UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

  X .

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

For the quarterly period ended June 30, 2014

      .

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

For the transition period from ____________ to____________

Commission File Number: 000-54758

Environmental Science and Technologies, Inc.

(Exact name of issuer as specified in its charter)

Delaware		45-5529607
(State or Other Jurisdiction of		(I.R.S. Employer I.D. No.)
incorporation or organization)

4 Wilder Dr., #7

Plaistow, NH 03865

(Address of Principal Executive Offices)

603-378-0809

(Registrant’s Telephone Number, Including Area Code)

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      . No  X .

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date 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  X . No      .

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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	.	Accelerated filer	.
Non-accelerated filer	. (Do not check if a smaller reporting company)	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 .

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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:

The number of shares outstanding of each of the Registrant’s classes of common equity, as of the latest practicable date:

Class		Outstanding as of August 14, 2014
Common Capital Voting Stock, $0.0001 par value per share		34,971,400 shares

FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, Financial Statements and Notes to Financial Statements contain forward-looking statements that discuss, among other things, future expectations and projections regarding future developments, operations and financial conditions. All forward-looking statements are based on management’s existing beliefs about present and future events outside of management’s control and on assumptions that may prove to be incorrect. If any underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected or intended.

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PART I - FINANCIAL STATEMENTS
Item 1. Financial Statements.
Consolidated Balance Sheets as of  June 30, 2014  and December 31, 2013 (Unaudited)	4
Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013 (Unaudited)	5
Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013 (Unaudited)	6
Notes to Consolidated Financial Statements (Unaudited)	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	15
Item 3.  Quantitative and Qualitative Disclosures About Market Risk.	18
Item 4.  Controls and Procedures.	19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings	19
Item 1A. Risk Factors	19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 3. Defaults upon Senior Securities	20
Item 4. Mine Safety Disclosures	20
Item 5. Other Information	20
Item 6. Exhibits	20

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ENVIRONMENTAL SCIENCE AND TECHNOLOGIES, INC.

Consolidated Balance Sheets

		As of June 30,		As of December 31,
		2014		2013
		(Unaudited)		(Unaudited)
ASSETS
Current Assets
Cash	$	35,344	$	5,870
Accounts receivable		158,346		159,251
Inventory		102,669		82,452
Total Current Assets		296,359		247,573
Non-Current Assets
Equipment, net		118,070		133,014
TOTAL ASSETS	$	414,429	$	380,587
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable and accrued expenses	$	678,813	$	374,814
Convertible notes and interest payable		152,082		150,000
Note payable		8,700		-
Due to Officer		98,268		-
Due to related party		24,000		22,500
Total Current Liabilities		961,863		547,314
Stockholders' Deficit
Preferred stock, $0.0001 par value, 5,000,000 shares authorized; none issued and outstanding		-		-
Common stock, $0.0001 par value, 250,000,000 shares authorized; 28,501,400 and    27,171,400 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively		2,850		2,717
Common stock, 130,000 and 515,000 shares issuable at June 30, 2014 and December 31, 2013, respectively		13		52
Additional paid-in capital		497,372		479,216
Accumulated deficit		(1,047,669)		(648,712)
Total Stockholders' Deficit		(547,434)		(166,727)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	414,429	$	380,587

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

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ENVIRONMENTAL SCIENCE AND TECHNOLOGIES, INC.

Consolidated Statements of Operations

(Unaudited)

				Three Months Ended				Six Months Ended
				June 30,				June 30,
				2014		2013		2014		2013
Sales
Packaging solutions			$	256,092	$	-	$	449,522	$	-
Absorbent products				27,366		-		150,751		-
Total sales				283,458		-		600,273		-
Cost of goods sold
Packaging solutions				204,245		-		342,917		-
Absorbent products				22,612		-		131,298		-
Shipping - net				12,924				18,266
Total cost of goods sold				239,781		-		492,481		-
Gross profit				43,677		-		107,792		-
General and administrative fees
	Payroll expense			153,323		18,269		318,618		18,269
	Legal fees			(11,605)		68,570		12,395		68,570
	Support services			-		30,000		-		30,000
	Stock-based compensation			1,463		-		18,250		-
	Professional fees			5,638		36,587		13,651		36,587
	Rent expense			22,887		15,000		45,774		15,000
	Depreciation and amortization expense			12,229		-		24,437		-
	Other general and administrative fees			34,028		38,326		64,911		40,250
Total general and administrative fees				217,963		206,752		498,036		208,676
Loss from operations				(174,286)		(206,752)		(390,245)		(208,676)
Other expense
		Interest expense		(3,740)		-		(8,713)		-
Total other expense				(3,740)		-		(8,713)		-
Net loss			$	(178,026)	$	(206,752)	$	(398,957)	$	(208,676)
Basic and diluted loss per share			$	(0.01)	$	(0.01)	$	(0.01)	$	(0.01)
Weighted average number of shares outstanding - basic and diluted				28,582,679		18,396,782		28,158,929		14,221,587

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

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ENVIRONMENTAL SCIENCE AND TECHNOLOGIES, INC.

