incremental expenses in certain product offerings
should result in more significant increases in revenue and earnings. The corporate strategy currently is to develop the acquisition plan,
structure and terms while the Company’s receivership is wound down so that when it emerges from receivership, it is in a position
to execute on the planned acquisitions. As the Company assimilates the new businesses into its operations, it plans to work to raise
additional capital necessary to expand on the existing operations and to capitalize on their synergistic opportunities that provide the
greatest immediate return on investment (i.e. pick the low hanging fruit), then to continue capitalizing on the opportunities among the
companies and to rebuild its CBD sales. Finally it plans to license its Hygee product to a third party, if it is able to negotiate terms
that are acceptable.
To
design and produce CBD enhanced nutraceutical products for sale to the general public. We intend to create high-grade CBD-rich hemp oil
and other CBD containing products unique to the current market in the nutraceuticals industry. We believe that our formulations will
set us apart from competing products for promoting health. We have formulated and produced our initial CBD products, intended for, subject
to performance, treating various symptoms of diseases and ailments or for overall health. The Company plans to expand manufacturing and
marketing of these CBD products with expansion of products over the next five years.
To
offer a wide selection of health and nutrition products through online, clinics, pharmacies, and in-store retail. Through our wholly
owned subsidiary, we plan to continue expanding retail sales of nutritional supplements through online, clinics, pharmacies, and in-store
sales. Then with the acquisition of the compounding pharmacy, we will focus on men’s health as well as other areas. In particular,
the Company plans to continue with plans to build a sterile facility so that injectable products may be compounded and sold. Our current
product selection includes many high-quality supplement brands, and includes our proprietary CBD-rich hemp oil.
Note
2 — Summary of Significant Accounting Policies
Basis
of presentation
The
Company’s accounting policies used in the presentation of the accompanying consolidated financial statements conform to accounting
principles generally accepted in the United States of America (“US GAAP”) and have been consistently applied.
Principles
of consolidation
The
accompanying consolidated financial statements include all of the accounts of the Company and its wholly-owned subsidiaries. The subsidiaries
include Nutrition Empire, Inc., Cannabis Therapeutics, Inc. and Earth Science Pharmaceutical Inc. Earth Science Foundation, Inc. is a
non-profit favored entity of the Company focused on developing its role as a world leader in the CBD space, expanding its work in the
pharmaceutical and medical device sectors.
Earth
Science Pharmaceutical (“ESP”) is a wholly-owned subsidiary of ETST was committed to the development of low cost, non-invasive
diagnostic tools, medical devices, testing processes and vaccines for sexually transmitted infections and/or diseases. ESP’s operations
have been suspended while the Company restructures to maximize all efforts in the best interest to its shareholders.
Cannabis
Therapeutics (“CTI”) is a wholly-owned subsidiary of ETST poised to take a leadership role in the development of new, leading-edge
cannabinoid-based pharmaceutical and nutraceutical products. CTI is invested in research and development to explore and harness the medicinal
power of cannabidiol. The company is focused on developing treatments for breast and ovarian cancers, as well as two generic CBD based
pharmaceutical drugs.
Nutrition
Empire Inc. (“NE”) was established in 2014 as a supplement retail store offering products such as; sports nutrition, at the
time Earth Science Tech, Inc.’s High Grade CBD Oil and nutraceutical/bioceutical line. In early 2017 the Company decided to relinquish
the retail store to allocate its capital and time to further pursue its successful industrial hemp CBD products through its growing wholesale
accounts. Since the closing of Nutrition Empire in 2017, the wholly owned subsidiary has been dormant and kept for potential acquisitions
or projects.
Earth
Science Foundation (“ESF”) is a favored entity of ETST, effectively being a non-profit organization on February 11, 2019
and is structured to accept grants and donations to conduct further studies and help donate ETST’s effective CBD products to those
in need.
All
intercompany balances and transactions have been eliminated on consolidation.
Use
of estimates and assumptions
The
preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting periods.
