10-Q 1 form10-q.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: August 31, 2016

 

OR

 

[  ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______________ to ______________

 

Commission file number: 333-168413

 

ECOSCIENCES, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Nevada   27-2692640
(State of Other Jurisdiction of   (I.R.S. Employer
Incorporation or Organization)   Identification Number)
     
420 Jericho Turnpike, Suite 110    
Jericho, NY 11753   11753
(Address of Principal Executive Offices)   (Zip Code)

 

(516) 465-3964

(Registrant’s Telephone Number, Including Area Code)

 

With a copy to:

Philip Magri, Esq.

Magri Law, LLC

2642 NE 9th Avenue

Fort Lauderdale, FL 33334

T: (646) 502-5900

F: (646) 826-9200

pmagri@magrilaw.com

www.magrilaw.com

 

N/A

(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [  ] No [X]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer [  ] Accelerated filer [  ]
Non-accelerated filer [  ] Smaller reporting company [X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ] No [X]

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date. As of November 3, 2016, there were 147,951,500 shares of Common Stock, $0.0001 par value per share, issued and outstanding.

 

 

 

 
  

 

Table of Contents

 

PART I - FINANCIAL INFORMATION 3
item 1. financial statements (unaudited) 3
item 2. management’s discussion and analysis of financial condition and results of operations 4
Forward Looking Statements 4
Corporate History 4
Overview 5
Product Development 6
Growth Strategy of the Company 6
Critical Accounting Policies, Estimates, and Judgments 6
Results of Operations 6
Financial Condition, Liquidity and Capital Resources 8
Working Capital 10
Cash and Cash Equivalents 10
Off-Balance Sheet Operations 11
item 3. quantitative and qualitative disclosures about market risk 11
item 4. controls and procedures 11
Evaluation of Disclosure Controls and Procedures. 11
Changes in Internal Control over Financial Reporting 11
PART II – OTHER INFORMATION 11
item 1. legal proceedings 11
item 1A. risk factors 11
item 2. unregistered sale of equity securities and use of proceeds 11
item 3. defaults upon senior securities 12
item 5. other information 12
Subsequent Events 12
item 6. exhibits 14
SIGNATURES 15

 

 2 
  

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements (unaudited)

 

Ecosciences, Inc.

Condensed Consolidated Financial Statements

(Unaudited)

 

Index

 

Table of Contents  
   
Unaudited Condensed Consolidated Balance Sheets F-1
   
Unaudited Condensed Consolidated Statements of Operations F-2
   
Unaudited Condensed Consolidated Statements of Cash Flows F-3
   
Notes to the Unaudited Condensed Consolidated Financial Statements F-4

 

 3 
  

 

Ecosciences, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

 

   August 31, 2016   May 31, 2016 
         
ASSETS          
           
Current Assets          
           
Cash  $9,435   $4,220 
Inventory   4,374    5,169 
Prepaid expenses   -    771 
           
Total Assets  $13,809   $10,160 
           
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
           
Current Liabilities          
           
Accounts payable  $151,545   $165,483 
Accrued liabilities   413,284    331,505 
Due to related parties   49,083    42,046 
Notes payable   230,432    261,157 
Convertible notes payable, net   64,868    30,177 
Derivative liabilities   186,889     
           
Total Liabilities   1,096,101    830,368 
           
Commitments          
           
Stockholders’ Deficit          
           
Preferred Stock 50,000,000 shares authorized, $0.0001 par value;          
           
Series A Redeemable and Convertible Preferred Stock 1,593,630 shares issued and outstanding   160    160 
           
Series B Preferred Stock 200,000 shares issued and outstanding   20    20 
           
Series C Redeemable and Convertible Preferred Stock 4,700,000 shares issued and outstanding   470    470 
           
Series D Convertible Preferred Stock 610,000 shares issued and outstanding   61    61 
           
Common Stock 500,000,000 shares authorized, $0.0001 par value; 101,751,500 shares issued and outstanding   10,175    10,175 
           
Additional Paid-in Capital   108,956    108,956 
           
Deficit   (1,202,134)   (940,050)
           
Total Stockholders’ Deficit   (1,082,292)   (820,208)
           
Total Liabilities and Stockholders’ Deficit  $13,809   $10,160 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 F-1 
  

 

Ecosciences, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

 

   Three Months Ended   Three Months Ended 
   August 31, 2016   August 31, 2015 
         
Revenue  $3,472   $3,354 
Cost of sales   (1,774)   (2,421)
           
Gross Profit   1,698    933 
           
Expenses          
General and administrative   15,462    69,390 
Professional fees   125,636    97,500 
           
Total Expenses   141,098    166,890 
           
Net Loss Before Other Expenses   (139,400)   (165,957)
           
Other Expenses          
Interest expense   (37,795)   (5,128)
Loss on derivative liabilities   (84,889)    
           
Net Loss  $(262,084)  $(171,085)
           
Net Loss Per Share – Basic and Diluted  $   $ 
Weighted-average Common Shares Outstanding – Basic and Diluted   101,751,500    101,751,500 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 F-2 
  

 

Ecosciences, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

   Three Months
Ended
August 31, 2016
   Three Months
Ended
August 31, 2015
 
         
Cash Flows from Operating Activities          
           
Net loss  $(262,084)  $(171,085)
           
Adjustments to reconcile net loss to net cash used in operating activities:          
Interest expense   24,691     
Loss on derivative liabilities   84,889     
Stock-based compensation       61,000 
           
Changes in operating assets and liabilities:          
Accounts receivable       933 
Inventory   795    88 
Prepaid expenses   771    487 
Accounts payable   (13,938)   30,994 
Accrued liabilities   81,779    61,859 
           
Net Cash Used in Operating Activities   (83,097)   (15,724)
           
Cash Flows from Financing Activities          
           
Advances from related party, net   7,037    8,800 
Proceeds from notes payable   7,500    7,196 
Payment of notes payable   (38,225)    
Proceeds from convertible notes payable   112,000     
           
Net Cash Provided by Financing Activities   88,312    15,996 
           
Change in Cash   5,215    272 
           
Cash - Beginning of Period   4,220    381 
           
Cash - End of Period  $9,435   $653 
           
Supplemental Disclosures of Cash Flow Information:          
           
Interest paid  $175   $ 
Income taxes paid  $   $ 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 F-3 
  

 

Ecosciences, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

1. Nature of Operations

 

Ecosciences, Inc. (the “Company”) was incorporated in the State of Nevada on May 26, 2010. The Company’s principal business is focused on the development, production and sale of environmentally focused wastewater products. It currently produces organic tablets and powders to be used regularly and in lieu of harmful chemical cleaning products in grease trap and septic tank systems. The Company intends to generate revenue through the sale of tablets and powders to domestic and international customers in the food and sanitation industries as well as residential consumers.

 

The accompanying unaudited condensed consolidated financial statements of the Company should be read in conjunction with the consolidated financial statements and accompanying notes filed with the U.S. Securities and Exchange Commission in the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2016. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments of a recurring nature considered necessary to present fairly the Company’s financial position and the results of its operations and its cash flows for the periods shown.

 

The preparation of unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from those estimates. The results of operations and cash flows for the periods shown are not necessarily indicative of the results to be expected for the full year.

 

2. Going Concern

 

These unaudited condensed consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has not generated significant revenue since inception and has not generated significant earnings. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to continue operations, and the attainment of profitable operations. As of August 31, 2016, the Company has accumulated losses of $1,202,134 and a working capital deficit of $1,082,292. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These unaudited condensed consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

3. Inventory

 

Inventory consists of the following:

 

   August 31, 2016   May 31, 2016 
Raw Materials  $1,171   $1,353 
Finished Goods   1,600    2,213 
Packaging Supplies   1,603    1,603 
           
Total  $4,374   $5,169 

 

4. Related Party Transactions

 

  a) During the three months ended August 31, 2016, the Company incurred management services fees of $7,800 (2015 - $17,800) to the President of the Company.
     
  b) At August 31, 2016, and May 31, 2016, the Company was indebted to the President of the Company and a company controlled by the President of the Company for $49,083 and $42,046, respectively. The amount is unsecured, non-interest bearing and due on demand.