Consolidated Statements of Cash Flows

(Unaudited)

		For the Six Months Ended
		June 30,
		2014		2013
Cash Flows from Operating Activities
Net loss	$	(398,957)	$	(208,676)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization expense		24,437		-
Stock-based compensation		18,250		-
Changes in operating assets and liabilities:
Accounts receivable		905		-
Inventory		(20,217)		-
Prepaid expenses and other current assets		-		(435)
Accounts payable and accrued expenses		303,999		80,217
Proceeds from Officer		98,268		-
Due to Related Party		1,500		-
Interest payable on convertible notes		2,082		-
Net cash used in operating activities		30,267		(128,894)
Cash Flows from Investing Activities
Payments to related party		-		-
Purchase of equipment		(793)		-
Net cash used in investing activities		(793)		-
Cash Flows from Financing Activities
Proceeds from Related party		-		1,924
Issuance of common stock for cash		-		175,093
Issuance of common stock for cash--related parties		-		35,705
Capital contribution by officer		-		500
Net cash provided by financing activities		-		213,222
Increase in Cash and Cash Equivalents		29,474		84,328
Cash and Cash Equivalents--Beginning of Period		5,870		-
Cash and Cash Equivalents--End of Period	$	35,344	$	84,328
Non-Cash Investing and Financing Activities
Common stock issued for placement agent	$	15,000	$	3,250
Common stock issued for consultants	$	3,250	$	2,924
Note for purchase of equipment	$	8,700	$	325

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

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ENVIRONMENTAL SCIENCE AND TECHNOLOGIES, INC.

Notes to Unaudited Consolidated Financial Statements

NOTE 1.  ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Environmental Science and Technologies, Inc. and subsidiaries (the “Company”), formerly known as APEX 5, Inc., was incorporated under the laws of the State of Delaware on June 18, 2012.  On June 21, 2013, the Company completed an acquisition of intangible assets comprised of intellectual property and trademarks from its Chief Executive Officer.  In conjunction with the acquisition of the intangible assets, the Company commenced operations.  As of June 30, 2013 the Company had more than nominal operations and no longer considered itself to be a “shell company” within the meaning of applicable securities laws.  In particular, as of such date, the Company had raised capital, hired employees, leased space, engaged consultants and advisors, conducted extensive sales and marketing related activities (both domestically and internationally), negotiated vendor and supplier relationships and engaged seller’s representatives. Moreover, the Company has, since June 30, 2013, realized material revenues from its EnviroPack and SpillCon businesses, which arose from its sales and marketing activities conducted prior to June 30, 2013. The revenues realized by the Company in July and August, 2013, coupled with the progress being made with respect to the proposed ISR equipment sales, evidence the magnitude and scope of the sales, marketing and other operational activities conducted by the Company prior to June 30, 2013. In addition to the foregoing, during the six months ended June 30, 2014, the Company realized approximately $600,273 in revenues. Based upon the foregoing, the Company no longer considers itself a “Development Stage Company.”

The Company’s business is operated through four wholly-owned subsidiaries, each of which is a Delaware corporation: Remote Aerial Detection Systems, Inc., EnviroPack Technologies, Inc., SpillCon Solutions, Inc., and SorbTech Manufacturing, Inc.  The Company has formed two additional subsidiaries, Earth Management Technologies, Inc. and Protective Technologies, Inc., both of which are currently inactive.  Remote Aerial Detection Systems, Inc. is a business that is an intelligence, surveillance, and reconnaissance (ISR) reseller of dedicated mission specific non-aerial ISR and aerial ISR aircraft platforms for the oil and gas industry, as well as government agencies.  EnviroPack Technologies, Inc. is a provider of United Nations/Department of Transportation (“UN/DOT”) certified environmental waste packaging solutions for the safe disposal of a variety of hazardous waste streams.  SpillCon Solutions, Inc. (“SpillCon”) is a distribution business, comprised of environmental spill response and control products (primarily absorbent products), which sells to the oil and gas industry, environmental cleanup industry, and government agencies.  SorbTech Manufacturing, Inc. (“SorbTech”) is a new business which is anticipated to manufacture, distribute and sell proprietary consumer and commercial spill control products for the hazardous and bio-hazardous waste clean-up markets.  Earth Management Technologies, Inc. and Protective Technologies, Inc. are currently inactive.

 

NOTE 2.  BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules of the Securities and Exchange Commission (“SEC”).  In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein.  The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.  

The Company, through June 30, 2013, had not earned revenue from operations.  Accordingly, the Company’s activities through the quarter ended June 30, 2013, were accounted for as those of a “Development Stage Company” in accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Topic No. 915, “Accounting and Reporting by Development Stage Enterprises” (“FASB”).  Among the disclosures required by ASC 915 were that the Company’s financial statements be identified as those of a development stage company, and that the statements of operations and cash flows disclosed activity since the date of the Company’s inception.

Since June 30, 2013, the Company has realized approximately $1,107,638in revenues, and therefore no longer considers itself a “Development Stage Company.”

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NOTE 3.  GOING CONCERN

 

During the six months ended June 30, 2014, although the Company has generated revenue, thus far it has been unable to generate cash flows sufficient to support its operations and has been dependent on debt and equity financing.  In addition to negative cash flow from operations, the Company has experienced recurring net losses, and has an accumulated deficit of $1,047,669 as of June 30, 2014.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.  The unaudited consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

NOTE 4.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Use of Estimates and Assumptions

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements and the reported amounts of expenses during the reporting period.  Actual results could differ from those estimates.

 

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Remote Aerial Detection Systems, Inc., EnviroPack Technologies, Inc., SpillCon Solutions, Inc, and SorbTech Manufacturing, Inc.  The Company has formed two additional subsidiaries, Earth Management Technologies, Inc. and Protective Technologies, Inc., both of which are inactive.  All inter-company accounts and transactions have been eliminated in consolidation.

Reclassifications

Certain reclassifications have been made to the prior periods’ financial information in order to conform to the current period’s presentation.  Specifically the amounts classified in Payroll Expense and Other General and Administrative fees.