The
Company’s significant estimates and assumptions include the fair value of financial instruments; the accrual of the legal settlement,
the carrying value recoverability and impairment, if any, of long-lived assets, including the estimated useful lives of fixed assets;
the valuation allowance of deferred tax assets; stock based compensation, the valuation of the inventory reserves and the assumption
that the Company will continue as a going concern. Those significant accounting estimates or assumptions bear the risk of change due
to the fact that there are uncertainties attached to those estimates or assumptions, and certain estimates or assumptions are difficult
to measure or value.
Management
bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent
from other sources.
Management
regularly reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience
and reasonable assumptions. After such reviews, and if deemed appropriate, those estimates are adjusted accordingly. Actual results could
differ from those estimates.
Carrying
value, recoverability and impairment of long-lived assets
The
Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC’) 360 to
evaluate its long-lived assets. The Company’s long-lived assets, which include property and equipment and a patent are reviewed
for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
The
Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the
related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying
amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally
determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets
are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the
net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.
The
Company considers the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance
or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or
use of assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes in the Company’s
overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant
decline in the Company’s stock price for a sustained period of time; and (vi) regulatory changes. The Company evaluates assets
for potential impairment indicators at least annually and more frequently upon the occurrence of such events. Impairment of changes,
if any, are included in operating expenses.
On
June 4, 2019 the Company discontinued its patents based upon the advice of IP counsel. IP counsel indicated that only one patent application
had a reasonable chance of being granted and based upon this advice the Company determined that it would discontinue this approach of
using the patent process to protect product formulations in general and rather, revert to proprietary formulae and trade secrets to protect
its intellectual property (unless it was clear from the beginning of the process that the formula was patentable. As a result, on June
4, 2019, the company wrote down or otherwise impaired approximately $27,000 in legal fees that had previously been attributed to its
Patents and took a corresponding write-off to “impairment expense.”
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.
Revenue
recognition
The
Company follows and implemented ASC 606, Revenue from Contracts with Customers for revenue recognition. Although the new revenue standard
is expected to have an immaterial effect, if any, on our ongoing net income, we did implement changes to our processes related to revenue
recognition and the control activities within them. These included the development of new policies based on the five-step model provided
in the new revenue standard, ongoing contract review requirements, and gathering of information provided for disclosures.
The
Company recognizes revenue from product sales or services rendered when control of the promised goods are transferred to our clients
in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods and services. To achieve this
core principle, we apply the following five steps: identify the contract with the client, identify the performance obligations in the
contract, determine the transaction price, allocate the transaction price to performance obligations in the contract and recognize revenues
when or as the Company satisfies a performance obligation.
The
Company recognizes its retail store revenue at point of sale, net of sales tax.
Inventories
Inventories
consist of various types of nutraceuticals and bioceuticals at the Company’s retail store and main office. Inventories are stated
at the lower of cost or market using the first in, first out (FIFO) method. A reserve is established if necessary to reduce excess or
obsolete inventories to their net realizable value.
Cost
of Sales
Components
of costs of sales include product costs, shipping costs to customers and any inventory adjustments.
Shipping
and Handling Costs
The
Company includes shipping and handling fees billed to customers as revenues and shipping and handling costs for shipments to customers
as cost of revenues.
Research
and development
Research
and development costs are expensed as incurred. The Company’s research and development expenses relate to its engineering activities,
which consist of the design and development of new products for specific customers, as well as the design and engineering of new or redesigned
products for the industry in general.
Income
taxes
The
Company follows ASC 740 in accounting for income taxes. Deferred tax assets and liabilities are determined based on the estimated future
tax effects of net operating loss carry forwards and temporary differences between the tax bases of assets and liabilities and their
respective financial reporting amounts measured at the current enacted tax rates. The Company records a valuation allowance for its deferred
tax assets when management concludes that it is not more likely than not those assets will be recognized.
The
Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained
on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated
financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized
upon ultimate settlement. As of March 31, 2019, the Company has not recorded any unrecognized tax benefits.
Interest
and penalties related to liabilities for uncertain tax positions will be charged to interest and operating expenses, respectively. The
Company has net operating loss carry forwards (NOL) for income tax purposes of approximately $6,150,613. This loss is allowed to be offset
against future income until the year 2039 when the NOL’s will expire. The tax benefits relating to all timing differences have
been fully reserved for in the valuation allowance account due to the substantial losses incurred through March 31, 2019. The change
in the valuation allowance for the years ended March 31, 2019 and 2018 was an increase of $0 and $0, respectively.
