10-K/A: Earth Science Tech Restates 2023 Financials Following Goodwill Accounting Errors

Earth Science Tech, Inc. has restated its prior year financial statements due to errors in recording and reporting Goodwill, primarily related to the acquisition of RxCompound.

Summary

• Earth Science Tech, Inc. (ETST) has restated its consolidated financial statements for the fiscal year ended March 31, 2023, due to errors in the recording and reporting of Goodwill.
• The restatement primarily impacts the accounting for the acquisition of RxCompound, where Goodwill was incorrectly amortized as an intangible asset.
• The net effect of the adjustments was a reduction in net loss by $13,861 for the year ended March 31, 2023.
• The Goodwill balance on the balance sheet has been restated to its original value and will be tested annually for impairment.
• The restatement increased the accumulated deficit by $35,769 as of March 31, 2023.
• The company's revenue for the year ended March 31, 2023, was $48,537, with a gross profit of $22,060, compared to revenue of $14,123 and a gross loss of $8,516 in the previous year.
• The company reported a net loss of $365,405 for the year ended March 31, 2023, compared to a net profit of $3,173,260 in the previous year, largely due to the loss of a one-time settlement gain.
• Operating expenses increased significantly to $958,743 in 2023 from $218,190 in 2022, primarily due to increased legal and professional fees and litigation expenses.
• The company's cash balance increased slightly to $35,756 as of March 31, 2023, from $26,942 in the previous year.
• The company issued 227,059,118 shares of common stock for $1,016,568 during the year ended March 31, 2023.

Sentiment

Score: 4

Explanation: The document reveals significant accounting errors requiring a restatement, a net loss for the year, and ineffective internal controls. While there is revenue growth, the overall picture is concerning from an investment perspective.

Positives

• Revenue increased significantly due to the acquisitions of RxCompound and Peaks.
• The company has corrected its accounting errors related to Goodwill.
• The company has a presence in the telehealth and compounding pharmaceutical sectors.
• The company has a recurring revenue stream through subscription-based sales.

Negatives

• The company reported a net loss of $365,405 for the year ended March 31, 2023.
• Operating expenses increased substantially, primarily due to legal and professional fees.
• The company's disclosure controls and procedures were deemed ineffective as of March 31, 2023.
• The company has a history of net losses and anticipates increasing expenses in the future.
• The company's internal control over financial reporting was not effective as of March 31, 2023.

Risks

• The company has a limited operating history and an evolving business model, making it difficult to evaluate future prospects.
• The company's results of operations may fluctuate on a quarterly and annual basis.
• The company faces competition from larger, well-established healthcare providers.
• The company may require additional capital to support business growth, which may not be available on acceptable terms.
• The company's Series B class Preferred stock structure concentrates voting power with the CEO.
• The company's common stock is quoted on the OTC Pink Market, which may have an unfavorable impact on its stock price and liquidity.
• The company's business is subject to complex healthcare laws and regulations.
• The company's operations are subject to risks related to security breaches and data loss.
• The company may be subject to legal proceedings and litigation.

Future Outlook

The company intends to expand its offerings to include over-the-counter products and to obtain licenses in additional states for RxCompound. Management believes that the actions presently being taken to further implement its business plan and generate sufficient revenues may provide the opportunity for the Company to continue as a going concern. The company intends to raise additional funds by way of a public or private offering.

Management Comments

• Management has financed the Company's operations principally through government loans, notes payable and equity finance.
• Management intends to raise additional funds by way of a public or private offering.
• Management believes that the actions presently being taken to further implement its business plan and generate sufficient revenues may provide the opportunity for the Company to continue as a going concern.

Industry Context

The company operates in the telehealth and compounding pharmaceutical sectors, which are experiencing growth due to increasing demand for convenient and personalized healthcare solutions. The company faces competition from other specialty compounding pharmacies and telehealth platforms specializing in men's health.

Comparison to Industry Standards

• The company's revenue of $48,537 is relatively low compared to established players in the telehealth and pharmaceutical industries.
• The company's net loss of $365,405 indicates that it is not yet profitable, which is not uncommon for early-stage companies in these sectors.
• The company's operating expenses of $958,743 are high relative to its revenue, suggesting a need to improve cost management.
• The company's reliance on private investors and debt financing is typical for smaller companies in these sectors, but it also indicates a higher risk profile.
• The company's restatement of financials due to accounting errors is a concern and highlights the need for improved internal controls.

Management Changes

Corporate Governance

Legal Proceedings

• The company received a complaint from the Autorit des Marchs Financiers (AMF) regarding the former CEO's capital raising activities.
• The company agreed not to raise new capital in Quebec and paid an administrative penalty of $7,407 to the AMF.

Related Party Transactions

• The company issued convertible notes to VCAMJI IRREV. TRUST, C/O Giorgio R. Saumat, Trustee.
• The company issued shares of common stock and Preferred B stock to Nickolas S. Tabraue and Mario G. Tabraue for services provided.

Stakeholder Impact

• Shareholders may be concerned about the restatement of financials and the company's net loss.
• Employees may be affected by the company's financial performance and any potential restructuring.
• Customers may be impacted by any changes in the company's product offerings or service delivery.
• Creditors may be concerned about the company's ability to repay its debts.
• Suppliers may be affected by any changes in the company's purchasing patterns.

Next Steps

• The company plans to expand its offerings to include over-the-counter products.
• The company plans to obtain licenses in additional states for RxCompound.
• The company intends to raise additional funds through a public or private offering.
• The company will continue to test goodwill for impairment annually.

Key Dates

Keywords

pharmaceuticals, telemedicine, compounding pharmacy, healthcare, Goodwill, financial restatement, RxCompound, Peaks, OTC Pink Market, financial reporting