Cash 

The Company considers all highly liquid debt instruments with original maturities of three months or less when acquired to be cash equivalents.

Accounts Receivable

In the normal course of business, the Company extends credit to customers that satisfy defined credit criteria.  Accounts receivable is recorded at carrying value, which approximates fair value, and is presented in the Company's unaudited consolidated balance sheets net of any allowance for doubtful accounts.  As of June 30, 2014, an allowance for doubtful accounts had not been deemed necessary, and therefore, not recorded.

Inventory

The Company’s inventory is stated at the lower of cost or estimated realizable value, with cost primarily determined on a weighted-average cost basis on the first-in, first-out (“FIFO”) method.  The Company continuously evaluates the composition of its inventory, assessing slow-turning product.  Estimated realizable value of inventory is determined based on an analysis of historical sales trends of our individual products, the impact of market trends and economic conditions, and a forecast of future demand, giving consideration to the value of current orders in-house relating to the future sales of inventory.  Estimates may differ from actual results due to quantity, quality, and mix of products in inventory, customer demand, and market conditions.  The Company’s historical estimates of these costs and any provisions have not differed materially from actual results.  Any reserves for inventory shrinkage, representing the risk of physical loss of inventory, are adjusted based upon physical inventory counts.  As of June 30, 2014, an inventory reserve had not been deemed necessary, and therefore, not recorded.

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Equipment, Net

Equipment, net is stated at cost less accumulated depreciation.  Depreciation is calculated using the straight-line method based upon the estimated useful life of depreciable assets, which is three years for machinery and equipment.  Machinery and equipment, along with other long-lived assets, are evaluated for impairment periodically whenever events or changes in circumstances indicate that their related carrying values may not be recoverable, or are less than their fair value.  In evaluating long-lived assets for recoverability, the Company uses its best estimate of future cash flows expected to result from the use of the asset and its eventual disposition.  To the extent that estimated future undiscounted net cash flows attributable to the asset are less than the carrying value, an impairment loss is recognized equal to the difference between the carrying value of such asset and its fair value, considering external market participant assumptions.  Assets to be disposed of and for which there is a committed plan of disposal are reported at the lower of carrying value or fair value less costs to sell.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized.  As of June 30, 2014, all deferred tax assets continue to be fully reserved.  

Basic Earnings (Loss) Per Share

 

Basic EPS is based on the weighted average number of common shares outstanding.  Diluted EPS is based on the weighted average number of common shares outstanding and dilutive common stock equivalents.  Basic EPS is computed by dividing net income/loss available to common stockholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period.  Weighted average number of shares used to calculate basic and diluted loss per share is considered the same as the effect of dilutive shares is anti-dilutive for all periods presented. As of June 30, 2014,  there were 1,200,000 common stock equivalents that were not included in the dilutive earnings per share calculation as their effect is anti-dilutive

Revenue Recognition

Revenue is recognized across all segments of the business when there is persuasive evidence of an arrangement, delivery has occurred, price has been fixed or is determinable, and collectability is reasonably assured.  Revenue is recognized at the time title passes and risk of loss is transferred to customers.

Sales Reserves and Uncollectible Accounts

A significant area of judgment affecting reported revenue and net income is estimating sales reserves, which represent that portion of gross revenues not expected to be realized.  In particular, wholesale revenue is reduced by estimates of returns, discounts, markdowns, and operational chargebacks.  In determining estimates of returns, discounts, markdowns and operational chargebacks, management analyzes current economic and market conditions.  We review and refine these estimates on a quarterly basis.  As of June 30, 2014, a sales reserve had not been deemed necessary, and therefore, not recorded.

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Cost of Goods Sold and Selling Expenses

Cost of goods sold includes the expenses incurred to acquire and produce inventory for sale, including product costs, freight-in, and any import costs, as well as changes in reserves for shrinkage and inventory realizability.  Any costs of selling merchandise, including those associated with preparing the merchandise for sale, such as picking, packing, warehousing, and order charges (“handling costs”), are included in general and administrative fees.

Stock-Based Compensation

The Company expenses all stock-based payments to employees and non-employee directors based on the grant date fair value of the awards over the requisite service period, adjusted for estimated forfeitures.

Convertible Notes

The Company records a discount to convertible notes for the intrinsic value of conversion options embedded in debt instruments, as appropriate.  Debt discounts under these arrangements are amortized to noncash interest expense using the effective interest rate method over the term of the related debt to their date of maturity.

If a security or instrument becomes convertible only upon the occurrence of a future event outside the control of the Company, or, is convertible from inception, but contains conversion terms that change upon the occurrence of a future event, then any contingent beneficial conversion feature is measured and recognized when the triggering event occurs and contingency has been resolved.

 

Recent Accounting Guidance

 

In July 2012, the FASB issued revised guidance surrounding testing indefinite-lived intangible assets for impairment as Accounting Standards Update (“ASU”) No. 2012 – 02, “Testing Indefinite-Lived Intangible Assets for Impairment” (“ASU 2012 – 02”).  ASU 2012 – 02 simplifies the testing of indefinite-lived intangible assets for impairment by providing entities with the option of performing a qualitative assessment to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value.  The results of such assessment may be used as a basis for determining whether it is necessary to perform the quantitative impairment test required under ASC topic 350, “Intangibles — Goodwill and Other” (“ASC 350”).  The application of ASU 2012 – 02 did not have an impact on the Company's consolidated financial statements.