Internal
Revenue Code Section 382 (“Section 382”) imposes limitations on the availability of a company’s net operating losses
after certain ownership changes occur. The Section 382 limitation is based upon certain conclusions pertaining to the dates of ownership
changes and the value of the Company on the dates of the ownership changes. It was determined that an ownership change occurred in October
2013 and March 2014. The amount of the Company’s net operating losses incurred prior to the ownership changes are limited based
on the value of the Company on the date of the ownership change. Management has not determined the amount of net operating losses generated
prior to the ownership change available to offset taxable income subsequent to the ownership change.
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 June 30, 2021 the Company has no warrants that are anti-dilutive and not included in the calculation of diluted loss per share.
Cash
flows reporting
The
Company follows ASC 230 to report cash flows. This standard classifies cash receipts and payments according to whether they stem from
operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method
(“Indirect method”) as defined by this standard to report net cash flow from operating activities by adjusting net income
to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts
and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income
that do not affect operating cash receipts and payments. The Company reports separately information about investing and financing activities
not resulting in cash receipts or payments in the period pursuant this standard.
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:
Schedule of Property and Equipment Estimated Useful Lives
|
|
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.
Recently
issued accounting pronouncements
In
August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.
2016-15, Classification of Certain Cash Receipts and Cash Payments. The new standard will change the classification of certain
cash payments and receipts within the cash flow statement. Specifically, payments for debt prepayment or debt extinguishment costs, including
third-party costs, premiums paid, and other fees paid to lenders that are directly related to the debt prepayment or debt extinguishment,
excluding accrued interest, will now be classified as financing activities. Previously, these payments were classified as operating expenses.
The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after
December 15, 2019, with early adoption permitted, and will be applied retrospectively. The Company does not expect that the adoption
of this new standard will have a material impact on its consolidated financial statements.
In
February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. This ASU requires lessees to recognize most leases
on their balance sheets related to the rights and obligations created by those leases. The ASU also requires additional qualitative and
quantitative disclosures related to the nature, timing and uncertainty of cash flows arising from leases. The guidance is effective for
fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company
is currently evaluating the impact the adoption of this new standard will have on its consolidated financial statements.
In
March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation – Stock Compensation. The new standard
modified several aspects of the accounting and reporting for employee share- based payments and related tax accounting impacts, including
the presentation in the statements of operations and cash flows of certain tax benefits or deficiencies and employee tax withholdings,
as well as the accounting for award forfeitures over the vesting period. The new standard was effective for the Company on April 1, 2017.
The Company does not believe that the adoption of this new standard will have a material effect on its consolidated financial statements.
In
May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers. This guidance will supersede
Topic 605, Revenue Recognition, in addition to other industry-specific guidance, once effective. The new standard requires a company
to recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the company expects to be entitled in exchange for those goods and services. In August 2015, the FASB issued ASU
2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, as a revision to ASU 2014-09, which revised the effective
date to fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted but not
prior to periods beginning after December 15, 2016 (i.e., the original adoption date per ASU 2014-09). In March 2016, the FASB issued
ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations, which clarifies certain aspects of the principal-
versus-agent guidance, including how an entity should identify the unit of accounting for the principal versus agent evaluation and how
it should apply the control principle to certain types of arrangements, such as service transactions. The amendments also reframe the
indicators to focus on evidence that an entity is acting as a principal rather than as an agent. In April 2016, the FASB issued ASU 2016-10,
Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, which clarifies how an entity should evaluate
the nature of its promise in granting a license of intellectual property, which will determine whether it recognizes revenue over time
or at a point in time. The amendments also clarify when a promised good or service is separately identifiable (i.e., distinct within
the context of the contract) and allow entities to disregard items that are immaterial in the context of a contract. The Company continues
to assess the impact this new standard may have on its ongoing financial reporting. The Company has identified its revenue streams both
by contract and product type and is assessing each for potential impacts. For the revenue streams assessed, the Company does not anticipate
a material impact in the timing or amount of revenue recognized.