 

 F-4 
  

 

Ecosciences, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

5. Notes Payable

 

Notes payable consist of the following:

 

     August 31, 2016   May 31, 2016 
           
a) Notes payable that are unsecured, non-guaranteed, non-interest bearing and due on demand.  $5,528   $5,528 
b) Note payable which is unsecured, non-guaranteed, and non-interest bearing. The note is due one year following the borrowing date.   8,000    8,000 
c) Note payable which is unsecured, non-guaranteed, and bears interest at 10% per annum. The note is due 60 days following demand. At August 31, 2016, and May 31, 2016, the Company owed accrued interest of $6,778 and $6,274, respectively.   20,000    20,000 
d) Note payable which is unsecured, non-guaranteed, and bears interest at 8% per annum. The note is due one year following the borrowing date. At August 31, 2016, and May 31, 2016, the Company owed accrued interest of $31,424 and $27,848, respectively.   140,000*   170,000*
e) Note payable which is unsecured, non-guaranteed, and bears interest at 8% per annum. The note is due one year following the borrowing date. At August 31, 2016, and May 31, 2016, the Company owed accrued interest of $420 and $364, respectively.   2,500    2,500 
f) Note payable which is unsecured, non-guaranteed, and bears interest at 8% per annum. The note is due one year following the borrowing date. At August 31, 2016, and May 31, 2016, the Company owed accrued interest of $1,788 and $1,465, respectively.   15,000    15,000 
g) Note payable which is unsecured, non-guaranteed, and bears interest at 8% per annum. The note is due six months following the borrowing date. At August 31, 2016, and May 31, 2016, the Company owed accrued interest of $1 and $5, respectively   3,904    1,229 
h) Note payable which is unsecured, non-guaranteed, and bears interest at 8% per annum. The note is due one year following the borrowing date. At August 31, 2016, and May 31, 2016, the Company owed accrued interest of $1,398 and $987, respectively.   20,000    20,000 
i) Note payable which is unsecured, non-guaranteed, and bears interest at 8% per annum. The note is due six months following the borrowing date. At August 31, 2016, and May 31, 2016, the Company owed accrued interest of $773 and $527, respectively.   12,000    12,000 
j) Note payable which is unsecured, non-guaranteed, and bears interest at 10% per annum. The note is due six months following the borrowing date. At August 31, 2016, and May 31, 2016, the Company owed accrued interest of $235 and $176, respectively.   1,300    4,700 
k) Note payable which is unsecured, non-guaranteed, and bears interest at 10% per annum. The note is due six months following the borrowing date. At August 31, 2016, and May 31, 2016, the Company owed accrued interest of $58 and $33, respectively.   1,000    1,000 
l) Note payable which is unsecured, non-guaranteed, and bears interest at 10% per annum. The note is due six months following the borrowing date. At August 31, 2016, and May 31, 2016, the Company owed accrued interest of $66 and $36, respectively.   1,200    1,200 
     $230,432   $261,157 

 

 F-5 
  

 

Ecosciences, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

5. Notes Payable (continued)

 

  *On May 9, 2014, the Company entered into a Master Loan Agreement (the “Loan Agreement”), whereby the lender agreed, from time to time, to purchase from the Company one or more Promissory Notes for the account of the Company, provided, however, that the aggregate principal amount of all Promissory Notes then outstanding shall not exceed $500,000 and that no Event of Default has occurred and remains uncured. Amounts borrowed under the Loan Agreement are evidenced by an unsecured, non-recourse Promissory Note, bearing interest at a rate of 8% per annum, maturing on the first anniversary date thereof, and may be prepaid by the Company before the maturity date. Amounts borrowed under the Loan Agreement and repaid or prepaid may not be re-borrowed. The Loan Agreement will automatically terminate and be of no further force and effect upon the earlier to occur of (i) the satisfaction of all indebtedness, including the promissory notes and any additional indebtedness issued thereafter, between the Company and the lender and (ii) written termination notice is delivered by the Company or the lender to the other party. Two notes matured in May 2015 and were not repaid. Therefore, under the default terms of the Loan Agreement, all remaining promissory notes immediately become due and payable.

 

6. Convertible Notes Payable

 

  a) On December 22, 2011, the Company entered into two Convertible Promissory Note agreements for an aggregate of $4,000. The Notes bear interest at 10% per annum, and the principal amount and any interest thereon are due 60 days following demand. Pursuant to the agreements, the Notes are convertible into shares of common stock at a conversion price equal to $0.01 per share. At August 31, 2016, and May 31, 2016, the Company owed accrued interest of $1,878 and $1,778, respectively. At August 31, 2016, and May 31, 2016, the balance owing on the two Notes was $4,000.
     
  b) On December 22, 2011, the Company entered into a Convertible Promissory Note agreement for $10,000. The Note bears interest at 10% per annum, and the principal amount and any interest thereon are due 60 days following demand. Pursuant to the agreement, the Note is convertible into shares of common stock at a conversion price equal to $0.01 per share. In addition, as a condition precedent to the right to convert the debt to common stock of the Company, the holder must purchase 3,000,000 shares of common stock at $0.01 per share. At August 31, 2016, and May 31, 2016, the Company owed accrued interest of $396 and $367, respectively. At August 31, 2016, and May 31, 2016, the balance owing on the Note was $1,177.
     
  c) On December 28, 2011, the Company entered into a Convertible Promissory Note agreement for $1,000. The Note bears interest at 10% per annum, and the principal amount and any interest thereon are due 60 days following demand. Pursuant to the agreement, the Note is convertible into shares of common stock at a conversion price equal to $0.001 per share. At August 31, 2016, and May 31, 2016, the Company owed accrued interest of $468 and $443, respectively. At August 31, 2016, and May 31, 2016, the balance owing on the Note was $1,000.
     
  d) On February 19, 2016, the Company entered into a Convertible Promissory Note agreement for $14,000. The Note bears interest at 8% per annum, and the principal amount and any interest thereon are due one year following the borrowing date. Pursuant to the agreement, the Note is convertible into shares of common stock at a conversion price to be mutually finalized between the Company and the holder of the Convertible Promissory Note within 48 hours of the conversion request. At August 31, 2016, and May 31, 2016, the Company owed accrued interest of $585 and $304, respectively. At August 31, 2016, and May 31, 2016, the balance owing on the Note was $14,000.
     
  e) On May 12, 2016, the Company entered into a Convertible Promissory Note agreement for $10,000. The Note bears interest at 8% per annum, and the principal amount and any interest thereon are due one year following the borrowing date. Pursuant to the agreement, the Note is convertible into shares of common stock at a conversion price to be mutually finalized between the Company and the holder of the Convertible Promissory Note within 48 hours of the conversion request. At August 31, 2016, and May 31, 2016, the Company owed accrued interest of $237 and $40, respectively. At August 31, 2016, and May 31, 2016, the balance owing on the Note was $10,000.
     
  f) On August 25, 2016, the Company entered into a Convertible Promissory Note agreement for $10,000. The Note bears interest at 8% per annum, and the principal amount and any interest thereon are due one year following the borrowing date. Pursuant to the agreement, the Note is convertible into shares of common stock at a conversion price to be mutually finalized between the Company and the holder of the Convertible Promissory Note within 48 hours of the conversion request. At August 31, 2016, the Company owed accrued interest of $13. At August 31, 2016, the balance owing on the Note was $10,000.

 

 F-6 
  

 

Ecosciences, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

6. Convertible Notes Payable (continued)

 

  g) On July 19, 2016, the Company entered a Securities Purchase Agreement whereas the Company agreed to issue two Convertible Redeemable Notes for an aggregate of $121,000. The Convertible Redeemable Notes bear interest at 12% per annum and contain a 10% original issue discount, such that the purchase price of each $60,500 note is $55,000. The principal amount and any interest thereon are due one year following the borrowing date. During the first six months that the first Convertible Redeemable Note is in effect, the Company may redeem the Note at 140% of the par value plus accrued interest. The first of the two Convertible Redeemable Notes was paid to the Company on July 19, 2016. The second Convertible Redeemable Note (“Back-End Note”) shall initially be paid for by an offsetting $55,000 promissory note issued to the Company by the lender, provided that prior to the conversion of the Back-End Note, the lender must have paid off the promissory note in cash. Payment to the Company under the promissory note must be no later than April 19, 2017. As of October 27, 2016 the second Convertible Redeemable Note has not funded. The promissory note will initially be secured by the pledge of the Back-End Note. Pursuant to the agreements, the Convertible Redeemable Notes are convertible into shares of common stock at any time at a conversion price equal to 50% of the average of the three lowest trading prices of the common stock for the twenty prior trading days including the day upon which a notice of conversion is received by the Company. In connection with the first Convertible Redeemable Note, the Company incurred financing costs of $3,000 and an original issue discount of $5,500, which have been recorded as a discount.
     
