U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended February 28, 2015

 

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

 

For the transition period from

 

Commission File No. 333-154989

 

ENTEST BIOMEDICAL, INC.

(Exact name of small business issuer as specified in its charter)

 

Nevada	26-3431263
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

 

4700 Spring Street, St 304, La Mesa, California 91942

(Address of Principal Executive Offices)

 

(619)-702-1404

(Issuer’s telephone number)

 

None

(Former name, address and fiscal year, if changed since last report)

 

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

 

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

 

☐  Large accelerated filer	☐  Accelerated filer
☐  Non-accelerated filer	☑  Smaller reporting company

 

APPLICABLE ONLY TO CORPORATE ISSUERS: 

As of February 28, 2015 there were 2,405,570,752 shares of common stock issued and outstanding.

 

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

Yes ☐ No ☑

 

Transitional Small Business Disclosure Format (Check One) Yes ☐   No ☑

PART I - FINANCIAL INFORMATION

 

Item 1. - Financial Statements

 

ENTEST BIOMEDICAL, INC.
CONSOLIDATED BALANCE SHEET
		As of February 28,				As of August 31,
		2015				2014
		(unaudited)
ASSETS
Current Assets
Cash		$	7,426			$	734
Due from Affiliate			—				—
Current Portion of Prepaid Expenses			8,000				8,000
Total Current Assets			15,426				8,734
Property & Equipment (net of accumulated depreciation)			1,919				1,919
TOTAL ASSETS		$	17,345			$	10,653
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable		$	105,419			$	115.849
Notes Payable			402,118				383,440
Convertible notes payable, net of discount			—				—
Due to Other			8,000				8,000
Accrued Expenses			254,189				182,549
Total Current Liabilities			769,726				689,838
TOTAL LIABILITIES			769,726				689,838
STOCKHOLDERS' EQUITY
Common Stock, authorized 6,000,000,000 shares; issued and outstanding 2,405,570,752 (par value $0.0001) shares and 2,205,570,752 (par value $0.0001) as of February 28, 2015 and August 31, 2014, respectively			239,657				219,657
Preferred Stock, par value $0.0001; 5,000,000 shares authorized, 0 shares issued and outstanding as of August 31, 2014 and February 28, 2015			0				0
Series AA Preferred Stock, 100,000 shares authorized, 100,000 shares, (par value $0.0001) issued and outstanding at February 28, 2015 and 100,000 shares (par value $0.0001) as of August 31, 2014			10				10
Series B Preferred 4,400,000 shares authorized, 4,201,397 (par value $0.0001) issued and outstanding as of February 28, 2015 and 4,201,397 (par value $0.0001) issued and outstanding as of August 31, 2014			421				421
Series AAA Preferred, 300,000 shares authorized, $0.0001 par value; 80,000 shares outstanding as of February 28, 2015 and August 31, 2014, respectively			8				8
NonVoting Convertible Preferred ($1 par value) 200,000 shares authorized, 0 and 0 issued and outstanding as of February 28, 2015 and August 31, 2014, respectively			0				0
Additional Paid-In Capital			5,321,292				5,239,692
Contributed Capital			274,162				274,162
Accumulated Deficit			(6,587,931	)			(6,413,135	)
Total Stockholders' Equity			(752,381	)			(679,185	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT		$	17,345			$	10,653

 

The accompanying notes are an integral part to these financial statements.

 