ASU 2013 – 11, “Income Taxes (Topic 740) – Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” was issued in July, 2013.  The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013.  Early adoption is permitted.  The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date.  Retrospective application is permitted.  The Company does not expect adoption of this ASU to have a material impact on its financial statements.  

NOTE 5.  INVENTORY

Inventory consisted of finished goods amounting to $102,669 as of June 30, 2014 and $82,452 as of December 31, 2013.  The Company had no inventory reserve as of June 30, 2014.

NOTE 6.  EQUIPMENT

Equipment, net consisted of the following as of June 30, 2014 and as of December 31, 2013:

		June 30, 2014			December 31, 2013
Machinery and equipment		$	155,452		$	145,959
Less: accumulated depreciation			(37,382)			(12,945)
Equipment, net		$	118,070		$	133,014

The Company recorded depreciation expense of $12,229 and $24,437 for the three and six months ended June 30, 2014, respectively, and $0 for the three and six months ended June 30, 2013.

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NOTE 7.  CONVERTIBLE NOTES

During September, 2013, the Company issued convertible promissory notes to accredited investors in the principal amounts of $100,000 and $50,000.  These notes bear interest at the rate of 10% per annum. The $100,000 note matures September 4, 2015, and the $50,000 note matures on September 10, 2014.  The notes are convertible into shares of common stock at the rate of $0.125 per share. The convertible note in the principal amount of $100,000 was amended in July 2014 to extend its maturity date to July 15, 2015 and to make it non-interest bearing. See Note 12 – Subsequent Events.

At the time of issuance the Company assessed the conversion feature to determine if it contained a beneficial conversion feature (BCF) as per ASC 470. The Company determined it did not have a BCF since the conversion price was greater than the market price of the common stock on the date of issuance.

As of June 30, 2014 the Company owed principal and accrued interest of $152,082 related to the convertible promissory notes.

Note 8.  NOTE PAYABLE

During March, 2014, the Company issues a promissory note in the principal amount of $8,700 for the purchase of equipment.  This note bears no interest and matures on March 5, 2015.

NOTE 9.  LEASES 

The Company leases its primary facility in Plaistow, New Hampshire for $7,500 per month from an entity owned beneficially by the Company’s CEO and significant shareholder.  The lease commenced on May 1, 2013 and expires on April 30, 2015.  See Note 10.

The Company’s future minimum lease payments are as follows:

2014		45,000
2015		30,000
Total	$	75,000

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NOTE 10.  RELATED PARTY TRANSACTIONS

 

On March 6, 2013, an officer of the Company contributed $500 to the Company.  The amount was considered a contribution to capital.

From the Company’s inception date (June 18, 2012) through June 30, 2013, a former officer of the Company paid $2,924 of the Company’s expenses.  The related liability was released by the former officer and settled in full during the quarter ended June 30, 2013.  The settlement was considered a contribution to capital.

The Company leases its facility, which consists of 10,000 square feet of office and warehouse space located in Plaistow, New Hampshire for $7,500 per month from an entity owned beneficially by the Company’s CEO and majority shareholder.  The lease is a gross lease under which the landlord pays all taxes, maintenance and repairs, and insurance.  The lease commenced on May 1, 2013 and expires on April 30, 2015. As of June 30, 2014 and December 31, 2013, $9,000 and $7,500, respectively, are due under this agreement.

During May 2013, the Company entered into an arrangement with Enco Industries, Inc. (“Enco”), a company that is controlled by the Company’s CEO and majority shareholder, under which Enco provides administrative and support related services, including warehouse personnel, to the Company for a fixed price of $15,000 per month.  The Company recorded the related expenses as support services, which amounted to $45,000 and $75,000 for the three and nine months ended September 30, 2013, respectively.  $11,463 of the support services expense was classified as cost of goods sold for the three and nine months ended September 30, 2013.

During the three months ended June 30, 2013, the Company’s board of directors authorized the issuance of an aggregate of 11,221,429 founders’ shares, at a price of $0.0001 per share, being the par value per share.  Of the 11,221,429 founders’ shares, 2,921,429 shares were authorized for issuance to individuals not considered related parties.  The aggregate purchase price was $1,123.  See Note 11.

On June 21, 2013, the Company issued an aggregate of 3,250,000 shares of its common stock to an officer of the Company for the purchase of intellectual property and trademarks, at a price of $0.001 per share.  The purchase price was $3,250.  See Note 11.

During the six months ended June 30, 2014, the Company's CEO paid $98, 268 in expenses of the Company  through the use of his personal funds and personal credit cards. See Note 12 – Subsequent Events.

As of June 30, 2014, $10,000 of the $25,000 cash portion of the consideration paid for the purchase of intellectual property (See Note 11) had been paid.  The remaining $15,000is included on the unaudited consolidated balance sheet as a due to employee because the seller of the intellectual property was hired as an employee of the Company subsequent to the effectiveness of the transaction.

NOTE 11.  STOCKHOLDERS’ EQUITY

 

Founders’ Shares

During the three months ended June 30, 2013, the Company’s board of directors authorized the issuance of an aggregate of 11,221,429 founders’ shares, at a price of $0.0001 per share, being the par value per share.  The aggregate purchase price was $1,123.  

Private Offering

During May, 2013, the Company sold 2,100,000 shares of its common stock to accredited investors, at a price of $0.10 per share, in connection with a private placement of the Company’s common stock for proceeds totaling $210,000.

In addition, in September, 2013 the Company sold 100,000 shares of its common stock to an accredited investor, at a price of $0.25 per share, in connection with a private placement of the Company’s common stock for proceeds totaling $25,000.