    The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $90,990 resulted in an additional discount to the note payable of $52,000 and the remaining $38,990 was recognized as a loss on changes in fair value of derivative liability. During the three months ended August 31, 2016, the Company recorded accretion of $11,479 increasing the carrying value of the note to $11,479. At August 31, 2016, the Company owed accrued interest of $855.
     
  h) On July 19, 2016, the Company entered into a Convertible Promissory Note agreement for $56,750. The principal amount and any interest thereon are due nine months following the borrowing date. The Note bears interest at 12% per annum, increasing to 24% per annum if any principal or interest in not paid when due. For the first 180 days, the Company has the right to prepay the Note of up to 150% of all amounts owed. Pursuant to the agreement, the Note is convertible into shares of common stock at a conversion price equal to the lesser of (i) a 50% discount to the lowest trading price of the common stock during the 25 trading days prior to the issue date and (ii) a 50% discount to the lowest trading price of the common stock during the 25 trading day period prior to conversion. The Company incurred financing costs of $6,750 which has been recorded as a discount.
     
    The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $79,631 resulted in an additional discount to the note payable of $50,000 and the remaining $29,631 was recognized as a loss on changes in fair value of derivative liability. During the three months ended August 31, 2016, the Company recorded accretion of $13,212 increasing the carrying value of the note to $13,212. At August 31, 2016, the Company owed accrued interest of $802.

 

7. Derivative Liabilities

 

The embedded conversion options of the Company’s convertible debentures described in Note 6 contain conversion features that qualify for embedded derivative classification. The fair value of these liabilities will be re-measured at the end of every reporting period and the change in fair value will be reported in the statement of operations as a gain or loss on derivative financial instruments.

 

The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities:

 

   Three Months Ended August 31, 2016 
Balance at the beginning of the period  $ 
      
Addition of new derivative liabilities   170,621 
Change in fair value of embedded conversion option   16,268 
      
Balance at the end of the period  $186,889 

 

 F-7 
  

 

Ecosciences, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

7. Derivative Liabilities (continued)

 

The Company uses Level 3 inputs for its valuation methodology for the warrant derivative liabilities and embedded conversion option liabilities as their fair values were determined by using the Black-Scholes option pricing model based on various assumptions. The model incorporates the price of a share of the Company’s common stock (as quoted on the Over the Counter Bulletin Board), volatility, risk free rate, dividend rate and estimated life. Significant changes in any of these inputs in isolation would result in a significant change in the fair value measurement. As required, these are classified based on the lowest level of input that is significant to the fair value measurement. The following table shows the assumptions used in the calculations:

 

   Expected
Volatility
  Risk-free
Interest Rate
   Expected
Dividend Yield
   Expected Life
(in years)
At issuance  222% - 232%  0.56%   0%  0.75-1.00
At August 31, 2016  227% - 241%  0.61%   0%  0.63-0.88

 

8. Preferred Stock

 

  a) On June 4, 2015, the Company filed a Certificate of Amendment (the “Amendment”) to its Certificate of Designation for the Company’s Series C convertible preferred stock originally filed with the Secretary of State of Nevada on April 20, 2015. Pursuant to the Amendment, the Company increased the number of shares of common stock issuable upon the conversion of each share of Series C preferred stock from 10 shares to 12 shares but also added the restriction that the holder has to wait until the one year anniversary date of issuance before the holder can elect to convert. Also, the Company removed the right of the holder to elect to have any portion of the shares be repurchased by the Company at $0.10 per share, and amended the voting rights to increase the voting equivalency of each share of Series C preferred stock from 10 shares to 12 shares of common stock.
     
  b) On June 4, 2015, the Company designated 10,000,000 shares of preferred stock as Series D convertible preferred stock. The holders of the Series D convertible preferred stock may elect to convert their shares at any time and from time to time and after the first year anniversary of the issue date. Each share of Series D convertible preferred stock is convertible into 10 shares of common stock of the Company; provided, however, that the holder is prohibited from converting such number of shares of Series D convertible preferred stock that would result in the stockholder beneficially owning more than 4.99% of the common stock of the Company. The holders of the Series D convertible preferred stock shall be entitled to a number of votes equal to the number of shares of common stock into which the Series D shares held are convertible.
     
  c) On June 4, 2015, upon execution of the Management Services Agreement referred to in Note 9 (a), the Company issued 100,000 shares of the Series D convertible preferred stock to the President of the Company at $0.10 per share in exchange for management services.
     
  d) On June 4, 2015, upon execution of the Services Agreements referred to in Note 9 (b), the Company issued 400,000 shares of the Series D convertible preferred stock to persons or companies at $0.10 per share in exchange for services.
     
  e) On June 11, 2015, upon execution of the Services Agreements referred to in Notes 9 (d) and (e), the Company issued 110,000 shares of the Series D convertible preferred stock to persons or companies at $0.10 per share in exchange for services.
     
  f) On September 11, 2015, the Company filed a Certificate of Amendment (the “Amendment”) to amend the provisions of the Company’s Amended and Restated Certificate of Designation for the Company’s Series A convertible preferred stock originally filed with the Secretary of State of Nevada on May 8, 2014. Pursuant to the Amendment, the Company restated the conversion and redemption terms of the Series A convertible preferred stock. For shares of Series A convertible preferred stock issued prior to September 11, 2015, the holders shall have the right to convert the shares from the first anniversary date of issuance. For shares of Series A convertible preferred stock issued on or after September 11, 2015, the holders shall have the right to convert the shares from October 1, 2016. The Company may also redeem all, or any portion of, the outstanding shares of Series A convertible preferred stock for $0.40 per share.
     
  g) On September 11, 2015, the Company entered into a Stock Purchase Agreement, whereby the Company issued 125,000 shares of Series A preferred stock at $0.20 per share for proceeds of $25,000.

 

 F-8 
  

 

Ecosciences, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

9. Commitments

 

  a) On June 4, 2015, the Company entered into a Management Services Agreement with the President, CEO, Secretary and Treasurer of the Company. In consideration for his services, the Company has agreed to pay $31,200 per year, accruing in equal monthly increments of $2,600, and to issue an aggregate of 1,000,000 shares of the Company’s Series D convertible preferred stock, of which 100,000 shares were issued upon the execution of the Management Services Agreement, and the remaining 900,000 shares of which shall vest in increments upon the achievement by the Company of the milestones set forth in the Management Services Agreement, including the completion of product line expansion, and signing distributors nationally and internationally. The term of the Management Services Agreement is for one year, commencing on the date of the agreement, and is automatically renewable for successive one year terms unless mutually agreed to in writing.
     
  b) On June 4, 2015, the Company entered into Services Agreements with four unrelated third party persons or companies. In consideration of these services, the Company has agreed to pay an aggregate $96,000 per year, accruing in equal monthly increments of $8,000, and to issue an aggregate 4,000,000 shares of the Company’s Series D convertible preferred stock, of which 400,000 shares were issued upon the execution of the Services Agreements, and the remaining 3,600,000 shares of which shall vest in increments upon the achievement by the Company of the milestones set forth in the Services Agreements, including the completion of product line expansion, and signing distributors nationally and internationally. The terms of the Services Agreements are for one year, commencing on the date of the agreements, and are automatically renewable for successive one year terms unless mutually agreed to in writing.
     
  c) On June 9, 2015, the Company entered into a Consultancy Agreement with a company for investor relations services. The Company has agreed to pay $5,000 per month and the term of the Consultancy Agreement is for six months, commencing June 11, 2015. On January 1, 2016, the Consultancy Agreement was extended for an additional six months. The Consultancy Agreement was not renewed and expired during the period.
     
  d) On June 11, 2015, the Company entered into a Services Agreement with an unrelated third party company. In consideration of these services, the Company has agreed to pay $60,000 per year, accruing in equal monthly increments of $5,000, and to issue 500,000 shares of the Company’s Series D convertible preferred stock, of which 50,000 shares were issued upon the execution of the Services Agreement, and the remaining 450,000 shares of which shall vest in increments upon the achievement by the Company of the milestones set forth in the Services Agreement, including the completion of product line expansion, and signing distributors nationally and internationally. The terms of the Services Agreement is for one year, commencing on the date of the agreement, and is automatically renewable for successive one year terms unless mutually agreed to in writing.
     
  e) On June 11, 2015, the Company entered into Services Agreements with two unrelated third party persons or companies. In consideration of these services, the Company has agreed to issue an aggregate 600,000 shares of the Company’s Series D convertible preferred stock, of which 60,000 shares were issued upon the execution of the Services Agreements, and the remaining 540,000 shares of which shall vest in increments upon the achievement by the Company of the milestones set forth in the Services Agreements, including the completion of product line expansion, and signing distributors nationally and internationally. The terms of the Services Agreements are for one year, commencing on the date of the agreements, and are automatically renewable for successive one year terms unless mutually agreed to in writing.