ENTEST BIOMEDICAL INC.
Consolidated Statement of Operations
		Three Months Ended				Three Months Ended				Six Months Ended				Six Months Ended
		February 28, 2015				February 28, 2014				February 28, 2015				February 28, 2014
		(unaudited)				(unaudited)				(unaudited)				(unaudited)
TOTAL REVENUE		$	0			$	0			$	0			$	0
COSTS AND EXPENSES
Research and Development			0				0				0				0
Rent Costs			10,113				6,482				19,836				19,071
General and Administrative			58,139				62,931				114,668				129,531
Consultant's Expenses			21,773				29,881				28,023				41,746
Total Costs and Expenses		$	90,025			$	99,294			$	162,527			$	190,348
OPERATING LOSS			(90,025	)			(99,294	)			(162,527	)			(190,348	)
OTHER INCOME AND EXPENSE
Rental income			13,371				0				21,871				0
Gain on issuance of stock above fair value			0				6,000				0				6,000
Other Income			0				0				0				5,700
Loss on issuance of stock below fair value			0				(58,494	)			(20,000	)			(58,494	)
Interest Expense			(7,377	)			(7,376	)			(14,140	)			(15,857	)
Expense attributable to issuance of common shares below par value			0				0				0				(420,369	)
TOTAL OTHER INCOME AND EXPENSE		$	5,994			$	(59,870	)		$	(12,269	)		$	(483,020	)
LOSS BEFORE INCOME TAXES			(84,031	)			(159,164	)			(174,796	)			(673,368	)
Income Taxes			0				0				0				0
NET LOSS		$	(84,031	)		$	(159,164	)		$	(174,796	)		$	(673,368	)
NET LOSS  from continuing operations			(84,031	)			(159,164	)			(174,796	)			(673,368	)
Net Income (Loss) from discontinued operations			0				0				0				(3,753	)
NET LOSS available to common shareholders			(84,031	)			(159,164	)			(174,796	)			(677,121	)
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE FROM CONTINUING OPERATIONS		$	(0.000)			$	(0.000)			$	(0.000)			$	(0.001)
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE FROM DISCONTINUED OPERATIONS		$	(0.000)			$	(0.000)			$	(0.000)			$	(0.000)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING			2,405,570,752				1,199,959,641				2,335,926,715				1,046,463,680

  

The accompanying notes are an integral part to these financial statements.

 

ENTEST BIOMEDICAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
		Six Months ended February 28,				Six Months ended February 28,
		2015				2014
		(unaudited)				(unaudited)
OPERATING ACTIVITIES
Net Loss		$	(174,796	)		$	(673,368	)
Adjustments to reconcile net loss to cash used by operating activities:
Amortization Expense			0				270
Changes in Operating Assets and Liabilities:
Increase (Decrease) in Accounts Payable			(10,430	)			134
(Increase) Decrease in Due from Affiliate			0				19,955
Increase (Decrease) in Accrued Expenses			71,640				(141,693	)
Net Cash Provided Used in Operating  Activities			(113,586	)			(783,702	)
FINANCING ACTIVITIES
Expenses incurred resulting from issuance of stock for less than par value			0				420,369
(Increase) Decrease in gain on issuance of stock for more than fair value			0				(6,000)
Increase (Decrease) in loss on issuance of stock for less than fair value			20,000				58,494
Increase (Decrease) in Common stock issued for expenses			0				4,420
Increase (Decrease) in Notes Payable			38,678				240,255
Increase (Decrease) in Additional paid in Capital			61,600				61,600
Net Cash Provided by Financing Activities			120,278				779,138
DISCONTINUED OPERATION
Profit (Loss) from discontinued operations			0				(3,753	)
Net Increase in Cash			6,692				(8,317	)
Cash at beginning of the period			734				9,610
Cash at end of the period		$	7,426			$	1,293
Supplemental Disclosure of Noncash investing and financing activities:
Stock issued in payment of Debt		$	20,000			$	167,156

 

The accompanying notes are an integral part to these financial statements.

 

Entest BioMedical, Inc.

Notes to Condensed Consolidated Financial Statements

As of February 28, 2015

 

The accompanying unaudited interim condensed consolidated financial statements of Entest Biomedical, Inc. (“Entest” or “the Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the United States Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s annual report filed with the SEC on Form 10-K for the year ended August 31, 2014. In general, interim disclosures do not repeat those contained in the annual statements. 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.

 

NOTE 1.  ORGANIZATION AND DESCRIPTION OF BUSINESS

 

The Company was incorporated in the State of Nevada on September 24, 2008 as JB Clothing Corporation.  Until July 10, 2009, the Company’s principal business objective was the offering of active/leisure fashion design clothing.

 

On July 10, 2009 the Company abandoned its efforts in the field of active/leisure fashion design clothing when it acquired 100% of the share capital of Entest BioMedical, Inc., a California corporation, (“Entest CA”).