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Common Stock Issued for the Purchase of Assets

On June 21, 2013, the Company issued an aggregate of 3,250,000 shares of its common stock to an officer of the Company for the purchase of intellectual property and trademarks.  The purchase price was $3,250.

On September 23, 2013, the Company issued an aggregate of 350,000 shares of its common stock and agreed to pay $25,000 in cash to a third party for the purchase of intellectual property and unregistered trademarks at a price of $0.125 per share.  The aggregate purchase price was $68,750.

 

Stock-Based Compensation

On July 22, 2013, the Company issued 100,000 shares of its common shares to a consultant as a retainer for services to be provided.  The shares were valued at $10,000 or $0.10 per share.  The consultant received an additional 25,000 shares for services on August 1, 2013 and 32,500 shares on September 1, 2013.   These shares were valued at $2,500 or $0.10 per share on August 1, 2013, $4,063 or $0.125 per share on September 1, 2013,$4,875 or $.05 per share for the forth quarter of 2013, $650 or $.02 per share for January and February of 2014 and $488 or $.015 per share for March, April, May and June of 2014.  The consultant is scheduled to receive an additional 32,500 shares per month for services, for so long as he remains a consultant to the Company.  As of June 30, 2014, 130,000 shares had not yet been issued.

On July 31, 2013, a consultant received 60,000 shares of the Company’s common stock for services, valued at $6,000 or $0.10 per share.

 

On July 31, 2013, an employee received 350,000 shares of the Company’s common stock as compensation.  The shares were valued at $35,000 or $0.10 per share.

In January, 2014,   the Company issued an aggregate of 750,000 shares of common stock to Network 1 Financial Securities LLC (“Network 1”) and its designees as compensation for services to be rendered in connection with a placement agent agreement entered into with Network One. These shares were valued at $.02 per share.

Note 12 – Subsequent Events

On July 12, 2014, the Company sold 3,000,000 shares of its common stock to a single accredited investor for gross proceeds of $6,000 (a per share price of $.002).

On July 14, 2014, the Company and its CEO, Michael R. Rosa, entered into an agreement with Mark Shefts, as follows:

(1)

Mr. Shefts: (i) will provide management advisory services to the Company for a period of one year, for $1000 per month, (ii) made a $125,000 equity investment into the Company,  in exchange for 10 million shares of the Registrant’s common stock, (iii) extended the maturity date of his convertible promissory note in the principal amount of $100,000 until July 15, 2015 and make the note non-interest bearing, and (iv) will have the option of becoming CEO and a member of the board of the Company;

(2)

The Company will issue to Mr. Shefts or his designee 10 million shares of its common stock, in consideration for the $125,000 investment;

(3)

Mr. Shefts and the Company’s CEO will endeavor for a specified of time to appoint a mutually agreeable person to act as a director of the Company. In the event that Mr. Shefts and the Company’s CEO are unable to agree on a third director, Mr. Shefts would have the right to appoint the third director;

(4)

Michael R Rosa, CEO of the Company, will surrender approximately 6,692,500 shares of the Registrant’s common stock to the treasury, to be restored to the status of authorized but unissued shares; and

(5)

Mr. Rosa has agreed to accept a promissory note in the amount of $98,268 for amounts he has advanced on behalf of the Company. This note is non-interest bearing and matures July 15, 2015.

The Agreement also provides that if the Board of Directors should at any time determine to discontinue the business operations of the Company, then, subject to compliance with applicable laws, the Company will transfer to Michael R. Rosa its discontinued operating businesses, in exchange for his surrendering to the Company all shares of common stock of the Company owned or controlled by him.

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In connection with the foregoing transaction, the Company, on July 14, 2014, sold to Mark Shefts (an accredited investor) 10,000,000 shares of its common stock, for aggregate consideration of $125,000 (a per-share price of $.0125).

On or about August 12, 2014, we received a Notice of Debarment from the US Defense Logistics Agency (“DLA”) (the “Notice”). The Notice (i) prevents us from bidding on new government contracts and (ii) precludes the renewal of any existing contract that is otherwise renewable.  The Notice was issued to us because our CEO (who is also a significant shareholder of our company) is affiliated with a company that is alleged to have sold products to the DLA that did not conform to the applicable contract. The DLA has not alleged any wrongdoing whatsoever with respect to our company or its contracts with the DLA.

 

As a result of the Notice, we are not able to bid on any new US government contracts that might otherwise be of interest to us, unless and until the Notice is withdrawn or rescinded as a result of our negotiations with the government or through an adjudication on the merits.

 

Currently, there are no government contracts on which we are interested in bidding. During each of the six month periods ended December 31, 2013 and June 30,2014, we realized approximately $100,000 in revenues from government contracts. These contracts have been substantially fulfilled. We are currently fulfilling a legacy government contract on which we expect to realize approximately $80,000 in future revenues; this contract is unaffected by the Notice, as it is an existing contract.

 

If we are unable to have the Notice rescinded/terminated, we will not be able to bid on future US government contracts, in which case there could be an adverse effect on our revenues and profitability, unless we are able to replace the resulting revenue loss. We intend to vigorously pursue recission/termination of the Notice.

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

Forward-looking Statements

Statements made in this Quarterly Report which are not purely historical are forward-looking statements with respect to the goals, plan objectives, intentions, expectations, financial condition, results of operations, future performance and our business, including, without limitation, (i) our ability to raise capital, and (ii) statements preceded by, followed by or that include the words “may,” “would,” “could,” “should,” “expects,” “projects,” “anticipates,” “believes,” “estimates,” “plans,” “intends,” “targets” or similar expressions.

Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond our control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following: general economic or industry conditions, nationally and/or in the communities in which we may conduct business, changes in the interest rate environment, legislation or regulatory requirements, conditions of the securities markets, our ability to raise capital, changes in accounting principles, policies or guidelines, financial or political instability, acts of war or terrorism, other economic, competitive, governmental, regulatory and technical factors affecting our current or potential business and related matters.

Accordingly, results actually achieved may differ materially from expected results in these statements.  Forward-looking statements speak only as of the date they are made.  We do not undertake, and specifically disclaim, any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements.

Overview

On June 21, 2013, the Company completed the acquisition of certain assets from Michael R. Rosa, its chief executive officer, and commenced business operations. Since completing the acquisition, the Company has raised capital, hired employees, leased space, engaged consultants and advisors, conducted extensive sales and marketing related activities both domestically and internationally, negotiated vendor relationships and engaged seller’s representatives. As of June 30, 2013 the Company had more than nominal operations and no longer considered itself to be a “shell company” within the meaning of applicable securities laws. The Company has, since June 30, 2013, realized revenues from its EnviroPack and SpillCon businesses. The Company’s business is operated through four wholly-owned subsidiaries, each of which is a Delaware corporation: Remote Aerial Detection Systems, Inc., EnviroPack Technologies, Inc., SpillCon Solutions, Inc. and SorbTech Manufacturing, Inc.  The Company has formed two additional subsidiaries, Earth Management Technologies, Inc. and Protective Technologies, Inc., both of which are inactive.

The Company, through June 30, 2013, had not earned revenue from operations. Accordingly, previously, the Company’s activities had been accounted for as those of a “Development Stage Company” as set forth in Financial Accounting Standards Board (‘FASB”) Accounting Standards Codification (“ASC”) 915. Among the disclosures required by ASC 915 are that the Company’s financial statements be identified as those of a development stage company, and that the statements of operations, stockholders’ equity and cash flows disclose activity since the date of the Company’s inception. Since June 30, 2013, the Company has realized approximately $1,107,638in revenues, and therefore no longer considers itself a “Development Stage Company.”

RADS, a wholly owned subsidiary is a reseller of aerial (manned and unmanned) and non-aerial surveillance systems (ISR systems) for use by the oil and gas industry in leak and spill detection, exploration and security for oil and gas assets (production and distribution). In addition, our ISR systems can be used for border security, mineral exploration and topographical mapping.

EnviroPack, a wholly owned subsidiary, is a provider of United Nations/Department of Transportation (UN/DOT) certified environmental waste packaging solutions for the safe disposal of a variety of hazardous waste streams. SpillCon is a distribution business comprised of environmental spill response and control products (primarily absorbent products), which will be sold to the oil and gas industry, environmental cleanup firms, industry and government agencies.  SorbTech Manufacturing, Inc. will manufacture, distribute and sell proprietary consumer and commercial spill control products for the hazardous and bio-hazardous waste clean-up markets.

Earth Management Technologies, Inc. and Protective Technologies, Inc. are inactive.

As the Company only established its business operations on June 21, 2013 (and was a shell company prior to such date), the Company has no meaningful historical business operations, with which to compare the current quarterly period. Since the Company has no comparable historical business operations, the following discussion omits discussion of income from continuing operations, expenses and other matters related to “results of operations,” as well as information relating to the statement of cash flows, as the Company does not believe that analysis of this information would be meaningful to investors.

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Recent Developments

In addition to the asset acquisitions and commencement of business operations on June 21, 2013 described above, the Company has raised capital from equity and debt financings. During 2013, the Company raised an aggregate of $385,000 through the sale of common stock and convertible notes. In addition, during July, 2014, the Company received $131,000 in proceeds from the sale of common stock. In connection with this investment, our founder and CEO, Michael R. Rosa, surrendered to our treasury for cancellation 6,692,500 shares of our common stock. Following these transactions, we had 34,971,400 shares outstanding as of August 14, 2014.

On or about August 12, 2014, we received a Notice of Debarment from the US Defense Logistics Agency (“DLA”) (the “Notice”). The Notice (i) prevents us from bidding on new government contracts and (ii) precludes the renewal of any existing contract that is otherwise renewable. The Notice was issued to us because our CEO (who is also a significant shareholder of our company) is affiliated with a company that is alleged to have sold products to the DLA that did not conform to the applicable contract. The DLA has not alleged any wrongdoing whatsoever with respect to our company or its contracts with the DLA.

 

As a result of the Notice, we are not able to bid on any new US government contracts that might otherwise be of interest to us, unless and until the Notice is withdrawn or rescinded as a result of our negotiations with the government or through an adjudication on the merits.

 

Currently, there are no government contracts on which we are interested in bidding. During each of the six month periods ended December 31, 2013 and June 30,2014, we realized approximately $100,000 in revenues from government contracts. These contracts have been substantially fulfilled. We are currently fulfilling a legacy government contract on which we expect to realize approximately $80,000 in future revenues; this contract is unaffected by the Notice, as it is an existing contract.

 

If we are unable to have the Notice rescinded/terminated, we will not be able to bid on future US government contracts, in which case there could be an adverse effect on our revenues and profitability, unless we are able to replace the resulting revenue loss. We intend to vigorously pursue recission/termination of the Notice.

Critical Accounting Policies and Significant Judgments and Estimates

The Securities and Exchange Commission (“SEC”) issued disclosure guidance for “critical accounting policies.” The SEC defines “critical accounting policies” as those that require the application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.