In
January 2017, the FASB issued Accounting Standards Update No. 2017-04, Intangibles-Goodwill and Other, which simplifies the accounting
for goodwill impairments by eliminating step 2 from the goodwill impairment test. Instead, if “the carrying amount of a reporting
unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of
goodwill allocated to that reporting unit.” The guidance is effective for fiscal years beginning after December 15, 2019. Early
adoption is permitted. The Company is currently evaluating the impact the adoption of this new standard will have on its Consolidated
Financial Statements.
All
other newly issued accounting pronouncements not yet effective have been deemed either immaterial or not applicable.
Intangible
Assets
In
October 2014, the Company acquired a patent that is being amortized over its useful life of fifteen years in accordance with ASC 350,
“Intangibles - Goodwill and Other”. The Company purchased the patent through a cash payment of $25,000. Additionally, the
Company capitalized patent fees of $26,528. The Company’s balance of intangible assets on the condensed consolidated balance sheet
net of accumulated amortizations $0 and $38,740.00 as of March 31, 2019 and March 31, 2018, respectively. Amortization expense related
to the intangible assets was $4,406.00 and $4,406.00, respectively for the years ended March 31, 2019 and 2018, respectively. For the
year ended March 31, 2019, all patents were impaired and written off due to changes in accounting principles. $34,334 were written off
to Patent impairment expenses.
Reclassification
Certain
amounts from the prior period have been reclassified to conform to the current period presentation.
Note
3 — Going Concern
The
accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
At June 30, 2021, the Company had negative working capital, an accumulated deficit of $33,319,388 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 - Related Party Balances and Transactions
Kannabidioid,
Inc. is currently in development stage and has had no related party revenue from Earth Science Tech, Inc. for the three months ended
June 30, 2021.
On
January 11, 2019, Robert Stevens was appointed by the Nevada District Court as Receiver for the Company in Case No. A-18-784952-C. As
approved by the Nevada District Court, Strongbow Advisors, Inc., an entity controlled by Robert Stevens (“Strongbow”), is
compensated at a rate of $400 per hour for his services as the Company’s Receiver. During the three months ended June 30, 2021,
$0 has been paid to Strongbow as compensation for Mr. Stevens’ services as the Company’s Receiver, this is due to the judge
ordering the Receiver not being allowed to compensate Strongbow Advisors, Inc. throughout the intervenor litigation that subsequently
led to Robert Steves being discharged an ordered out of the Company on August 27, 2021 (See Note 6 Commitments and Contingencies, Legal
Proceedings).
Note
5 – Stockholders’ Equity
During
the three months ended June 30, 2021 and 2020, the Company issued 2,300,000
and 1,973,787
common shares for an aggregate of $28,175
and $40,592
respectively.
On
June 04, 2021 the Company issued 2,300,000 shares of Common Stock at a price of $0.01225 per share in conversion of the Convertible Promissory
Note dated April 2, 2019 for the principal debt amount of $19,982.84 and interest of $8,192.16 totaling $28,175.00 pursuant to the exemption
provided by 3(a)9 of the Securities Act of 1933, as amended. Like the other notes purchased by GHS, the notes were originally issued
as “not in a public offering” under the exemption provided by Section 4(2) of the Securities Act of 1933, as amended.
Note
6 — Commitments and Contingencies
Legal
Proceedings
On
January 11, 2019, the Company received notice that Strongbow Advisors, Inc. and Robert Stevens (“Stevens”, and together with
Strongbow, the “Receiver”) had been appointed by the Nevada District Court, as Receiver for the Registrant in Case No. A-18-784952-C
(the “Order).
The
Company sought the appointment of the Receiver after it found itself in an imminent danger of insolvency following the issuance by an
arbitration panel of an award (the “Award”) in the sum of $3,994,522.5 million in favor of Cromogen Biotechnology Corporation
(“Cromogen”) in the matter entitled Cromogen Biotechnology Corporation vs. Earth Science Tech, Inc. (the “Cromogen
Litigation”). The Nevada District Court found that the Company was in fact insolvent and ordered the appointment of the Receiver.