 

 F-9 
  

 

Ecosciences, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

10. Concentrations

 

The Company’s revenues were concentrated among three customers for the three months ended August 31, 2016, and four customers for the three months ended August 31, 2015:

 

Customer  Revenue for the Three Months Ended
August 31, 2016
   Revenue for the Three Months Ended
August 31, 2015
 
1   45%   37%
2   31%   23%
3   11%   16%
4   *    11%

 

The Company’s receivables were concentrated among three customers as at August 31, 2016, and four customers as at May 31, 2016:

 

Customer  Receivables as at
August 31, 2016
   Receivables as at
May 31, 2016
 
1   45%   37%
2   19%   35%
3   17%   35%
4   *    16%

 

* not greater than 10%

 

11. Subsequent Events

 

  On October 31, 2016, the Company issued an aggregate of 5 million (5,000,000) shares of common stock to an unaffiliated lender pursuant to a Notice of Conversion whereby the lender elected to convert an aggregate of $5,000 of indebtedness of the Company into such shares at a price of $0.001 per share under a Debt Conversion Agreement dated October 18, 2016 between the Company and the lender.
     
  On October 31, 2016, the Company issued an aggregate of 5 million (5,000,000) shares of common stock to an unaffiliated lender pursuant to a Notice of Conversion whereby the lender elected to convert an aggregate of $5,000 of indebtedness of the Company into such shares at a price of $0.001 per share under a Debt Conversion Agreement dated October 19, 2016 between the Company and the lender.
     
  On October 31, 2016, the Company issued an aggregate of 5 million (5,000,000) shares of common stock to an unaffiliated lender pursuant to a Notice of Conversion whereby the lender elected to convert an aggregate of $5,000 of indebtedness of the Company into such shares at a price of $0.001 per share under a Debt Conversion Agreement dated October 21, 2016 between the Company and the lender.
     
  On November 1, 2016, the Company sold a Promissory Note to an unaffiliated lender for the aggregate principal amount of $12,500, bearing interest at a rate of 8% per annum and maturing the first year anniversary of the date of issuance. The Company may prepay the principal and accrued interest at any time without penalty.
     
  On November 1, 2016, the Company entered into a lease agreement with a corporation controlled by the Company’s Chief Executive Officer. Pursuant to the lease agreement, the Company has agreed to lease the Company’s office space located at 420 Jericho Turnpike, Suite 110, Jericho, NY 11753 on a month-to-month basis for $750.00 per month. Either party may terminate the lease agreement by providing 30 days’ prior notice to the other.
     
  On November 1, 2016, the Board of Directors of the Company appointed Dan Cohen as the Chief Operating Officer of the Company, effective immediately.

 

Since 2009, Mr. Cohen (57 years old), has been serving as Partner, Vice President and Director of Sales & Marketing for Newco Marketing, Inc., marketing consultants, and manufacturer/distributor of an innovative home shower spa system, as well as service provider of a remote computer support service. From 1988 to 2009, Mr. Cohen was a Partner and held the positions of Vice President and Director of Marketing for Back To Nature Products Co., manufacturers of safer paint removers, lead abatement products and green cleaners. Mr. Cohen has over 28 years of experience running the day-to-day operations of a company, including hiring personnel and negotiating contracts. Mr. Cohen has proven success in the areas of marketing, sales, digital, direct response infomercials, advertising, new product launches, and establishing both retail and commercial distribution. He is also a published author in various trade publications and award winner of the QVC Hobby and Craft Recognition Awards.

 

On November 1, 2016, the Company entered into a Management Services Agreement with Dan Cohen. In consideration for Mr. Cohen serving as the Company’s Chief Operating Officer, the Company has agreed to pay Mr. Cohen $84,000 a year, accruing in equal monthly increments of $7,000, plus 3% commission on gross sales, and to issue to Mr. Cohen an aggregate of one million (1,000,000) shares of the Company’s Series D Preferred Stock, of which 100,000 shares were issued upon the execution the Management Services Agreement and a Purchase Agreement (as defined below), with the remaining 900,000 incrementally vesting upon the achievement by the Company of the milestones set forth below:

 

F-10
 

 

1. Execution of this Agreement 100,000
2. Complete product line expansion with the development and introduction of “green line” products that complement our existing line for use in commercial kitchens, the food service industry and other industries and produce Green Seal approved Eco-Logical market ready inventory 45,000
3. Sign Northeast, USA Master Distributor 75,000
4. Sign Midwest, USA Master Distributor 75,000
5. Sign West Coast, USA Master Distributor 75,000
6. Sign Southern, USA Master Distributor 75,000
7. Sign Retail Distributor - Design and produce a retail package for in-store shelf and clip strip displays and place product in minimum of five (5) retail outlets 60,000
8. Sign Regional Distributor for expansion into South America 75,000
9. Sign Regional Distributor for expansion into Europe 75,000
10. Sign Regional Distributor for expansion into the Middle East 75,000
11. Sign Regional Distributor for expansion into India 75,000
12. Sign Regional Distributor for expansion into Asia 75,000
13. Redesign the product for expansion into the municipal wastewater service industry and sign minimum of two (2) contracts with municipalities within the industry 60,000
14. Sign contract with Infomercial production company for consumer products and launch the infomercial campaign with the first TV infomercial broadcast 60,000
TOTAL: 1,000,000

 

The term of Mr. Cohen’s Management Services Agreement with the Company is for six months, commencing on the date of the agreement, and automatically renews for successive one year terms unless terminated pursuant to the terms thereto.

 

  On November 1, 2016, the Company entered into a Restricted Stock Purchase Agreement (“Purchase Agreement”) with Dan Cohen in connection with Mr. Cohen’s Management Services Agreement. Pursuant to the Purchase Agreement, the Company issued 100,000 shares of Series D Preferred Stock to Mr. Cohen for a purchase price of $0.001 per share, which is equal to the Stated Value of the shares, in consideration for services rendered to the Company by Mr. Cohen.
     
  On November 2, 2016, the Company entered into an Amended and Restated Management Services Agreement with Joel Falitz. In consideration for Mr. Falitz serving as the Company’s Chief Executive Officer, President, Secretary and Treasurer, the Company has agreed to pay Mr. Falitz a $31,200 signing bonus and a salary of $84,000 per year, accruing at $7,000 per month. In satisfaction of the $31,200 signing bonus, the Company issued Mr. Falitz an aggregate of 31.2 million (31,200,000) shares of Common Stock for $0.001 per share. Pursuant to the Amended and Restated Management Services Agreement, the Company also agreed to issue to Mr. Falitz an aggregate of 900,000 shares of the Company’s Series D Preferred Stock, all of which vest in increments upon the achievement by the Company of the milestones set forth below:

 

1. Complete product line expansion with the development and introduction of “green line” products that complement our existing line for use in commercial kitchens, the food service industry and other industries and produce Green Seal approved Eco-Logical market ready inventory 45,000
2. Sign Northeast, USA Master Distributor 75,000
3. Sign Midwest, USA Master Distributor 75,000
4. Sign West Coast, USA Master Distributor 75,000
5. Sign Southern, USA Master Distributor 75,000
6. Sign Retail Distributor - Design and produce a retail package for in-store shelf and clip strip displays and place product in minimum of five (5) retail outlets 60,000
7. Sign Regional Distributor for expansion into South America 75,000
8. Sign Regional Distributor for expansion into Europe 75,000
9. Sign Regional Distributor for expansion into the Middle East 75,000
10. Sign Regional Distributor for expansion into India 75,000
11. Sign Regional Distributor for expansion into Asia 75,000
12. Redesign the product for expansion into the municipal wastewater service industry and sign minimum of two (2) contracts with municipalities within the industry 60,000
13. Sign contract with Infomercial production company for consumer products and launch the infomercial campaign with the first TV infomercial broadcast 60,000
TOTAL: 900,000

 

The term of Mr. Falitz’s Amended and Restated Management Agreement with the Company is for one year, commencing on the date of the agreement, and automatically renews for successive one year terms unless terminated pursuant thereto.