Our significant accounting policies are described below. We anticipate that the following accounting policies will require the application of our most difficult, subjective or complex judgments:

Basis of Presentation - Development Stage Company

The Company, through June 30, 2013, had not earned revenue from operations. Accordingly, through the quarter ended June 30, 2013, the Company’s activities were accounted for as those of a “Development Stage Company” as set forth in FASB ASC 915. Among the disclosures required by ASC 915 are that the Company’s financial statements be identified as those of a development stage company, and that the statements of operations, stockholders’ equity and cash flows disclose activity since the date of the Company’s inception.

Since completing the acquisitions on June 21, 2013, the Company has raised capital, hired employees, leased space, engaged consultants and advisors, conducted extensive sales and marketing related activities both domestically and internationally, negotiated vendor relationships and engaged seller’s representatives. The Company has, since June 30, 2013, realized approximately $1,107,638 in revenues, primarily from its EnviroPack and SpillCon businesses. Accordingly, the Company no longer considered itself to be a development stage company during the quarter ended June 30, 2014.

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Accounts Receivable

In the normal course of business, the Company extends credit to customers that satisfy defined credit criteria.  Accounts receivable is recorded at carrying value, which approximates fair value, and is presented in the Company's unaudited consolidated balance sheets net of any allowance for doubtful accounts.  As of June 30, 2014, an allowance for doubtful accounts had not been deemed necessary, and therefore, not recorded.

Inventory

The Company’s inventory is stated at the lower of cost or estimated realizable value, with cost primarily determined on a weighted-average cost basis on the first-in, first-out (“FIFO”) method.  The Company continuously evaluates the composition of its inventory, assessing slow-turning product.  Estimated realizable value of inventory is determined based on an analysis of historical sales trends of our individual products, the impact of market trends and economic conditions, and a forecast of future demand, giving consideration to the value of current orders in-house relating to the future sales of inventory.  Estimates may differ from actual results due to quantity, quality, and mix of products in inventory, customer demand, and market conditions.  The Company’s historical estimates of these costs and any provisions have not differed materially from actual results.  Any reserves for inventory shrinkage, representing the risk of physical loss of inventory, are adjusted based upon physical inventory counts.  As of June 30, 2014, an inventory reserve had not been deemed necessary, and therefore, not recorded.

Equipment, Net

Equipment, net is stated at cost less accumulated depreciation.  Depreciation is calculated using the straight-line method based upon the estimated useful life of depreciable assets, which is seven years for machinery and equipment.  Machinery and equipment, along with other long-lived assets, are evaluated for impairment periodically whenever events or changes in circumstances indicate that their related carrying values may not be recoverable, or are less than their fair value.  In evaluating long-lived assets for recoverability, the Company uses its best estimate of future cash flows expected to result from the use of the asset and its eventual disposition.  To the extent that estimated future undiscounted net cash flows attributable to the asset are less than the carrying value, an impairment loss is recognized equal to the difference between the carrying value of such asset and its fair value, considering external market participant assumptions.  Assets to be disposed of and for which there is a committed plan of disposal are reported at the lower of carrying value or fair value less costs to sell.

Income Taxes

Income taxes are provided in accordance with FASB ASC 740 “Accounting for Income Taxes”. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carry forwards. Deferred tax expense (benefit) results from the net change during the year of deferred tax assets and liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of all of the deferred tax assets will be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. There were no current or deferred income tax expenses or benefits, as the Company did not having any material operations for the period ended December 31, 2012.  As of June 30, 2014, all deferred tax assets continue to be fully reserved.  

Revenue Recognition

Revenue is recognized across all segments of the business when there is persuasive evidence of an arrangement, delivery has occurred, price has been fixed or is determinable, and collectability is reasonably assured.  Revenue is recognized at the time title passes and risk of loss is transferred to customers.

Sales Reserves and Uncollectible Accounts

A significant area of judgment affecting reported revenue and net income is estimating sales reserves, which represent that portion of gross revenues not expected to be realized.  In particular, wholesale revenue is reduced by estimates of returns, discounts, markdowns, and operational chargebacks.  In determining estimates of returns, discounts, markdowns and operational chargebacks, management analyzes current economic and market conditions.  We review and refine these estimates on a quarterly basis.  As of June 30, 2014, a sales reserve had not been deemed necessary, and therefore, not recorded.

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Liquidity and Capital Resources

Currently, we have only minimal operating capital. Accordingly, we have an immediate need for additional capital to fund our business operations.  The lack of operating capital is adversely affecting our ability to purchase needed product inventory and consequently is interfering with our ability to generate revenue.  We are currently in the process of attempting to raise additional capital through the sale of equity and/or debt securities. Sales of additional equity securities (or securities convertible into equity securities) will dilute the percentage ownership interest of existing stockholders in the Company.

To date we have realized only limited operating revenues. We are, however, incurring significant costs and expenses in connection with the establishment of our new business, implementation of our business plan and ongoing compliance costs associated with being a public company. Consequently, we are currently experiencing negative cash flows from operations. During the six months ended June 30,2014, our operating activities used approximately $166,000 in cash (about $28,000 per month).  As we have only minimal operating capital, currently we do not have the cash necessary to fund our ongoing operations and implement our business plan. As a result, we have an immediate need for additional funds.