The
Award consisted of a sum for breach of contract against the Company in the amount of $120,265.00, a sum for costs and fees against the
Company in the amount of $111,057.00 and a sum for the claim of tortuous interference and conversion against the Company in the amount
of $3,763,200.00. The District Court in Florida had confirmed the Award granted by the arbitration panel, denying however, the award
of fees that the arbitration panel had granted Cromogen.
The
Cromogen Litigation has been settled under an agreement that provides for monthly payments beginning after the first of the year in January
2022. The settlement agreement contains a significant increase in the amount due from $450,000 if the Company should default on its payment
obligations thereunder.
As
part of the impact of the receivership, the Court issued a Writ of Injunction or “Blanket Stay” covering the Company and
its assets during the time that the Company is in receivership. As a result of the “Blanket Stay” the Company’s estate
is protected from creditors and interference with its administration is prevented while the Company’s financial issues are being
fully analyzed and resolved. As part of this process, creditors will be notified and required to provide claims in writing under oath
on or before the deadline stated in the notice provided by the Receiver or those claims will be barred under NRS §78.675. The Blanket
Stay will remain in place unless otherwise waived by the Receiver, or it is vacated by the Court or alternatively, lifted by the Court,
upon a “motion to lift stay” duly made and approved by the Nevada District Court.
On
November 7, 2019 the Receiver for Earth Science Tech, Inc., a Nevada corporation (the “Company”) filed a motion for preliminary
injunction against Majorca Group Ltd. in the 8th Judicial District in Clark County, Nevada. The filing 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
January 19, 2021, one of the Company’s largest shareholders served and filed a notice of motion and motion to intervene against
Robert L. Stevens and Strongbow Advisors, Inc. (individually or collectively referred to as “Receiver”) this action was later
joined by additional shareholders representing approximately 33% of the issued and outstanding shares of the Company at that time. This
motion to intervene, at its heart, was based upon and resulted from, what the interveners saw as, a lack of transparency by the Receiver.
What was filed was initially based upon concerns of Mr. Stevens’ lack of transparency. However as the matter progressed in court,
additional concerns have arisen and on August 27, 2021, Stevens and Strongbow were discharged and removed and William Leonard was appointed
to replace them as Receiver, by the Nevada District Court. Mr. Leonard is currently reviewing various matters, including past invoices
presented by Stevens, as well as his conduct during the time he acted as Receiver for the Company as well as others that the prior Receiver
had a prior relationship with that have derived benefits from working with the prior Receiver. The outcome of this review is uncertain
at this time and a wide number of outcomes is possible.
The
Company is now optimistic that it will be able to emerge from receivership under the new receiver, in a reorganized position that will
allow it to proceed with the acquisitions of the three entities. Combined, these entities present a larger opportunity to realize the
synergies that they have among themselves and in so doing, the Company believes it will be possible for shareholder value to increase
at a faster rate than would otherwise be possible with only its CBD business and licensing of its medical device, Hygee, The Company
has executed a joint letter of intent with three entities involved in the durable medical equipment, retail sales and compounding pharmacy
businesses with the objective of negotiating the final terms of a transaction that will result in the Company’s acquisition of
these entities.
Lease
Agreements
On
March 25, 2021, the Receiver decided to shutdown the Miami Facility and shipped the Company’s remaining inventory to his CO office
to fulfill and have as the corporate address., the Receiver believed that his existing facility was suitable.
Note
7 — Balance Sheet and Income Statement Footnotes
Accounts
receivable represent normal trade obligations from customers that are subject to normal trade collection terms, without discounts or
rebates. If collection is expected in one year or less they are classified as current assets. If not, they are presented as non-current
assets. Notwithstanding, these collections, the Company periodically evaluates the collectability of accounts receivable and considers
the need to establish an allowance for doubtful debts based upon historical collection experience and specifically identifiable information
about its customers. As of June 30, 2021, the Company had allowances of $101,404. The Company used an allowance of 40% of receivables
over 90 days to charge bad debt expense.
