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: November 30, 2017

 

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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer” , “smaller reporting company”, and “emerging growth company in Rule 12b-2 of the Exchange Act. (Check one):

 

  Large accelerated filer [  ] Accelerated filer [  ]
  Non-accelerated filer [  ] Smaller reporting company [X]
  (Do not check if a smaller reporting company) Emerging growth company [  ]

 

If an emerging growth company, indicate by checkmark if the registrant has not elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. [  ]

 

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

Yes [  ] No [X]

 

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date. As of January 16, 2018, there were 180,751,331 shares of Common Stock, $0.0001 par value per share, issued and outstanding.

 

 

 

 

 

 

Table of Contents

 

    Page
     
PART I - FINANCIAL INFORMATION   3
item 1. financial statements (unaudited)  
item 2. management’s discussion and analysis of financial condition and results of operations   4
Forward Looking Statements   4
Corporate History  
Overview   4
Product Development   5
Growth Strategy of the Company   5
Critical Accounting Policies, Estimates, and Judgments   5
Results of Operations   6
Financial Condition, Liquidity and Capital Resources   9
Working Capital   10
Cash and Cash Equivalents   10
Off-Balance Sheet Operations   10
item 3. quantitative and qualitative disclosures about market risk   10
item 4. controls and procedures   10
Evaluation of Disclosure Controls and Procedures.   10
Changes in Internal Control over Financial Reporting   10
PART II – OTHER INFORMATION   11
item 1. legal proceedings   11
item 1 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   13
Subsequent Events   13
item 6. exhibits   14
SIGNATURES   15

 

2

 

 

Ecosciences, Inc.

Consolidated Financial Statements

(Unaudited)

 

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

 

3

 

 

Ecosciences, Inc.

Consolidated Balance Sheets

As of November 30, 2017, and May 31, 2017

(Unaudited)

 

    November 30, 2017     May 31, 2017  
             
ASSETS                
                 
Current Assets                
                 
Cash   $ 11,990     $ 3,357  
Accounts receivable, net of allowance of $2,184 and $379, respectively     9,316       6,967  
Inventory     2,687       3,256  
Prepaid expenses     –       29,700  
                 
Total Assets   $ 23,993     $ 43,280  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
                 
Current Liabilities                
                 
Accounts payable   $ 281,310     $ 258,949  
Accrued liabilities     527,734       447,140  
Due to related parties     124,432       93,598  
Notes payable     133,528       300,666  
Convertible notes payable, net of discount     457,310       86,137  
Derivative liabilities     801,402       596,743  
                 
Total Liabilities     2,325,716       1,783,233  
                 
Contingent and Commitments                
                 
Stockholders’ Deficit                
                 
Preferred Stock 50,000,000 shares authorized, $0.0001 par value;                
Series A Redeemable and Convertible Preferred Stock 3,000,000 shares authorized; 1,483,380 and 1,593,630 shares issued and outstanding, respectively     148       160  
Series B Preferred Stock 200,000 shares authorized, issued and outstanding     20       20  
Series C Redeemable and Convertible Preferred Stock 10,000,000 shares authorized; 4,700,000 shares issued and outstanding     470       470  
Series D Convertible Preferred Stock 10,000,000 shares authorized; 710,000 shares issued and outstanding     71       71  
Common Stock 1,950,000,000 shares authorized, $0.0001 par value; 58,843,319 shares and 48,075,065 issued and outstanding, respectively     5,885       4,808  
Additional paid-in capital     1,993,781       817,879  
Accumulated deficit     (4,302,098 )     (2,563,361 )
                 
Total Stockholders’ Deficit     (2,301,723 )     (1,739,953 )
                 
Total Liabilities and Stockholders’ Deficit   $ 23,993     $ 43,280  

 

See accompanying notes to the unaudited financial statements.

 

F- 1

 

 

Ecosciences, Inc.

Consolidated Statements of Operations

For the Three and Six Months Ended November 30, 2017 and 2016

(Unaudited)

 

    Three Months
Ended
November 30, 2017 		    Three Months
Ended
 November 30, 2016 		    Six Months
Ended
November 30, 2017 		    Six Months
Ended
 November 30, 2016 		 
                         
Revenues   $ 28,583     $ 5,915     $ 45,861     $ 9,387  
Cost of revenues     (5,466 )     (4,922 )     (17,301 )     (6,696 )
                                 
Gross Profit     23,117       993       28,560       2,691  
                                 
Operating Expenses:                                
General and administrative     78,288       279,205       191,645       294,667  
Professional fees     192,228       132,520       309,347       258,156  
Research and development     –       –       5,654       –  
                                 
Total Operating Expenses     270,516       411,725       506,646       552,823  
                                 
Loss from Operations     (247,399 )     (410,732 )     (478,086 )     (550,132 )
                                 
Other Income (Expenses):                                
Interest expense     (267,821 )     (188,646 )     (575,342 )     (226,441 )
Gain on settlement of debt     19,449       –       16,536       –  
Change in fair value of derivative liabilities     (343,418 )     104,118       (701,845 )     19,229  
                                 
Net Loss   $ (839,189 )   $ (495,260 )   $ (1,738,737 )   $ (757,344 )
                                 
Loss Per Common Share – Basic and Diluted   $ (0.02 )   $ (42.55 )   $ (0.03 )   $ (69.44 )
Weighted-average Common Shares Outstanding – Basic and Diluted     53,456,039       11,639       51,121,896       10,906  

 

See accompanying notes to the unaudited financial statements.

 

F- 2

 

 

Ecosciences, Inc.