 

F-11
 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

You should read the following discussion together with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this report. This discussion contains forward-looking statements, which involve risks and uncertainties. Our actual results may differ materially from those we currently anticipate as a result of many factors, including the factors we describe in this report and our other reports filed with the Securities and Exchange Commission.

 

Forward Looking Statements

 

Some of the information in this section contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words. You should read statements that contain these words carefully because they:

 

  discuss our future expectations;
     
  contain projections of our future results of operations or of our financial condition; and
     
  state other “forward-looking” information.

 

We believe it is important to communicate our expectations. However, there may be events in the future that we are not able to accurately predict or over which we have no control. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth elsewhere in this Report.

 

Unless stated otherwise, the words “we,” “us,” “our,” the “Company” or “Ecosciences” in this section collectively refer to Ecosciences, Inc. and its wholly-owned subsidiary, Eco-Logical Concepts, Inc., a Delaware corporation.

 

Corporate History

 

We were formerly known as On-Air Impact, Inc., a Nevada corporation (“On-Air Impact”). From the date of our inception on May 26, 2010 until the consummation of the reverse merger described below on May 9, 2014, On-Air Impact had been a “shell company” (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)).

 

On May 9, 2014, On-Air Impact and its wholly-owned subsidiary, Eco Merger Sub, Inc., a Delaware corporation (“Merger Sub”), consummated a reverse merger (the “Merger”) with Eco-Logical Concepts, Inc., a Delaware corporation (“Eco-Logical”), pursuant to the terms and conditions of that certain Agreement and Plan of Merger, dated May 9, 2014 (the “Merger Agreement”), whereby Merger Sub merged with and into Eco-Logical with Eco-Logical being the surviving corporation and replacing Merger Sub as On-Air Impact’s wholly-owned subsidiary. Since the Merger, the business and operations of Eco-Logical have been business and operations of On-Air Impact.

 

At the closing of the Merger:

 

Every one hundred (100) shares of Common Stock, par value $0.0001 per share, of Eco-Logical issued and outstanding immediately prior to the closing of the Merger was converted into one (1) share of Common Stock, par value $0.0001 per share (the “Common Stock”), of On-Air Impact, rounding up to the nearest whole number for resulting fractional shares; and
   
Each share of Series A Non-Convertible Preferred Stock, par value $0.0001 per share, of Eco-Logical issued and outstanding immediately prior to the closing of the Merger was converted into one share of Series B Non-Convertible Preferred Stock, par value $0.0001 per share (the “Series B Non-Convertible Preferred Stock”), of On-Air Impact.

 

In addition, pursuant to the Merger Agreement, on May 9, 2014, Joel Falitz, the President and Chief Executive Officer of Eco-Logical, was appointed to serve as the Chairman of our Board of Directors for a one-year period until the next annual stockholders’ meeting or until his successor is elected and qualified and as the Chief Executive Officer, President, Secretary and Treasurer of the Company.

 

 4 
  

 

As a result of the Merger, On-Air Impact ceased to be a shell company. The information contained in our “Super Form 8-K” filed on May 15, 2014 constitutes the current “Form 10 information” necessary to satisfy the conditions contained in Rule 144(i)(2) under the Securities Act of 1933, as amended (the “Securities Act”).

 

The Merger was intended to be treated as a tax-free reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended, and has been treated as a recapitalization of the Company for financial accounting purposes. Even though On-Air Impact was the legal acquirer, Eco-Logical is considered to be the acquirer for accounting purposes, and the Company’s historical financial statements before the Merger will be replaced with the historical financial statements of Eco-Logical before the Merger in this Report and all future filings with the SEC.

 

To better reflect our new operations as a result of the Merger, on June 23, 2014, the Company changed its name from “On-Air Impact” to “Ecosciences, Inc.” On June 23, 2014, we also increased our authorized capital stock from 100 million shares of Common Stock to 500 million shares; and from 10 million shares of “blank check” Preferred Stock, par value $0.0001 per share (“Preferred Stock”) to 50 million shares. We also effectuated a 500-for-1 forward stock split of our outstanding Common Stock on June 23, 2014 (the “Forward Stock Split”).

 

On July 21, 2014, the ticker symbol of our Common Stock on the OTCQB was changed from “OAIR” to “ECEZ” to better reflect our new name.

 

As a result of the Merger and the change in our business and operations, a discussion of the past financial results of On-Air Impact, Inc. is not pertinent, and under generally accepted accounting principles in the United States, the historical financial results of Eco-Logical, the accounting acquirer, prior to the Merger are considered the historical financial results of the Company.

 

The following discussion highlights Ecosciences’ results of operations and the principal factors that have affected our consolidated financial condition as well as our liquidity and capital resources for the periods described, and provides information that management believes is relevant for an assessment and understanding of our consolidated financial condition and results of operations presented herein. The following discussion and analysis is based on Ecosciences’ unaudited condensed consolidated financial statements contained in this Report, which have been prepared in accordance with generally accepted accounting principles in the United States. You should read the discussion and analysis together with such financial statements and the related notes thereto.

 

Overview

 

Our wholly-owned operating subsidiary, Eco-Logical Concepts Inc. (hereinafter referred to as the “Company,” “Eco,” “Eco-Logical,” “our,” we,” “us,” and similar terms), was incorporated in the state of Delaware on November 30, 2011.

 

Located in Jericho, New York, Eco-Logical provides bio-remediation services for sewers, sludge ponds, septic tanks, lagoons, farms, car washes, portable sanitation facilities, grease tanks, lakes and ponds. We provide a suite of tablet-based products that can be added to waste systems. The active ingredients in our tablets oxygenate wastewater, remove hydrogen sulfide odors, prevent corrosion in wastewater systems and initiate aerobic biological breakdown of organic sludge including fats, oils and grease. The tablets are non-toxic to the environment, non-caustic and comprised of natural ingredients that do not require any special permitting for use and disposal. The product is simple to use directly by the end consumer.

 

The Company’s bioremediation products are sold under the brands Trap-Eze, Sept-Eze, Tank-Eze and Wash-Eze.

 

The Company has formulated a business model that management believes can help it grow and achieve economies of scale over time. We have undertaken the necessary due diligence and prepared a business that will enable us to compete in the market for bio-remediation services.

 

The Company is focused on building, acquiring and investing in businesses around ecological and life sciences. From waste water remediation to healthcare and more, Ecosciences is committed to building a better living environment for all people.

 

 5 
  

 

Product Development

 

Growth Strategy of the Company

 

Our mission is to maximize stockholder value through expanding the scope of products offered. We intend to conduct research and development to bring new, improved products to market to ensure we are competitive in our market space. We intend to focus on growing our distribution channels using master-distributor relationships, full-line distributors and other similar sales channels. We intend to build product and brand awareness through a direct retail channel using online marketing and info-commercials, which we believe will provide a feedback benefit for the growth of our other distribution channels as well as to establish opportunities for indirect retail sales channels, such as through chain stores and small retailers.

 

We have been working to set up regional distributors in several different market segments, such as septic systems, grease traps, ponds, agricultural and wastewater. Sales this fiscal year have primarily been to Mexico, and we are currently finalizing more orders locally in New Jersey. All sales were completed in US dollars and have not been subject to any foreign taxes.

 

During the fourth quarter ended May 31, 2016, we commenced developing additional eco-based products in order to expand our product line. During the quarter ended November 30, 2015, we successfully test marketed a liquid version of our Tank-Eze bioremediation product (“Liquid Tank-Eze”). Liquid Tank-Eze is different than the regular Tank-Eze in that it does not have the oxygen feature and is designed to be primarily used in the treatment of drain lines prior to, or in conjunction with, Tank-Eze. As part of its test marketing, we sold the Liquid Tank-Eze product in a four ounce (4 oz.) concentrated size through our online channels. We intend to increase our marketing of Liquid Tank-Eze with a wider and more official launch in the near future. We also intend to sell a line of eco-friendly certified green cleaning solutions, including but not limited to, a multi-surface cleaner and a glass cleaner.