As
of June 30, 2021, ROU Asset was $0 and Lease Liability-Current was $0.
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 $235,509 as of June 30, 2021 mainly represent, $135,000 of accrued payroll for Michele Aube, $66,000 for Nickolas S. Tabraue,
and the remainder for of accrued interest on related Notes Payable..
General
and administrative expenses were $7,196 and $74,397 for June 30, 2021 and 2020 respectively. For the three months ended June 30, 2021,
the majority comprised was for employee compensation and other expenses.
Professional
fees were $900 for the three months ended June 30, 2021. The bulk of these expenses were paid to Action Stock Transfer, the Company’s
transfer agent.
Legal
expenses were $(233) for the three months ended June 30, 2021.
Research
and development were $0 for the three months ended June 30, 2021.
Interest
expense was $(11,162)
and $(12,604)
for three months ended June 30, 2021
and 2020. Interest expense for three months ended June 30, 2020 was mainly due to Convertible Notes-GHS.
Note
8 — Subsequent Events
On
August 27, 2021, Earth Science Tech, Inc., a Nevada corporation (the “Company”), .Robert L. Stevens along with Somerset Capital,
Ltd./Strongbow Advisors, Inc. was discharged and removed as receiver and was replaced by William A. Leonard Jr. of Crisis Management,
Inc.. The replacement of receiver was granted by the Eighth Judicial Court in Clark County Nevada, and is the result of the ongoing
litigation initiated on January 19, 2021 by certain shareholders (ultimately representing approximately 33%) who intervened because of
concerns of Mr. Stevens’ lack of transparency.
During
the litigation the intervenors were able to settle all claims including those of Cromogen Biotechnology Corporation (“Cromogen”);
thereby ending the litigation that started as a breach of contract claim, that’s been ongoing since October 23, 2014 leading to
the January 11, 2019’s receivership with Mr. Stevens. The intervenors have also achieved funding options through the Company’s
loyal shareholder base and a strong merger candidate that will position the Company stronger than it’s ever been.
Mr.
Leonard Jr. has been appointed by the court to reinstate the original board of directors member while overseeing the estate and to revaluate
Mr. Stevens 2 year and 8 month receivership term with the Company. The original board members include, Nickolas S. Tabraue and Steven
Warm (collectively “board members”). The board members will be working on getting the Company current with the SEC and OTC,
raise necessary capital, and work on acquiring its merger candidate to maximize shareholder value under the supervision and assistance
from Mr. Leonard Jr. granted court order allows for approximately 30 days for the Company to end the receivership under Mr. Leonard Jr.,
more time can be requested if needed by the Mr. Leonard Jr. prior to unwinding out of receivership to assure the Company’s success.
On
August 30, 2021, Nickolas S. Tabraue, Steven Warm, and Jeannette Steigerwald have been elected to the board of directors of the Company
by Mr. Leonard Jr. The board will be working on getting the Company current and compliant with OTC and the SEC, while investigating the
prior receivership’s actions related to Company with Mr. Leonard.
On
August 30, 2021, the Company entered into an agreement with JCR Medical Equipment, Inc., a Florida Corporation to lease a 1,000 square
foot facility consisting of office and warehouse space out of its 13,000/sq. ft. facility located at 10650 NW 29th Terrace Doral, FL
33172.
On
August 31, 2021, Earth Science Tech, Inc., a Nevada corporation (the “Company”), entered into revolving credit Agreement
(“Revolving Loan”) with Great Lakes Holding Group, LLC, at Lender’s principal address located at Ontario, Canada (“GLHG”).
Under the terms of the Equity Financing Agreement, GLHG agreed to loan certain sums to the Company from time to time, and the Company
wishes to borrow certain sums from GLHG up to $250,000. The Company promises to pay to the order of GLHG on or before January 1, 2024
the principal sum of $250,000.00 or so much thereof as may be advanced and outstanding, together with all interest accrued on unpaid
principal, to be computed on each advance of a loan from the date of its disbursement to Borrower, at a rate of eight and five percent
per annum (calculated on the basis of a 360-day year), compounded annually.