Consolidated Statements of Cash Flows

For the Six Months Ended November 30, 2017 and 2016

(Unaudited)

 

    Six Months
Ended
November 30, 2017 		    Six Months
Ended
 November 30, 2016 		 
             
Cash Flows from Operating Activities                
                 
Net loss   $ (1,738,737 )   $ (757,344 )
                 
Adjustments to reconcile net loss to net cash used in operating activities:                
Amortization of debt discount     297,140       38,870  
Interest expense on derivative liability that exceeds notes payable     250,789       158,625  
Change in fair value of derivative liabilities     701,845       (19,229 )
Gain on settlement of debt     (16,536 )     –  
Shares issued for fees upon conversion of convertible debt     2,500       –  
Stock-based compensation     –       252,260  
                 
Changes in operating assets and liabilities:                
Accounts receivable     (2,349 )     –  
Inventory     569       (6,958 )
Prepaid expenses     29,700       771  
Accounts payable     22,361       45,561  
Accrued liabilities     102,917       164,730  
                 
Net Cash Used in Operating Activities     (349,801 )     (122,714 )
                 
Cash Flows from Financing Activities                
                 
Advances from related party, net     30,834       26,986  
Proceeds from notes payable     55,100       20,000  
Payment of notes payable     –       (38,224 )
Proceeds from convertible notes payable     272,500       112,000  
                 
Net Cash Provided by Financing Activities     358,434       120,762  
                 
Change in Cash     8,633       (1,952 )
                 
Cash - Beginning of Period     3,357       4,220  
                 
Cash - End of Period   $ 11,990     $ 2,268  
                 
Supplemental Disclosures of Cash Flow Information:                
                 
Interest paid   $ –     $ 175  
Income taxes paid   $ –     $ –  
                 
Non-Cash Investing and Financing Activities:                
                 
Shares issued to settle convertible debt and accrued interest   $ 1,107,277     $ 11,054  
Conversion of preferred stock to common stock   $ 221     $ –  
Recognition of derivative liabilities from embedded conversion feature   $ 200,000     $ –  
Reclassification of notes payable and accrued interest to convertible notes payable   $ 240,963     $ –  

 

See accompanying notes to the unaudited financial statements.

 

F- 3

 

 

Ecosciences, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

 

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 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, 2017. In the opinion of management, the accompanying unaudited 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 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 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. As of November 30, 2017, the Company has accumulated losses of $ 4,302,098 and a working capital deficit of $2,301,723. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. 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. These unaudited 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:

 

    November 30, 2017     May 31, 2017  
             
Raw Materials   $ 1,281     $ 22  
Finished Goods     –       3,187  
Packaging Supplies     1,406       47  
                 
Total   $ 2,687     $ 3,256  

 

4. Related Party Transactions

 

  During the six months ended November 30, 2017 and 2016, the Company incurred management services fees of $42,000 and $263,360, respectively, to the President of the Company.
   
  During the six months ended November 30, 2017 and 2016, the Company incurred management services fees of $42,000 and $15,900, respectively, to the Chief Operating Officer of the Company.
   
  During the six months ended November 30, 2017 and 2016, the Company incurred rent fees of $4,500 and $750, respectively, to a company controlled by the President of the Company.
   
  At November 30, 2017 and May 31, 2017, the Company was indebted to the President of the Company and a company controlled by the President of the Company for $117,432 and $83,098, respectively. The amount is unsecured, non-interest bearing and due on demand.
   
  At November 30, 2017, and May 31, 2017, the Company was indebted to the Chief Operating Officer of the Company for $7,000 and $10,500, respectively. The amount is unsecured, non-interest bearing and due on demand.

 

F- 4

 

 

5. Notes Payable

 

Notes payable consisted of the following:   November 30, 2017     May 31, 2017  
             
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 was due on February 12, 2014.     8,000       8,000  
c)   Note payable which is unsecured, non-guaranteed, and bears interest at 10% per annum and 16% when in default. The note is due 60 days following demand.     13,000 (i)     13,000 (i)
d)   Notes payable which are unsecured, non-guaranteed, and bear interest at 8% per annum. The notes were due from May 2015 to August 2015.     – (v)     65,000 (ii)
e)   Note payable which is unsecured, non-guaranteed, and bears interest at 8% per annum. The note was due on August 26, 2015.     2,500       2,500  
f)   Notes payable which are unsecured, non-guaranteed, and bear interest at 8% per annum. The notes were due in May 2016 ($12,000) and October 2016 ($20,000) and is due on March 16, 2018 ($14,000).     46,000       46,000  
g)   Note payable which is unsecured, non-guaranteed, and bears interest at 10% per annum. The note was due on July 15, 2016.     1,300       1,300  
h)   Note payable which is unsecured, non-guaranteed, and bears interest at 10% per annum. The note was due on August 1, 2016.     1,000       1,000  
i)   Note payable which is unsecured, non-guaranteed, and bears interest at 10% per annum. The note was due on August 12, 2016.     1,200       1,200  
j)   Notes payable which are unsecured, non-guaranteed, and bear interest at 8% per annum. The notes are due from November 2017 to April 2018.     – (iv)      42,750  
k)   Notes payable which are unsecured, non-guaranteed, and bear interest at 8% per annum. The note is due on January 2018.     5,000       5,000  
l)   Notes payable which are unsecured, non-guaranteed, and non-interest bearing. The notes are due on demand.     – (iv)      98,388 (iii)
m)   Note payable which is unsecured, non-guaranteed, and bears interest at 8% per annum. The note is due on May 8, 2018.     – (iv)      11,000  
n)   Note payable which is unsecured, non-guaranteed, and bears interest at 8% per annum. The note is due on June 1, 2018.     25,000       –  
o)   Note payable which is unsecured, non-guaranteed, and bears interest at 8% per annum. The note is due on April 23, 2018.     5,000       –  
p)   Note payable which is unsecured, non-guaranteed, and bears interest at 8% per annum. The note is due on November 23, 2018.     20,000       –  
                     
        $ 133,528     $ 300,666  

 

F- 5

 

 

  (i) On March 7, 2017, the lender assigned a total of $20,000 of promissory notes payable to a third-party lender in which $7,000 became a convertible debt (Note 6(d)). Upon entering into the Debt Conversion Agreement, the terms of the note were determined to be substantially different and debt extinguishment accounting under ASC 470-50 Modifications and Extinguishments was required. There was no difference between the reacquisition price of the debt and the net carrying amount of the extinguished debt. As a result, there was no gain or loss on extinguishment of debt recognized.
     