At June 30, 2014, we had a working capital deficiency of $665,000, compared to a working capital deficiency of $299,000 at December 31, 2013.The $365,000 increase in our working capital deficiency was due primarily to a $305,000 increase in accounts payable and accrued expenses and a $98,000 increase in due to officer (related to Company expenses paid directly by our CEO and major shareholder. See Note 12 – Subsequent Events.  

In order to remedy this liquidity deficiency, we need to raise additional capital immediately, and ultimately we will need to generate substantial positive operating cash flows. Our internal sources of funds will consist of cash flows from operations, but not until we begin to realize substantial revenues from the sale of products. As previously stated, as of the date of filing of this quarterly report, we have only limited revenues, and our operations are generating negative cash flows, and thus adversely affecting our liquidity. We intend to raise additional funds through equity and/or debt financing. In addition, we expect that our operations will begin to generate increasing revenues during the last quarter of 2014, which should improve our liquidity deficiency. If we are unable to raise additional funds in the near term, we will not be able to implement our business plan, and it is unlikely that we will be able to continue as a going concern.

Subject to the availability of funds, which we currently do not have, we expect to incur approximately $250,000 in capital expenditures over the next 12 months. The purpose of these capital expenditures will be for the installation of a cellulose blending system, along with an industrial sewing machine center for use in a customized cutting and sewing operation, and specific testing equipment for a research and development lab for the SpillCon and RADS businesses, along with other equipment modifications.

We expect to fund these capital expenditures through a combination of cash flows from operations and proceeds from equity financing. If we are unable to generate positive cash flows from operations, and/or raise additional funds (either through debt or equity), we will be unable to fund our capital expenditures, in which case, there could be an adverse effect on our business and results of operations.

Since March, 2013, we have raised an aggregate of approximately $515,000 from the sale of shares of common stock and convertible promissory notes. We expect to raise additional funds in the near term from the further equity and/or debt offerings. Additional sales of common stock or securities convertible into common stock will reduce the percentage interest of existing stockholders in our Company.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements as defined in Item 303(a) (4) (ii) of the SEC’s Regulation S-K.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

Not required.

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Item 4.  Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in rules and forms adopted by the Securities and Exchange Commission, and that such information is accumulated and communicated to management, including the president and secretary, to allow timely decisions regarding required disclosures.

Under the supervision and with the participation of our management, including our president and treasurer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act).  Based upon that evaluation, our president and treasurer concluded that, as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were not effective. We have since June 30, 2014 hired a financial controller (part time) to oversee our books and records, as well as our internal accounting function.

Changes in Internal Control Over Financial Reporting

During the fiscal quarter covered by this Quarterly Report, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

On or about August 12, 2014, we received a Notice of Debarment from the US Defense Logistics Agency (“DLA”) (the “Notice”). The Notice (i) prevents us from bidding on new government contracts and (ii) precludes the renewal of any existing contract that is otherwise renewable.  The Notice was issued to us because our CEO (who is also a significant shareholder of our company) is affiliated with a company that is alleged to have sold products to the DLA that did not conform to the applicable contract. The DLA has not alleged any wrongdoing whatsoever with respect to our company or its contracts with the DLA.

 

As a result of the Notice, we are not able to bid on any new US government contracts that might otherwise be of interest to us, unless and until the Notice is withdrawn or rescinded as a result of our negotiations with the government or through an adjudication on the merits.

 

Currently, there are no government contracts on which we are interested in bidding. During each of the six month periods ended December 31, 2013 and June 30,2014, we realized approximately $100,000 in revenues from government contracts. These contracts have been substantially fulfilled. We are currently fulfilling a legacy government contract on which we expect to realize approximately $80,000 in future revenues; this contract is unaffected by the Notice, as it is an existing contract.

 

If we are unable to have the Notice rescinded/terminated, we will not be able to bid on future US government contracts, in which case there could be an adverse effect on our revenues and profitability, unless we are able to replace the resulting revenue loss. We intend to vigorously pursue recission/termination of the Notice.

Item 1A. Risk Factors

Not required.

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

Previously reported in Current Reports on Form 8-K.

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Item 3. Defaults Upon Senior Securities

None.  

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

N/A

Item 6. Exhibits

Incorporated by Reference
Exhibit	Exhibit Description	Filed Herewith	Form	Period Ending	Exhibit	Filing Date
3.1	Certificate of Incorporation, as amended		8-K		3.1	06/27/2013
3.2	By-Laws		10		3.2	07/09/2012
4.1	Specimen Stock Certificate		10		4.1	07/09/2012
10.1	Asset purchase agreement between registrant, Michael Rosa and SpillCon Solutions, Inc.		8-K		10.1	06/27/2013
10.2	Asset purchase agreement between registrant, Michael Rosa and Remote Aerial Detection Systems, Inc.		8-K		10.2	06/27/2013
10.3	Asset purchase agreement between registrant, Michael Rosa and EnviroPack Technologies, Inc.		8-K		10.3	06/27/2013
10.4	Asset purchase agreement between registrant, Mark Ceaser and SorbTech Manufacturing, Inc.		8-K		4.01	09/27/2013
10.5	Agreement between registrant and Network 1 Financial Securities, Inc. dated January 13, 2014	ü
10.6	Agreement between Mark Shefts, registrant and Michael Rosa dated July 14, 2014	ü
31**	Certification of the Principal Executive and Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended	ü
32	Certification of the Principal Executive Officer and Principal Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	ü

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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 hereunto duly authorized.

Environmental Science and Technologies, Inc.

By: /s/ Michael R. Rosa

Name: Michael R. Rosa

Title: Chief Executive Officer (duly authorized officer) (Principal Financial Officer)

Dated: August 19, 2014

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