 

The Company’s current business consists of the development and commercialization of immunotherapeutic therapies for the veterinary market as well as the acquisition and operation of veterinary hospitals.

 

NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

A. BASIS OF ACCOUNTING

 

The financial statements have been prepared using the basis of accounting generally accepted in the United States of America. Under this basis of accounting, revenues are recorded as earned and expenses are recorded at the time liabilities are incurred. The Company has adopted an August 31 fiscal year-end.   The Company recognizes revenue from services and product sales when the following four revenue recognition criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable, and collectability is reasonably assured. Product sales and service revenues are recorded when the products are delivered and title passes to customers. The customer’s credit card is authorized and charged, or checks/cash are received at the time the services are rendered, thereby providing reasonable assurance of collectability.

 

B. PRINCIPLES OF CONSOLIDATION

 

The consolidated financial statements include the accounts of Entest CA, the Company’s wholly owned subsidiary. Significant inter-company transactions have been eliminated.

 

C. USE OF ESTIMATES

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

D. CASH EQUIVALENTS

 

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

 

E. PROPERTY AND EQUIPMENT

 

As of February 28, 2015 Property and Equipment consists of $1,919 of Computer equipment. No depreciation expense has been recorded with regards to this equipment as it has yet to be put into service.

 

F. FAIR VALUE OF FINANCIAL INSTRUMENTS

 

Fair value is the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date.  A fair value hierarchy requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs required by the standard that the Company uses to measure fair value:

 

Level 1:  Quoted prices in active markets for identical assets or liabilities

 

Level 2:  Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.

 

Level 3:  Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

The Company’s financial instruments as of February 28, 2015 consisted of $ 402,118 of Notes Payable and $8,000 due to TheraCyte, Inc.. The fair value of all of the Company’s financial instruments as of February 28, 2015 were valued according to the Level 3 input. The carrying amount of the financial instruments is equal to the fair value as determined by the Company.

 

The Company has determined that there are no Level 1 or Level 2 inputs for determining the fair value of the Company’s financial instruments. Fair value was determined by the Company utilizing its own assumptions and estimation. There were no transfers between levels for the period presented.

 

G. INCOME TAXES

 

The Company accounts for income taxes using the liability method prescribed by ASC 740, “ Income Taxes. ” Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.

 

The Company applied the provisions of ASC 740-10-50, “Accounting for Uncertainty in Income Taxes”, which provides clarification related to the process associated with accounting for uncertain tax positions recognized in our financial statements. Audit periods remain open for review until the statute of limitations has passed. The completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment to the Company’s liability for income taxes. Any such adjustment could be material to the Company’s results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. As of February 28, 2015 the Company had no uncertain tax positions, and will continue to evaluate for uncertain positions in the future.

 

The Company generated a deferred tax credit through net operating loss carry forward.  However, a valuation allowance of 100% has been established.

 

Interest and penalties on tax deficiencies recognized in accordance with ACS accounting standards are classified as income taxes in accordance with ASC Topic 740-10-50-19.

 

H.  BASIC EARNINGS (LOSS) PER SHARE

 

The Financial Accounting Standards Board (FASB) issued Accounting Standards Codification (ASC) 260, "Earnings Per Share", which specifies the computation, presentation and disclosure requirements for earnings (loss) per share for entities with publicly held common stock. ASC 260 requires the presentation of basic earnings (loss) per share and diluted earnings (loss) per share. The Company has adopted the provisions of ASC 260 effective from inception. Basic net loss per share amounts is computed by dividing the net income by the weighted average number of common shares outstanding. All convertible debt has an anti-dilutive effect on the EPS, therefore Diluted earnings per share are the same as basic earnings per share.