  (ii) 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. Several notes matured in 2015 and were not repaid. Therefore, under the default terms of the Loan Agreement, all remaining promissory notes immediately become due and payable. On October 11, 2016, the lender assigned a total of $75,000 of promissory notes payable to two third-party lenders.
     
  (iii) During the year ended May 31, 2017, the lender assigned a total of $21,000 of promissory notes payable to a third-party lender and the Company agreed to add conversion rights (Notes 6(y)). During the year ended May 31, 2017, a total of $16,200 was converted to shares of common stock. Upon entering into the Debt Conversion Agreement, the terms of the note were determined to be substantially different and debt extinguishment accounting under ASC 470-50 Modifications and Extinguishments was required. There was no difference between the reacquisition price of the debt and the net carrying amount of the extinguished debt. As a result, there was no gain or loss on extinguishment of debt recognized.
     
  (iv) During the six months ended November 30, 2017, the Company entered into Promissory Note Addendum Agreements to add conversion rights to notes payable of $42,750 (Note 5(j)), $98,388 (Note 5(l)), and $11,000 (Note 5(m)), whereby the principal and accrued interest of each note is convertible into shares of common or preferred stock at a conversion price to be mutually finalized between the Company and the holder within 48 hours of the conversion request.
     
  (v) During the six months ended November 30, 2017, the lender assigned a total of $65,000 of promissory notes payable to a third-party lender and the Company agreed to add conversion rights (Notes 6(f), 6(g) and 6(h)). During the six months ended November 30, 2017, a total of $27,940 was converted to shares of common stock.

 

  As of November 30, 2017 and May 31, 2017, $64,528 and $124,000 of notes payable were in default, respectively. At November 30, 2017 and May 31, 2017, the Company owed accrued interest on notes payable of $18,960 and $28,975, respectively.

 

F- 6

 

 

6. Convertible Notes Payable

 

Convertible notes payable consisted of the following:

 

    Original Issuance Date   Maturity Date   Current Interest Rate
(Per Annum) 		    Principal Outstanding
as at
November 30,
2017 		    Principal Outstanding
as at
May 31,
2017 		    Carrying Value as at
November 30,
2017 		    Carrying Value as at
May 31,
2017 		 
                                       
a)   December 22, 2011   Due 60 days following demand     10 %   $ 4,000     $ 4,000     $ 4,000 (i)   $ 4,000  
b)   December 22, 2011   Due 60 days following demand     10 %     1,177       1,177       1,177 (ii)     1,177  
c)   October 23, 2012   Due 60 days following demand     10 %     1,000       1,000       1,000 (iii)     1,000  
d)   April 12, 2013   Due on demand     16 %     7,000       7,000       7,000 (iv)     7,000  
e)   May 9, 2014   May 9, 2015     8 %     6,825       6,825       6,825 (v)     6,825  
f)   May 19, 2014   May 19, 2015     8 %     30,359       –       30,361 (vi)     –  
g)   August 18, 2014   August 18, 2015     8 %     25,426       –       25,426 (vi)     –  
h)   August 25, 2014   August 25, 2015     8 %     5,100       –       5,100 (iv)     –  
i)   March 16, 2015   March 16, 2016     8 %     1,325       1,325       1,325 (vi)     1,325  
j)   July 19, 2016   April 19, 2017     24 %     –       5,266       –       5,266  
k)   August 25, 2016   August 25, 2017     8 %     10,000       10,000       10,000 (iv)     10,000  
l)   October 1, 2016   Due on demand     0 %     73,388       –       73,388 (iv)     –  
m)   November 1, 2016   November 1, 2017     8 %     12,500       –       12,500 (iv)     –  
n)   December 1, 2016   Due on demand     0 %     10,000       –       10,000 (iv)     –  
o)   January 13, 2017   January 13, 2018     8 %     7,500       –       7,500 (iv)     –  
p)   January 17, 2017   January 17, 2018     8 %     5,000       –       5,000 (iv)     –  
q)   January 25, 2017   January 25, 2018     8 %     5,000       –       5,000 (iv)     –  
r)   January 31, 2017   January 31, 2018     8 %     –       50,000       –       12,545  
s)   February 10, 2017   November 10, 2017     18 %     10,000       69,500       10,000 (vii)     18,605  
t)   February 21, 2017   February 21, 2018     8 %     5,750       –       5,750 (iv)     –  
u)   March 1, 2017   Due on demand     0 %     15,000       –       15,000 (iv)     –  
v)   March 30, 2017   March 30, 2018     12 %     39,250       52,250       22,703 (viii)     7,610  
w)   May 1, 2017   March 30, 2018     12 %     29,150       29,150       15,318 (viii)     5,984  
x)   May 3, 2017   May 3, 2018     8 %     7,000       –       7,000 (iv)     –  
y)   May 5, 2017   Due on demand     0 %     4,800       4,800       4,800 (ix)     4,800  
z)   May 8, 2017   May 8, 2018     8 %     11,000       –       11,000 (iv)     –  
aa)   June 5, 2017   March 30, 2018     12 %     29,150       –       14,077 (viii)     –  
bb)   July 3, 2017   July 3, 2018     8 %     7,500       –       7,500 (iv)     –  
dd)   July 25, 2017   March 30, 2018     12 %     58,300       –       24,814 (viii)     –  
ee)   July 26, 2017   July 26, 2018     12 %     29,150       –       12,366 (viii)     –  
ff)   August 22, 2017   August 22, 2018     8 %     5,000       –       5,000 (iv)     –  
gg)   August 29, 2017   March 30, 2018     12 %     29,150       –       10,542 (viii)     –  
hh)   August 31, 2017   August 31, 2018     8 %     10,000       –       10,000 (iv)     –  
ii)   September 1, 2017   Due on demand     0 %     30,000       –       30,000 (iv)     –  
jj)   September 12, 2017   March 30, 2018     12 %     29,150       –       9,952 (viii)     –  
kk)   September 22, 2017   September 22, 2018     8 %     15,000       –       15,000 (iv)     –  
ll)   October 17, 2017   March 30, 2018     12 %     29,150       –       8,378 (viii)     –  
mm)   October 31, 2017   October 31, 2018     8 %     5,000       –       5,000 (iv)     –  
nn)   November 1, 2017   March 30, 2018     12 %     29,150       –       7,508 (viii)     –  
                                                 