On
August 30, 2021, the Company reached a settlement with Cromogen for $585,885.90 in a month to month payment plan starting January 1,
2022, having the initial payment of $45,000 and $10,000 each month followed with the final payment set on December 1, 2026. If the Company
is able to and decides to pay the settlement entirely prior to January 1, 2022 commencement, a $85,885.90 reduction will take place having
the settlement be $500,000. If the Company defaults on Cromogen’s settlement, a confession of judgement will be executed for the
amount of $970,000, representing the total amount of Cromogen’s unsecured claims, less any amount paid by the Company, plus costs
and attorney fees incurred to obtain the enforce of judgement.
On
September 10, 2021, the Company entered into a Joint Letter of Intent to acquire JCR Medical Equipment, Inc., RxComponundStore.com, LLC.
and Peaks Curative, LLC. (“PC”), (collectively, the “Acquisition Targets.”
JCR
Medical Equipment, Inc. (“JCR”), is a Durable Medical Equipment (“DME”) company, Long-term Care Supplier and
pharmacy that has been in operation since 1997. JCR recently re-opened its Retail Pharmacy to cross sell DME customers / referrals their
medications. A number of years ago JCR sold its book of business to CVS and in connection with that sale, the company and management
were required to enter into non-compete agreements. Just recently these non-compete agreements expired so that management and the company
became eligible to operate the pharmacy division. JCR has been in the process of growing its business by securing the necessary licensing
to provide sterile products for injection. In addition, it has identified home health services as a logical complimentary business segment
that not only will provide additional opportunities to cross sell customers/patients but the company will realize a competitive advantage
in the lower cost it will incur to acquire customers. .
RxCompoundStore.com,
LLC (“RxCS”), is a compounding pharmacy that has focused on men’s health, specifically medical products directed at
ED such as Tadalfil, and Sildenafil Citrate, the generic names for Cialis and Viagra, respectively) and others, compounded into “gummies.”
RxCS is currently not a “sterile compounding pharmacy” however it is in the process of securing the necessary licensing to
provide sterile products for injection.
Peaks
Curative, LLC. (“PC”), is the telemedicine referral site facilitating asynchronous consultations for branded compound medications
prepared at RxCS.
Currently
the Company and Acquisition Targets are in the process of working with various regulatory authorities such as the Agency of Health Care
Administration (ACHA), Florida of Board of Pharmacy, and the Drug Enforcement Agency (DEA) and various industry experts to identify the
regulatory and compliance requirements that will impact and dictate how the Acquisition Targets will be allowed to work and operate within
a holding company structure. These discussions and the related investigation are important as we plan and develop the corporate and operational
structure of the combined entities, and are an integral part of managements’ identification and ability to realize the synergies
and expansion opportunities that will be available. It is also necessary to ensure that the companies will be able to operate in their
respective industry segments and as a collective group with as much latitude as possible and while in full compliance with all applicable
legal and industry regulatory requirements. The parties are fully committed to finding the optimal structure for each of the companies
to operate within that provides the greatest synergies and opportunities for them as a group and we are currently considering executing
on the three acquisitions in phases as an alternative to structuring them under a single roll-up transaction.
On
September 6, 2021, pursuant to the Order of the Nevada District Court dated August 27, 2021 and the authority granted to the Board of
Directors of the Company thereunder, the Letter of Intent with Sunlife AG, LLC entered on or about May 31, 2021 by the then acting receiver,
Robert L. Stevens, who was subsequently discharged and removed pursuant to the same order, (then acting Receiver). That Letter of Intent
and the performance contemplated thereunder is not nor will it become an obligation of the Company in any respect or to any extent.
On
September 3, 2021, the newly appointed board of directors of the Company, which included Nickolas S. Tabraue as a member, appointed and
reinstated Nickolas S. Tabraue as President and CEO of Earth Science Tech, Inc.. As part of his appointment the board of directors reinstated
him under the terms of his executive employment agreement with the Company that had been in effect prior to his February 12, 2021 termination.
On
September 3, 2021, Wendell Hecker was appointed as CFO of Earth Science Tech, Inc. and his former executive employment agreement with
the Company that had been in effect prior to his June 16, 2021 resignation was reinstated.