 

Critical Accounting Policies, Estimates, and Judgments

 

Our unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We continually evaluate our estimates and judgments, our commitments to strategic alliance partners and the timing of the achievement of collaboration milestones. We base our estimates and judgments on historical experience and other factors that we believe to be reasonable under the circumstances. Materially different results can occur as circumstances change and additional information becomes known. Besides the estimates identified above that are considered critical, we make many other accounting estimates in preparing our financial statements and related disclosures. All estimates, whether or not deemed critical, affect reported amounts of assets, liabilities, revenues and expenses, as well as disclosures of contingent assets and liabilities. These estimates and judgments are also based on historical experience and other factors that are believed to be reasonable under the circumstances. Materially different results can occur as circumstances change and additional information becomes known, even for estimates and judgments that are not deemed critical.

 

Results of Operations

 

Three Months Ended August 31, 2016 Compared to the Three Months Ended August 31, 2015

 

The following table presents Eco-Logical’s results of operations for the periods indicated and as a percentage of total revenue. Historical results are not necessarily indicative of results for future periods.

 

 6 
  

 

   Three-Month Period Ended 
   August 31, 2016*   August 31, 2015* 
   $   % of Revenue   $   % of Revenue 
                 
Revenue:  $3,472       $3,354     
Cost of sales:   (1,774)   (51.09)%   (2,421)   (72.18)%
Gross profit   1,698    48.91%   933    27.82%
                     
Operating expenses:                    
General and administrative   15,462    445.33%   69,390    2,068.87%
Professional fees   125,636    3,618.55%   97,500    2,906.98%
Total Expenses   141,098    4,063.88%   166,890    4,975.85%
                     
Net loss before other expenses:   (139,400)   (4,014.98)%   (165,957)   (4,948.03)%
                     
Other expenses:                    
                     
Interest expense   (37,795)   (1,088.57)%   (5,128)   (152.89)%
Loss on derivative liabilities   (84,889)   (2,444.96)%   -      
                     
Net loss  $(262,084)   (7,548.50)%  $(171,085)   (5,100.92)%

 

*Amounts may not sum due to rounding.

 

The following tables present our revenue and operating expenses for the periods indicated.

 

Revenue

 

   Three-Month Period Ended     
   August 31, 2016   August 31, 2015   % Change 
                
Revenue  $3,472   $3,354    3.52%

 

Our Revenue increased 3.52% for the three months ended August 31, 2016 as compared to the three months ended August 31, 2015. The increase is attributed to more repeat sales from existing customers.

 

Costs and Expenses

 

Costs of Sales

 

   Three-Month Period Ended     
   August 31, 2016   August 31, 2015   % Change 
                
Costs of Sales  $1,774   $2,421    (26.72)%

 

Our Costs of Sales decreased 26.72% for the three months ended August 31, 2016 as compared to the three months ended August 31, 2015. The decrease is due to a decrease in sales volume through E-commerce which carries additional shipping and merchant fees.

 

 7 
  

 

Operating Expenses

 

   Three-Month Period Ended     
   August 31, 2016   August 31, 2015   % Change 
                
Operating Expenses  $141,098   $166,890    (15.45)%

 

Our Operating Expenses decreased 15.45% for the three months ended August 31, 2016 as compared to the three months ended August 31, 2015. The decrease is the result of a decrease in Management Fees as well as several less significant decreases in administrative costs.

 

Interest Expense

 

   Three-Month Period Ended     
   August 31, 2016   August 31, 2015   % Change 
Interest Expense  $37,795   $5,128    637.03%

 

Our Interest Expense increased 637.03% for the three months ended August 31, 2016 as compared to the three months ended August 31, 2015. The increase is attributable to the sale of additional promissory notes to finance operations, some of which included debt discounts which are amortized to interest expense each period.

 

Financial Condition, Liquidity and Capital Resources

 

At August 31, 2016, we had $9,435 in cash on hand and an accumulated deficit of $1,202,134; and had $3,472 in revenues for the three-month period ended August 31, 2016. In their report for the fiscal year ended May 31, 2016, our auditors have expressed that there is substantial doubt as to our ability to continue as a going concern. We have incurred operating losses since our formation and expect to incur losses and negative operating cash flows for the foreseeable future. We expect to incur substantial losses for the foreseeable future and may never become profitable. We also expect to continue to incur significant operating and capital expenditures for the next several years and anticipate that our expenses will increase substantially in the foreseeable future. We also expect to experience negative cash flow for the foreseeable future as we fund our operating losses and capital expenditures. As a result, we will need to generate significant revenues in order to achieve and maintain profitability. We may not be able to generate these revenues or achieve profitability in the future. Our failure to achieve or maintain profitability could negatively impact the value of our Common Stock.

 

To date, we have financed our operations primarily through the sale of Convertible Promissory Notes to Joel Falitz and other non-affiliated third parties and the issuance and sale of equity securities for cash consideration. During the quarter ended August 31, 2016, we have financed our operations by the following:

 

  Auctus Fund, LLC. On July 25, 2016, the Company closed on the issuance of a Convertible Promissory Note, dated July 19, 2016 (the “Issue Date”), in the original principal amount of $56,750 (the “Auctus Note”) to Auctus Fund, LLC, a Delaware limited liability company (“Auctus”), pursuant to which Auctus funded $50,000 to the Company after the deduction of $6,750 of diligence and legal fees. The Company sold the Auctus Note to Auctus pursuant to a Securities Purchase Agreement, dated as of July 19, 2016, between the Company and Auctus.

 

The Auctus Note bears interest at the rate of 12% per annum and matures on April 19, 2017. Any amount of principal or interest on the Auctus Note which is not paid when due shall bear interest at the rate of twenty-four percent (24%) per annum from the due date thereof until the same is paid. The Company has the right to prepay the Auctus Note with a premium of up to 150% of all amounts owed to Auctus, depending upon when the prepayment is effectuated. The Auctus Note may not be prepaid after the 180th day after the Issue Date.

 

 8 
  

 

All principal and accrued interest on the Auctus Note is convertible into shares of the Company’s common stock at the election of Auctus at any time at a conversion price equal to the lesser of (i) a 50% discount to the lowest trading price of the common stock during the 25 trading days prior to the Auctus Note being issued and (ii) a 50% discount to the lowest trading price of the common stock during the 25 trading day period prior to conversion (“Conversion Price”).

 

If the Company fails to maintain its status as “DTC Eligible” for any reason, or, if the Conversion Price is less than $0.001, the principal amount of the Auctus Note shall increase by $15,000 and the Conversion Price shall be redefined to mean forty percent (40%).

 

The Auctus Note contains default events which, if triggered and not timely cured, will result in default interest and penalties. The Auctus Notes provides for “piggyback” registration rights for shares issuable upon the conversion of the Auctus Note.

 

  ADAR Bays, LLC. On July 21, 2016, the Company closed a Securities Purchase Agreement (“ADAR SPA”) with ADAR Bays, LLC, a Florida limited liability company (“ADAR”), providing for the purchase of two Convertible Redeemable Notes in the aggregate principal amount of $121,000 (the “ADAR Notes”), with the first note being in the amount of $60,500 (“ADAR First Note”) and the second note being in the amount of $60,500 (“ADAR Back End Note”), each with a 10% original issue discount (“OID”). ADAR First Note was funded, with the Company receiving $55,000, net of the 10% OID. With respect to ADAR Back End Note, also with a 10% OID, ADAR issued a note to the Company in the amount of $55,000 to offset ADAR Back End Note, secured by ADAR Back End Note (“Secured Note”). The funding of ADAR Back End Note is subject to certain conditions as described in ADAR Back End Note. As of October 27, 2016 the second Convertible Redeemable Note has not funded. ADAR is required to pay the principal amount of the Secured Note in cash and in full prior to executing any conversions under ADAR Back End Note.

 

The ADAR Notes may be converted by ADAR at any time into shares of Company’s common stock calculated at the time of conversion, except for ADAR Back End Note, which requires full payment of the Secured Note by ADAR before conversions may be made, at a conversion price equal to 50% of the average of the three lowest trading prices of the Common Stock as reported on the National Quotations Bureau OTC Markets exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future (“Exchange”), for the twenty (20) prior trading days including the day upon which a Notice of Conversion is received by the Company. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased to 40% instead of 50% while that “Chill” is in effect. In no event shall the Holder be allowed to effect a conversion if such conversion, along with all other shares of Company Common Stock beneficially owned by the Holder and its affiliates would exceed 9.9% of the outstanding shares of the Common Stock of the Company.