                    $ 633,250     $ 242,293     $ 457,310     $ 86,137  

 

F- 7

 

 

  (i) The notes are convertible into shares of common stock of the Company’s subsidiary, Eco-logical Concepts, Inc., at $0.01 per share.
     
  (ii) The notes are convertible into shares of common stock of the Company’s subsidiary, Eco-logical Concepts, Inc., at $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 of the Company’s subsidiary at $0.01 per share.
     
  (iii) The note is convertible into shares of common stock of the Company’s subsidiary, Eco-logical Concepts, Inc., at $0.001 per share
     
  (iv) The note is convertible into shares of common stock at a conversion price to be mutually finalized between the Company and the holder within 48 hours of the conversion request.
     
  (v) The note is convertible into shares of common stock at a conversion price equal to $0.0174 per share.
     
  (vi) The note is convertible into shares of common stock at a conversion price equal to $0.0127 per share.
     
  (vii) The Convertible Promissory Note is convertible into shares of common stock at any time at a conversion price equal to 50% of the lowest trading price of the common stock for the twenty-five prior trading days ending on the last complete trading day prior to the conversion date. If at any time while the note is outstanding the lowest trading price of the Company’s common stock is equal to or lower than $30 per share, then an additional 10% discount shall be factored into the conversion price until the note is no longer outstanding. In addition, at any time the trading price of the Company’s common stock is equal to or lower than $10 per share, an additional $10,000 shall be immediately added to the balance of the note. The embedded conversion option qualifies for derivative accounting and bifurcation. See Note 7.
     
  (viii) The note is convertible into shares of common stock at any time at a conversion price equal to 50% of the average of the lowest trading prices of the common stock for the twenty days, including the day upon which a notice of conversion is received by the Company, prior to conversion. The embedded conversion option qualifies for derivative accounting and bifurcation. See Note 7.
     
  (ix) The note is convertible into shares of common stock at a conversion price equal to $0.225 per share.

 

At November 30, 2017 and May 31, 2017, the Company owed accrued interest on convertible notes payable of approximately $49,000 and $35,000 respectively. As of November 30, 2017, the Company had approximately $148,000 convertible notes payable was in default.

 

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.

 

F- 8

 

 

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

 

    Six Months Ended
November 30, 2017 		    Six Months Ended
November 30, 2016 		 
             
Balance at the beginning of the period     596,743     $ –  
                 
Addition of new derivative liabilities     450,789       170,621  
Change due to conversion of debt     (947,975 )     –  
Change in fair value of embedded conversion option     701,845       (19,229 )
                 
Balance at the end of the period     801,402     $ 151,392  

 

The Company uses Level 3 inputs for its valuation methodology for the 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     241% - 302 %     1.08% - 1.30 %     0 %     0.41-0.82  
At November 30, 2017     319% - 320 %     1.27 %     0 %     0.25-0.33  

 

8. Common Stock

 

  During the six months ended November 30, 2017, the Company issued 8,561,303 shares of common stock in aggregate pursuant to the conversion of $155,706 of convertible notes payable, $947,975 of related derivative liabilities from embedded conversion feature, $3,596 of accrued interest and $2,500 of share transfer fees upon conversion. The Company recognized gain from settlement of debt of $16,536 for the six months ended November 30, 2017.
   
  During the six months ended November 30, 2017, the Company issued 2,205,000 shares of common stock in aggregate pursuant to the conversion of 110,250 shares of Series A preferred stock.
   
  On June 22, 2017, the Company issued 1,951 shares to a third party free of charge due to the round-up feature of the Company’s 1 for 10,000 reverse stock split completed on May 19, 2017.

 

9. Preferred Stock

 

  On June 4, 2015, the Company filed a Certificate of 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.
   
  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.
   
  On September 11, 2015, the Company filed a Certificate of 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.

 

F- 9

 

 

10. Commitments

 

  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 agreed to pay $31,200 per year 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.
   
  On November 2, 2016, the Company and the President amended the Management Service Agreement. As amended, the Company agreed to pay $84,000 per year and to issue an aggregate of 900,000 shares of the Company’s Series D convertible preferred stock, which shall vest in increments upon the achievement by the Company of the milestones set forth in the Amended and Restated Management Services Agreement, including the completion of product line expansion, and signing distributors nationally and internationally. In addition, the Company agreed to pay a signing bonus of $31,200, convertible or payable into shares of common stock at $0.001 per share. The Company also agreed to determine a commission structure within 90 days of the agreement, and shall reimburse the President for a health insurance plan beginning January 1, 2017. The term of the amendment 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. As of November 30, 2017, the Company had issued 100,000 shares of the Company’s Series D convertible preferred stock. The executive continues to work on achieving milestones.

 

F- 10

 

 

  On June 4, 2015, the Company entered into service agreements with four third parties. In consideration for services rendered, the Company agreed to pay an aggregate $96,000 per year and 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 agreements and the remaining 3,600,000 shares shall vest in increments upon the achievement by the Company of the milestones set forth in the agreements, including the completion of product line expansion, and signing distributors nationally and internationally. The terms of the 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. As of November 30, 2017, the Company had issued 400,000 shares of the Company’s Series D convertible preferred stock. The third parties continue to work on achieving milestones.
   
  On June 11, 2015, the Company entered into a Services Agreement with a third party. In consideration for services rendered, the Company agreed to pay a $60,000 annual fee and 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. As of November 30, 2017, the Company had issued 50,000 shares of the Company’s Series D convertible preferred stock. The third party continues to work on achieving milestones.
   
  On June 11, 2015, the Company entered into Services Agreements with two third parties. In consideration for these services, the Company 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. As of November 30, 2017, the Company had issued 60,000 shares of the Company’s Series D convertible preferred stock. The third parties continue to work on achieving milestones.
   
  On November 1, 2016, the Company entered into a Management Services Agreement with the Chief Operating Officer of the Company. In consideration for his services, the Company agreed to pay $84,000 per year and commission of 3% of all gross sales and 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 Company also agreed to reimburse the Chief Operating Officer for a health insurance plan beginning January 1, 2017. The term of the Management Services Agreement is for six months, commencing on the date of the agreement, and is automatically renewable for successive one year terms unless mutually agreed to in writing. As of November 30, 2017, the Company had issued 100,000 shares of the Company’s Series D convertible preferred stock. The executive continues to work on achieving milestones.

 

11. Concentrations

 

The Company’s revenues were concentrated among four customers for the six months ended November 30, 2017, and three customers for the six months ended November 30, 2016:

 

Customer     Revenue for the
Six Months Ended
November 30, 2017 		    Revenue for the
Six Months Ended
November 30, 2016 		 
                     
1       18 %     58 %
2       13 %     19 %
3       11 %     11 %
4       10 %     *  

 

F- 11

 

 

The Company’s receivables were concentrated among three customers as at November 30, 2017, and two customers as at May 31, 2017:

 

Customer     Receivables as at
November 30, 2017 		    Receivables as at
May 31, 2017 		 
               
1       29 %     67 %
2       18 %     11 %
3       11 %     *  

 

* not greater than 10%

 

12. Subsequent Events

 

  a) Conversions of convertible notes payable

 

In December 2017 and January 2018, the Company issued 24,311,412 shares of common stock in aggregate pursuant to the conversion of approximately $63,000 of convertible notes payable.

 

  b) Issuances of notes payable

 

On January 4, 2018, the Company sold a Promissory Note to an unaffiliated lender for the aggregate principal amount of $14,000, 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. Pursuant to the agreement, the note is convertible into shares of common or preferred stock at a conversion price to be mutually finalized within 48 hours of the conversion request.

 

  c) Other Agreements

 

On December 13, 2017, a lender of the Company assigned a $5,000 note payable to a third-party lender. On December 14, 2017, the Company entered into a Debt Conversion Agreement with the third-party lender, whereby $2,500 of the loan principal became convertible into Series D convertible preferred stock of the Company at a conversion price equal to $0.001 per share.

 

On December 14, 2017, the Company entered into a Debt Conversion Agreement with a third-party lender, whereby $2,000 of the loan principal became convertible into 2,000,000 shares of Series D convertible preferred stock of the Company.

 

On December 15, 2017, the Company entered into an Amendment to Debt Conversion Agreement with a third-party lender, whereby $3,912 of the loan principal became convertible into 3,911,550 shares of Series D convertible preferred stock of the Company.

 

On December 15, 2017, the Company entered into an Amendment to Debt Conversion Agreement with a third-party lender, whereby $3,000 of the loan principal became convertible into 3,000,000 shares of Series D convertible preferred stock of the Company.

 

  d) Other issuances

 

On December 14, 2017, the Company issued 8,133,050 shares of Series C Convertible Preferred stock to the President of the Company to settle payable to the President of $8,133.

 

On December 15, 2017, the Company issued 97,596,600 shares of common stock to the President of the Company pursuant to the conversion of 8,133,050 shares of Series C preferred stock.

 

F- 12

 

 

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

 

You should read the following discussion together with our unaudited 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.

 

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 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

 

Located in Jericho, New York, the Company provides bio-remediation products for septic tanks, drains and pipes, grease traps, lift and pump stations, sewers, ponds, lakes, lagoons, farms, car washes, portable sanitation facilities, boats, RVs, and wastewater treatment facilities. 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 solids, waste, as well as fats, oils and grease. The tablets are non-hazardous, environmentally friendly and biodegradable. . The product is simple to use directly by the end consumer or commercial customer.

 

The Company’s bioremediation products are sold under the product names Trap-Eze, Waste-Eze, Septic Oxy-Tabs and Drain & Pipe Oxy-Tabs. The Company also recently re-branded the products under the brand EcoNow to better create consumer brand awareness and to align with the company’s mission of solving ecological issues that affect our environment.

 

4

 

 

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 products.

 

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

 

Product Development

 

The Company plans in this quarter or the next fiscal quarter to begin testing new formulations designed to address and remediate other water pollution problems.

 

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, sales representatives 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 retail sales channels, such as through chain stores and small retailers.