 

The ADAR Notes bear an interest rate of 12%, and are due and payable on July 19, 2017. Interest shall be paid by the Company in Common Stock (“Interest Shares”). Holder may, at any time, send in a Notice of Conversion to the Company for Interest Shares. The dollar amount converted into Interest Shares shall be all or a portion of the accrued interest calculated on the unpaid principal balance of this Note to the date of such notice. The Secured Note bears interest at the rate of 12% per annum is payable no later than April 19, 2017, unless the Company does not meet the “current information requirements” required under Rule 144 of the Securities Act, in which case ADAR may declare the ADAR Back End Note to be in Default (as defined in that note) and cross cancel its payment obligations under the Secured Note as well as the Company’s payment obligations under ADAR Back End Note.

 

During the first six months the ADAR First Note is in effect, the Company may redeem the ADAR First Note by paying to an amount equal to 140% of the face amount plus any accrued interest. The ADAR First Note may not be prepaid after the six-month anniversary. The ADAR Back End Note may not be prepaid, except that if the ADAR First Note is redeemed by the Company within 6 months of the issuance date of the ADAR First Note, all obligations of the Company under the ADAR Back End Note and all obligations of ADAR under the Secured Note will be automatically be deemed satisfied and such notes will be automatically be deemed cancelled and of no further force or effect.

 

 9 
  

 

The ADAR SPA and ADAR Notes contain certain representations, warranties, covenants and events of default including if the Company is delinquent in its periodic report filings with the Securities and Exchange Commission, and increases in the amount of the principal and interest rates under the Notes in the event of such defaults. In the event of default, at the option of ADAR and in ADAR’s sole discretion, ADAR may consider the Notes immediately due and payable.

 

  On August 25, 2016, the Company entered into a Convertible Promissory Note Agreement for $10,000 with a third party unaffiliated lender. The Note bears interest at 8% per annum, and the principal amount and any interest thereon are due one year following the borrowing date. Pursuant to the agreement, the Note is convertible into shares of common stock at a conversion price to be mutually finalized between the Company and the holder of the Convertible Promissory Note within 48 hours of the conversion request.
     
  On August 25, 2016, the Company borrowed $1,237 from the President of the Company, $1,000 of which was repaid on August 30, 2016. The loan is unsecured, non-recourse and non-interest bearing.
     
 

On November 1, 2016, the Company sold a Promissory Note to an unaffiliated lender for the aggregate principal amount of $12,500, bearing interest at a rate of 8% per annum and maturing the first year anniversary of the date of issuance. The Company may prepay the principal and accrued interest at any time without penalty.

 

Working Capital

 

Since the Company’s inception, we have incurred recurring net losses and negative cash flows from operations. As of August 31, 2016, we had a working capital deficit of $1,082,292, an accumulated deficit of $1,202,134 and a stockholders’ deficit of $1,082,292.

 

At August 31, 2016, the Company was indebted to the President of the Company and a company controlled by the President of the Company for $49,083. The amount is unsecured, non-interest bearing and due on demand.

 

We do not believe our cash resources are sufficient to implement our current business plan, support operations and meet current obligations for the next 12 months. We plan to raise additional capital to finance our operations. There can be no assurance that financing will be available when required in sufficient amounts, on acceptable terms or at all. In the event that the necessary additional financing is not obtained, we may be required to reduce our discretionary overhead costs substantially, including research and development, general and administrative and sales and marketing expenses or otherwise curtail operations.

 

Cash and Cash Equivalents

 

The following table summarizes the sources and uses of cash for the periods stated. The Company held no cash equivalents for any of the periods presented.

 

   For the Three Months Ended 
   August 31, 2016   August 31, 2015 
Cash, beginning of period  $4,220   $381 
Net cash used in operating activities   (83,097)   (7,224)
Net cash provided by investing activities        
Net cash provided by financing activities   88,312    7,496 
Cash, end of period  $9,435   $653 

 

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Off-Balance Sheet Operations

 

The Company does not have any off-balance sheet transactions.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

N/A

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures.

 

In accordance with Exchange Act Rules 13a-15 and 15d-15, our management is required to perform an evaluation under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period.

 

Based upon that evaluation, our management has concluded that, as of August 31, 2016, our disclosure controls and procedures were not effective.

 

Changes in Internal Control over Financial Reporting

 

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended August 31, 2016 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

None

 

Item 1A. Risk Factors

 

N/A

 

Item 2. Unregistered Sale of Equity Securities and Use of Proceeds

 

  Auctus Fund, LLC. On July 25, 2016, the Company closed on the issuance of a Convertible Promissory Note, dated July 19, 2016, in the original principal amount of $56,750 (the “Auctus Note”) to Auctus Fund, LLC, a Delaware limited liability company (“Auctus”), pursuant to which Auctus funded $50,000 to the Company after the deduction of $6,750 of diligence and legal fees. The Company sold the Auctus Note to Auctus pursuant to a Securities Purchase Agreement, dated as of July 19, 2016 (the “Auctus SPA”), between the Company and Auctus. The Note bears interest at 12% per annum, increasing to 24% per annum if any principal or interest in not paid when due. For the first 180 days, the Company has the right to prepay the Note of up to 150% of all amounts owed. Pursuant to the agreement, the Note is convertible into shares of common stock at a conversion price equal to the lesser of (i) a 50% discount to the lowest trading price of the common stock during the 25 trading days prior to the issue date and (ii) a 50% discount to the lowest trading price of the common stock during the 25 trading day period prior to conversion.

 

 11 
  

 

  ADAR Bays, LLC. On July 21, 2016, the Company closed a Securities Purchase Agreement with ADAR Bays, LLC, a Florida limited liability company (“ADAR”), providing for the purchase of two Convertible Redeemable Notes in the aggregate principal amount of $121,000, with the first note being in the amount of $60,500 and the second note being in the amount of $60,500 (“ADAR Back End Note”), each with a 10% original issue discount (“OID”). ADAR First Note was funded, with the Company receiving $55,000, net of the 10% OID. With respect to ADAR Back End Note, also with a 10% OID, ADAR issued a note to the Company in the amount of $55,000 to offset ADAR Back End Note, secured by ADAR Back End Note (“Secured Note”). The funding of ADAR Back End Note is subject to certain conditions as described in ADAR Back End Note. ADAR is required to pay the principal amount of the Secured Note in cash and in full prior to executing any conversions under ADAR Back End Note. Pursuant to the agreements, the Convertible Redeemable Notes are convertible into shares of common stock at any time at a conversion price equal to 50% of the average of the three lowest trading prices of the common stock for the twenty prior trading days including the day upon which a notice of conversion is received by the Company.
     
  On August 25, 2016, the Company entered into a Convertible Promissory Note Agreement for $10,000 with a third party unaffiliated lender. The Note bears interest at 8% per annum, and the principal amount and any interest thereon are due one year following the borrowing date. Pursuant to the agreement, the Note is convertible into shares of common stock at a conversion price to be mutually finalized between the Company and the holder of the Convertible Promissory Note within 48 hours of the conversion request.

 

The Company issued the foregoing securities pursuant to the exemption from the registration requirements of the Securities Act of 1933, as amended, available to the Company under Section 4(a)(2) promulgated thereunder due to the fact that such issuances did not involve a public offering of securities, the shares were issued to a small group of persons and no solicitation or advertisement was made in connection therewith.

 

Item 3. Defaults Upon Senior Securities

 

N/A

 

Item 5. Other Information

 

Subsequent Events

 

  On October 31, 2016, the Company issued an aggregate of 5 million (5,000,000) shares of common stock to an unaffiliated lender pursuant to a Notice of Conversion whereby the lender elected to convert an aggregate of $5,000 of indebtedness of the Company into such shares at a price of $0.001 per share under a Debt Conversion Agreement dated October 18, 2016 between the Company and the lender.
     
  On October 31, 2016, the Company issued an aggregate of 5 million (5,000,000) shares of common stock to an unaffiliated lender pursuant to a Notice of Conversion whereby the lender elected to convert an aggregate of $5,000 of indebtedness of the Company into such shares at a price of $0.001 per share under a Debt Conversion Agreement dated October 19, 2016 between the Company and the lender.
     