 

We have been working to set up sales representatives and distributors in several different market segments, such as the consumer retail market, foodservice industry, and wastewater industry. Our revenues for this fiscal year have primarily been in the United States. All sales were completed in US dollars and have not been subject to any foreign taxes.

 

During the fourth quarter ended May 31, 2017, we commenced developing additional eco-based products in order to introduce a retail product line. These products included Septic Oxy-Tabs to treat and maintain Septic Systems and Drain & Pipe Oxy-Tabs to remove build-up in drains, sinks pipes and traps, garbage disposals and main lines leading to sewers. The Company will soon begin testing new formulations designed to address and remediate other significant water pollution problems. We also intend to develop a line of eco-friendly certified green cleaning solutions.

 

Critical Accounting Policies, Estimates, and Judgments

 

Our unaudited 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.

 

5

 

 

Results of Operations  

 

Three Months Ended November 30, 2017 Compared to the Three Months Ended November 30, 2016

 

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

 

    Three-Month Period Ended  
    November 30, 2017     November 30, 2016  
    $     % of Revenue     $     % of Revenue  
                         
Revenue   $ 28,583       100 %   $ 5,915       100 %
Cost of sales     (5,466 )     19 %     (4,922 )     83 %
Gross profit     23,117       81 %     993       17 %
                                 
Operating expenses:                                
General and administrative     78,288       274 %     279,205       4,720 %
Research & Development     -       - %     -          
Professional fees     192,228       673 %     132,520       2,240 %
Total Expenses     270,516       946 %     411,725       6,961 %
                                 
Net loss before other expenses:     (247,399 )     (866 )%     (410,732 )     (6,944 )%
                                 
Other income (expenses):                                
                                 
Interest expense     (267,821 )     (937 )%     (188,646 )     (3,189 )%
Gain (loss) on settlement of debt     19,449       68 %     -          
Change in fair value of derivative liabilities     (343,418 )     (1,201 )%     104,118       1,760 %
                                 
Net loss   $ (839,189 )     (2,936 )%   $ (495,260 )     (8,373 )%

 

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

 

Revenue

 

    Three-Month Period Ended        
    November 30, 2017     November 30, 2016     % Change  
                         
Revenue   $ 28,583     $ 5,915       383.23 %

 

Our revenue increased by $22,668, or 383.23%, for the three months ended November 30, 2017 as compared to the three months ended November 30, 2016. The increase is attributed to increased marketing efforts.

 

6

 

 

Costs and Expenses

 

Costs of Sales

 

    Three-Month Period Ended        
    November 30, 2017     November 30, 2016     % Change  
                         
Cost of Sales   $ 5,466     $ 4,922       11.05 %

 

Our costs of sales increased $544, or 11.05%, for the three months ended November 30, 2017 as compared to the three months ended November 30, 2016. The increase is mainly due to increase in sales.

 

Operating Expenses

 

    Three-Month Period Ended        
    November 30, 2017     November 30, 2016     % Change  
                         
Operating Expenses   $ 270,516     $ 411,725       (34.30 )%

 

Our operating expenses decreased 141,209, or 34.30%, for the three months ended November 30, 2017 as compared to the three months ended November 30, 2016. The decrease is mainly due to the decrease in stock-based compensation and partially offset by the increase in professional fees.

 

Other Income (Expenses)

 

    Three-Month Period Ended        
    November 30, 2017     November 30, 2016     % Change  
                   
Interest Expense   $ (267,821 )   $ (188,646 )     41.97 %
Gain on settlement of debt   $ 19,449     $ -       100.00 %
Change in fair value of derivative liabilities   $ (343,418 )   $ 104,118       (429.84 )%

 

 

Our interest expense increased $79,175, or 41.97%, for the three months ended November 30, 2017 as compared to the three months ended November 30, 2016. The increase is attributable to the issuance of additional promissory notes to finance operations, some of which included debt discounts which are amortized to interest expense each period.

 

Our loss from change in fair value of derivative liabilities increased $447,536, or 429.84%, for the three months ended November 30, 2017 as compared to the three months ended November 30, 2016. The derivative liabilities are affected by factors including the Company’s stock price that are subject to significant fluctuations and are not under the Company’s control.

 

7

 

 

Six Months Ended November 30, 2017 Compared to the Six Months Ended November 30, 2016

 

The following table presents the Company’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.

 

    Six-Month Period Ended  
    November 30, 2017     November 30, 2016  
    $     % of Revenue     $     % of Revenue  
                         
Revenue:   $ 45,861       100 %   $ 9,387       100 %
Cost of sales:     (17,301 )     38 %     (6,696 )     71 %
Gross profit     28,560       62 %     2,691       29 %
                                 
Operating expenses:                                
General and administrative     191,645       418 %     294,667       3,139 %
Research & Development     5,654       12 %     -          
Professional fees     309,347       675 %     258,156       2,750 %
Total Expenses     506,646       1,105 %     552,823       5,889 %
                                 
Net loss before other expenses:     (478,086 )     (1,042 )%     (550,132 )     (5,861 )%
                                 
Other income (expenses):                                
                                 
Interest expense     (575,342 )     (1,255 )%     (226,441 )     (2,412 )%
Gain (loss) on settlement of debt     16,536       36 %     -          
Change in fair value of derivative liabilities     (701,845 )     (1,530 )%     19,229       205 %
                                 
Net loss   $ (1,738,737 )     (3,791 )%   $ (757,344 )     (8,068 )%

 

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

 

Revenue

 

      Six-Month Period Ended          
      November 30, 2017       November 30, 2016       % Change  
                         
Revenue   $ 45,861     $ 9,387       388.56 %

 

Our revenue increased by $36,474, or 388.56%, for the six months ended November 30, 2017 as compared to the six months ended November 30, 2016. The increase is attributed to increased marketing efforts.

 

Costs and Expenses

 

Costs of Sales

 

    Six-Month Period Ended        
    November 30, 2017     November 30, 2016     % Change  
                         
Cost of Sales   $ 17,301     $ 6,696       158.38 %

 

Our costs of sales increased $10,605, or 158.38%, for the six months ended November 30, 2017 as compared to the six months ended November 30, 2016. The increase is mainly due to increase in sales.

 

Operating Expenses

 

    Six-Month Period Ended        
    November 30, 2017     November 30, 2016     % Change  
                   
Operating Expenses   $ 506,646     $ 552,823       (8.35 )%

 

Our operating expenses decreased 46,177, or 8.35%, for the six months ended November 30, 2017 as compared to the six months ended November 30, 2016. The decrease is mainly due to the decrease in stock-based compensation and partially offset by the increase in professional fees.

 

8

 

 

Other Income (Expenses)

 

    Six-Month Period Ended        
    November 30, 2017     November 30, 2016     % Change  
                   
Interest Expense   $ (575,342 )   $ (226,441 )     154.08 %
Gain on settlement of debt   $ 16,536     $ -       100.00 %
Change in fair value of derivative liabilities   $ (701,845 )   $ 19,229       3,749.93 %

 

Our interest expense increased $348,901, or 154.08%, for the six months ended November 30, 2017 as compared to the six months ended November 30, 2016. The increase is attributable to the issuance of additional promissory notes to finance operations, some of which included debt discounts which are amortized to interest expense each period.

 

Our loss from change in fair value of derivative liabilities increased $721,074, or 3,749.93%, for the six months ended November 30, 2017 as compared to the six months ended November 30, 2016.

 

The derivative liabilities are affected by factors including the Company’s stock price that are subject to significant fluctuations and are not under the Company’s control.

 

Financial Condition, Liquidity and Capital Resources

 

At November 30, 2017, we had $11,990 in cash on hand and an accumulated deficit of $4,302,098. We had $45,861 in revenues for the six-month period ended November 30, 2017. For the six months ended November 30, 2017, we had net cash used in operating activities of $349,801 and net cash provided from financing activities of $358,434. Our auditors have expressed that there is substantial doubt as to our ability to continue as a going concern in their report for the fiscal year ended May 31, 2017,

 

Since inception, we have financed our operations primarily through the issuance of notes payable and convertible notes payable and the issuances and sales of equity securities for cash consideration.

 

We expect to incur losses and negative operating cash flows 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.

 

We have no agreements to obtain funds through bank loans, lines of credit or any other traditional sources. Since we have no financing committed, our inability to realize financing to maintain operations and grow our business would materially restrict our business operations. Previous convertible debt financing the Company has accepted have not been on favorable terms and has been significantly dilutive to our existing common equity and as a result the Company executed a consolidation of its common stock on May 19, 2017 to attract financing and maintain is business. Future financing may not be available upon acceptable terms, or at all. Should we be successful in securing future financing new issuances of equity or convertible debt would dilute our current shareholders, possibly significantly, might require a significant increase to our authorized stock and might have rights, preferences or privileges senior to our common or preferred stock. If financing is not available to us on favorable terms, such severe limitation might cause us to consider another consolidation of existing common equity at any time as a means to attract financing and maintain our business.

 

9

 

 

Working Capital

 

As of November 30, 2017, we had a working capital deficit of $2,301,723 and an accumulated deficit of $4,302,098. There is substantial doubt that we can continue as a going concern.

 

At November 30, 2017, the Company was indebted to the President of the Company and a company controlled by the President of the Company for $117,432. The amount is unsecured, non-interest bearing and due on demand.

 

At November 30, 2017, the Company was indebted to the Chief Operating Officer of the Company for $7,000. 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 expect that our working capital requirements will be funded over this period by a combination of revenue, issuances of promissory notes or private equity placements of our securities and, if available, shareholder loans. Our business plan does anticipate increases in operating expenses and capital expenditures over the next twelve months in relation to: (i) product development; (ii) research and development to enhance existing products and innovate new ones (iii) employee salaries and professional fees; and (iv) marketing expenses. The company expects to continue to realize cash flow from financing activities until such time as it can increase revenue to the point at which it can maintain operations and fund business growth.

 

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 Six Months Ended
    November 30, 2017   November 30, 2016
Cash, beginning of period   $ 3,357     $ 4,220  
Net cash used in operating activities     (349,801 )     (122,714 )
Net cash provided by investing activities     —         —    
Net cash provided by financing activities     358,434       120,762  
Cash, end of period   $ 11,990     $ 2,268  

 

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 November 30, 2017, our disclosure controls and procedures were not effective due to lack of a functioning audit committee, a majority of independent members and a majority of outside directors on our Board of Directors, resulting in ineffective oversight in the establishment and monitoring of required internal control and procedures.

 

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 November 30, 2017 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

10

 

 

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

 

Issuances of convertible notes payable

 

On June 2, 2017, the Company sold a Promissory Note to an unaffiliated lender for the aggregate principal amount of $25,000, 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. Pursuant to the agreement, the note is convertible into shares of common stock at a conversion price to be mutually finalized within 48 hours of the conversion request.

 

On July 3, 2017, the Company sold a Promissory Note to an unaffiliated lender for the aggregate principal amount of $7,500, 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. Pursuant to the agreement, the note is convertible into shares of common stock at a conversion price to be mutually finalized within 48 hours of the conversion request.

 

On August 22, 2017, the Company sold a Promissory Note to an unaffiliated lender for the aggregate principal amount of $5,000, 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. Pursuant to the agreement, the note is convertible into shares of common stock at a conversion price to be mutually finalized within 48 hours of the conversion request.