  On October 31, 2016, the Company issued an aggregate of 5 million (5,000,000) shares of common stock to an unaffiliated lender pursuant to a Notice of Conversion whereby the lender elected to convert an aggregate of $5,000 of indebtedness of the Company into such shares at a price of $0.001 per share under a Debt Conversion Agreement dated October 21, 2016 between the Company and the lender.
     
  On November 1, 2016, the Company sold a Promissory Note to an unaffiliated lender for the aggregate principal amount of $12,500, bearing interest at a rate of 8% per annum and maturing the first year anniversary of the date of issuance. The Company may prepay the principal and accrued interest at any time without penalty.
     
  On November 1, 2016, the Company entered into a lease agreement with a corporation controlled by the Company’s Chief Executive Officer. Pursuant to the lease agreement, the Company has agreed to lease the Company’s office space located at 420 Jericho Turnpike, Suite 110, Jericho, NY 11753 on a month-to-month basis for $750.00 per month. Either party may terminate the lease agreement by providing 30 days’ prior notice to the other.
     
  On November 1, 2016, the Board of Directors of the Company appointed Dan Cohen as the Chief Operating Officer of the Company, effective immediately.

 

Since 2009, Mr. Cohen (57 years old), has been serving as Partner, Vice President and Director of Sales & Marketing for Newco Marketing, Inc., marketing consultants, and manufacturer/distributor of an innovative home shower spa system, as well as service provider of a remote computer support service. From 1988 to 2009, Mr. Cohen was a Partner and held the positions of Vice President and Director of Marketing for Back To Nature Products Co., manufacturers of safer paint removers, lead abatement products and green cleaners. Mr. Cohen has over 28 years of experience running the day-to-day operations of a company, including hiring personnel and negotiating contracts. Mr. Cohen has proven success in the areas of marketing, sales, digital, direct response infomercials, advertising, new product launches, and establishing both retail and commercial distribution. He is also a published author in various trade publications and award winner of the QVC Hobby and Craft Recognition Awards.

 

On November 1, 2016, the Company entered into a Management Services Agreement with Dan Cohen. In consideration for Mr. Cohen serving as the Company’s Chief Operating Officer, the Company has agreed to pay Mr. Cohen $84,000 a year, accruing in equal monthly increments of $7,000, plus 3% commission on gross sales, and to issue to Mr. Cohen an aggregate of one million (1,000,000) shares of the Company’s Series D Preferred Stock, of which 100,000 shares were issued upon the execution the Management Services Agreement and a Purchase Agreement (as defined below), with the remaining 900,000 incrementally vesting upon the achievement by the Company of the milestones set forth below:

 

12
 

 

1. Execution of this Agreement 100,000
2. Complete product line expansion with the development and introduction of “green line” products that complement our existing line for use in commercial kitchens, the food service industry and other industries and produce Green Seal approved Eco-Logical market ready inventory 45,000
3. Sign Northeast, USA Master Distributor 75,000
4. Sign Midwest, USA Master Distributor 75,000
5. Sign West Coast, USA Master Distributor 75,000
6. Sign Southern, USA Master Distributor 75,000
7. Sign Retail Distributor - Design and produce a retail package for in-store shelf and clip strip displays and place product in minimum of five (5) retail outlets 60,000
8. Sign Regional Distributor for expansion into South America 75,000
9. Sign Regional Distributor for expansion into Europe 75,000
10. Sign Regional Distributor for expansion into the Middle East 75,000
11. Sign Regional Distributor for expansion into India 75,000
12. Sign Regional Distributor for expansion into Asia 75,000
13. Redesign the product for expansion into the municipal wastewater service industry and sign minimum of two (2) contracts with municipalities within the industry 60,000
14. Sign contract with Infomercial production company for consumer products and launch the infomercial campaign with the first TV infomercial broadcast 60,000
TOTAL: 1,000,000

 

The term of Mr. Cohen’s Management Services Agreement with the Company is for six months, commencing on the date of the agreement, and automatically renews for successive one year terms unless terminated pursuant to the terms thereto.

 

  On November 1, 2016, the Company entered into a Restricted Stock Purchase Agreement (“Purchase Agreement”) with Dan Cohen in connection with Mr. Cohen’s Management Services Agreement. Pursuant to the Purchase Agreement, the Company issued 100,000 shares of Series D Preferred Stock to Mr. Cohen for a purchase price of $0.001 per share, which is equal to the Stated Value of the shares, in consideration for services rendered to the Company by Mr. Cohen.
     
  On November 2, 2016, the Company entered into an Amended and Restated Management Services Agreement with Joel Falitz. In consideration for Mr. Falitz serving as the Company’s Chief Executive Officer, President, Secretary and Treasurer, the Company has agreed to pay Mr. Falitz a $31,200 signing bonus and a salary of $84,000 per year, accruing at $7,000 per month. In satisfaction of the $31,200 signing bonus, the Company issued Mr. Falitz an aggregate of 31.2 million (31,200,000) shares of Common Stock for $0.001 per share. Pursuant to the Amended and Restated Management Services Agreement, the Company also agreed to issue to Mr. Falitz an aggregate of 900,000 shares of the Company’s Series D Preferred Stock, all of which vest in increments upon the achievement by the Company of the milestones set forth below:

 

1. Complete product line expansion with the development and introduction of “green line” products that complement our existing line for use in commercial kitchens, the food service industry and other industries and produce Green Seal approved Eco-Logical market ready inventory 45,000
2. Sign Northeast, USA Master Distributor 75,000
3. Sign Midwest, USA Master Distributor 75,000
4. Sign West Coast, USA Master Distributor 75,000
5. Sign Southern, USA Master Distributor 75,000
6. Sign Retail Distributor - Design and produce a retail package for in-store shelf and clip strip displays and place product in minimum of five (5) retail outlets 60,000
7. Sign Regional Distributor for expansion into South America 75,000
8. Sign Regional Distributor for expansion into Europe 75,000
9. Sign Regional Distributor for expansion into the Middle East 75,000
10. Sign Regional Distributor for expansion into India 75,000
11. Sign Regional Distributor for expansion into Asia 75,000
12. Redesign the product for expansion into the municipal wastewater service industry and sign minimum of two (2) contracts with municipalities within the industry 60,000
13. Sign contract with Infomercial production company for consumer products and launch the infomercial campaign with the first TV infomercial broadcast 60,000
TOTAL: 900,000

 

The term of Mr. Falitz’s Amended and Restated Management Agreement with the Company is for one year, commencing on the date of the agreement, and automatically renews for successive one year terms unless terminated pursuant thereto.

 

13
 

 

Item 6. Exhibits

 

Index to Exhibits

 

Exhibit No:   Description:
     
10.1   Management Services Agreement, dated November 1, 2016, between Ecosciences, Inc. and Dan Cohen
     
10.2   Restricted Stock Purchase Agreement, dated November 1, 2016, between Ecosciences, Inc. and Dan Cohen
     
10.3   Management Services Agreement, dated November 2, 2016, between Ecosciences, Inc. and Joel Falitz
     
10.4   Restricted Stock Purchase Agreement, dated November 2, 2016, between Ecosciences, Inc. and Joel Falitz
     
10.5   Lease Agreement, dated November 1, 2016, between Ecosciences, Inc. and Preferred Distribution, Inc.
     
31.1   Rule 13(a)-14(a)/15(d)-14(a) Certification
     
32.1   Section 1350 Certification
     
101.INS*   XBRL Instance Document
     
101.SCH*   XBRL Taxonomy Extension Schema Document
     
101.CAL*   XBRL Taxonomy Extension Calculation Linkbase Document
     
101.LAB*   XBRL Taxonomy Extension Labels Linkbase Document
     
101.DEF*   XBRL Taxonomy Extension Definition Linkbase Document
     
101.PRE*   XBRL Taxonomy Extension Presentation Linkbase Document

 

 * Furnished herewith. Users of this data are advised that, pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Exchange Act of 1934 and otherwise are not subject to liability.

 

14
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date: November 4, 2016 By: /s/ JOEL FALITZ
  Name: Joel Falitz
  Title: President, Chief Executive Officer, Secretary and Treasurer
    (Principal Executive Officer)
    (Principal Financial and Accounting Officer)

 

15