 

On August 31, 2017, the Company sold a Promissory Note to an unaffiliated lender for the aggregate principal amount of $10,000, 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. Pursuant to the agreement, the note is convertible into shares of common stock at a conversion price to be mutually finalized within 48 hours of the conversion request.

 

On July 26, 2017, the Company entered a Securities Purchase Agreement whereby the Company agreed to issue three Convertible Redeemable Back End Notes for an aggregate of $87,450. The principal amount and any interest thereon are due on July 26, 2018. The notes bear interest at 12% per annum and contain a 10% original issue discount, such that the purchase price of each note is $26,500. On July 26, 2017, in consideration for the first note, the Company received cash proceeds of $25,000. The proceeds for the two remaining notes will be funded on April 26, 2018 and May 26, 2018. The closing of the two remaining notes shall be contingent on the following condition: (i) the Company must maintain a bid of $0.001 per share over 5 consecutive trading days. Pursuant to the agreements, the 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. During the first six months that the first note is in effect, the Company may redeem the first note at 140% of the par value plus accrued interest. The notes may not be prepaid except if the first note is redeemed by the Company.

 

11

 

 

On September 1, 2017 the Company entered into a Promissory Note for $30,000 with a vendor to convert amounts owing for services to a convertible promissory note. The note is convertible into shares of common or preferred stock at a conversion price to be mutually finalized within 48 hours of the conversion request. The Promissory Note is unsecured, non-interest bearing and due on demand.

 

On September 22, 2017, the Company sold a Promissory Note to an unaffiliated lender for the aggregate principal amount of $15,000, 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. Pursuant to the agreement, the note is convertible into shares of common or preferred stock at a conversion price to be mutually finalized within 48 hours of the conversion request.

 

On October 31, 2017, the Company sold a Promissory Note to an unaffiliated lender for the aggregate principal amount of $5,000, 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. Pursuant to the agreement, the note is convertible into shares of common or preferred stock at a conversion price to be mutually finalized within 48 hours of the conversion request.

 

Conversion of convertible notes payable

 

During June through August 2017, the Company issued 278,959 shares of common stock pursuant to the conversion of $75,604 of convertible notes payable.

 

In September and October 2017, the Company issued 2,469,740 shares of common stock in aggregate pursuant to the conversion of $59,344 of convertible notes payable.

 

In November 2017, the Company issued 4,442,131 shares of common stock in aggregate pursuant to the conversion of $40,940 of convertible notes payable.

 

On September 22, 2017, the Company received a notice of conversion to issue 1,539,449 shares of common stock pursuant to the conversion of $19,551 of convertible note payables, the shares have been approved to be issued by the Board of Directors of the Company but have not been issued as of October 23, 2017.

 

On September 27, 2017, the Company received a notice of conversion to issue 624,102 shares of common stock pursuant to the conversion of $7,926 of convertible note payables, the shares have been approved to be issued by the Board of Directors of the Company but have not been issued as of October 23, 2017.

 

On September 28, 2017, the Company received a notice of conversion to issue 306,189 shares of common stock pursuant to the conversion of $3,889 of convertible note payables, the shares have been approved to be issued by the Board of Directors of the Company but have not been issued as of October 23, 2017.

 

Conversion of Series A Convertible Preferred Stock

 

In November 2017, the Company issued 420,000 shares of common stock pursuant to the conversion of 21,000 shares of Series A Convertible Preferred Stock.

 

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

 

None.

 

12

 

 

Item 5. Other Information

 

Subsequent Events

 

  Conversions of convertible notes payable

 

In December 2017 and January 2018, the Company issued 24,311,412 shares of common stock in aggregate pursuant to the conversion of approximately $63,000 of convertible notes payable. 

 

  Issuances of notes payable

 

On January 4, 2018, the Company sold a Promissory Note to an unaffiliated lender for the aggregate principal amount of $14,000, 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. Pursuant to the agreement, the note is convertible into shares of common or preferred stock at a conversion price to be mutually finalized within 48 hours of the conversion request.

 

  Other Agreements

 

On December 13, 2017, a lender of the Company assigned a $5,000 note payable to a third-party lender. On December 14, 2017, the Company entered into a Debt Conversion Agreement with the third-party lender, whereby $2,500 of the loan principal became convertible into Series D convertible preferred stock of the Company at a conversion price equal to $0.001 per share.

 

On December 14, 2017, the Company entered into a Debt Conversion Agreement with a third-party lender, whereby $2,000 of the loan principal became convertible into 2,000,000 shares of Series D convertible preferred stock of the Company.

 

On December 15, 2017, the Company entered into an Amendment to Debt Conversion Agreement with a third-party lender, whereby $3,912 of the loan principal became convertible into 3,911,550 shares of Series D convertible preferred stock of the Company.

 

On December 15, 2017, the Company entered into an Amendment to Debt Conversion Agreement with a third-party lender, whereby $3,000 of the loan principal became convertible into 3,000,000 shares of Series D convertible preferred stock of the Company.

 

  Other issuances

 

On December 14, 2017, the Company issued 8,133,050 shares of Series C Convertible Preferred stock to the President of the Company to settle payable to the President of $8,133. On December 15, 2017, the Company issued 97,596,600 shares of common stock to the President of the Company pursuant to the conversion of 8,133,050 shares of Series C preferred stock.

 

13

 

 

Item 6. Exhibits

 

Index to Exhibits

 

31.1*   Rule 13(a)-14(a)/15(d)-14(a) Certification
     
32.1*   Section 1350 Certification
     
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

 

* Filed herewith
** 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: January 16, 2018 By: /s/ JOEL FALITZ
  Name: Joel Falitz
  Title: President, Chief Executive Officer, Secretary and Treasurer
    (Principal Executive Officer)
    (Principal Financial and Accounting Officer)

 

15

 

 

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