 

NOTE 3.  RECENT ACCOUNTING PRONOUNCEMENTS

 

In June 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-10, which eliminated certain financial reporting requirements of companies previously identified as "Development Stage Entities" (Topic 915). The amendments in this ASU simplify accounting guidance by removing all incremental financial reporting requirements for development stage entities. The amendments also reduce data maintenance and, for those entities subject to audit, audit costs by eliminating the requirement for development stage entities to present inception-to-date information in the statements of income, cash flows, and shareholder equity. Early application of each of the amendments is permitted for any annual reporting period or interim period for which the entity's financial statements have not yet been issued (public business entities) or made available for issuance (other entities). Upon adoption, entities will no longer present or disclose any information required by Topic 915. The Company has adopted this standard.

 

The following accounting standards updates were recently issued and have not yet been adopted by the Company. These standards are currently under review to determine their impact on the Company’s consolidated financial position, results of operations, or cash flows.

 

In May 2014, FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. The revenue recognition standard affects all entities that have contracts with customers, except for certain items. The new revenue recognition standard eliminates the transaction-and industry-specific revenue recognition guidance under current GAAP and replaces it with a principle-based approach for determining revenue recognition. Public entities are required to adopt the revenue recognition standard for reporting periods beginning after December 15, 2016, and interim and annual reporting periods thereafter. Early adoption is not permitted for public entities. The Company has reviewed the applicable ASU and has not, at the current time, quantified the effects of this pronouncement, however it believes that there will be no material effect on the consolidated financial statements.

In June 2014, FASB issued Accounting Standards Update (ASU) No. 2014-12 Compensation — Stock Compensation (Topic 718), Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. A performance target in a share-based payment that affects vesting and that could be achieved after the requisite service period should be accounted for as a performance condition under Accounting Standards Codification (ASC) 718, Compensation — Stock Compensation. As a result, the target is not reflected in the estimation of the award's grant date fair value. Compensation cost would be recognized over the required service period, if it is probable that the performance condition will be achieved. The guidance is effective for annual periods beginning after 15 December 2015 and interim periods within those annual periods. Early adoption is permitted. The Company has reviewed the applicable ASU and has not, at the current time, quantified the effects of this pronouncement, however it believes that there will be no material effect on the consolidated financial statements.

In August2014, FASB issued Accounting Standards Update (ASU) No. 2014-15 Preparation of Financial Statements – Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. Under generally accepted accounting principles (GAAP), continuation of a reporting entity as a going concern is presumed as the basis for preparing financial statements unless and until the entity's liquidation becomes imminent. Preparation of financial statements under this presumption is commonly referred to as the going concern basis of accounting. If and when an entity's liquidation becomes imminent, financial statements should be prepared under the liquidation basis of accounting in accordance with Subtopic 205-30, Presentation of Financial Statements—Liquidation Basis of Accounting. Even when an entity's liquidation is not imminent, there may be conditions or events that raise substantial doubt about the entity's ability to continue as a going concern. In those situations, financial statements should continue to be prepared under the going concern basis of accounting, but the amendments in this Update should be followed to determine whether to disclose information about the relevant conditions and events. The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company will evaluate the going concern considerations in this ASU, however, at the current period, management does not believe that it has met the conditions which would subject these financial statements for additional disclosure.

 

NOTE 4.  GOING CONCERN

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company generated net losses of $6,587,931 during the period from August 22, 2008 (inception) through February 28, 2015. This condition raises substantial doubt about the Company's ability to continue as a going concern. The Company's continuation as a going concern is dependent on its ability to meet its obligations, to obtain additional financing as may be required and ultimately to attain profitability. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Management plans to raise additional funds primarily by offering securities for cash. Management has yet to decide what type of offering the Company will use or how much capital the Company will raise. There is no guarantee that the Company will be able to raise any capital through any type of offerings.

 

NOTE 5.  NOTES PAYABLE  

 

As of February 28, 2015

 

Notes Payable:

Bio Technology Partners Business Trust		$	58,000
The Sherman Family Trust (10% Interest)		$	45,700
The Sherman Family Trust (0% Interest)		$	160,500
Regen BioPharma Inc. ( See Note 6)		$	12,051
David Koos ( See Note 6)		$	125,867
Total		$	402,118

 

Bio Technology Partners Business Trust has provided a line of credit to the Company in the amount of $200,000 or so much thereof as may be disbursed to, or for the benefit of the Company by Lender in Lender's sole and absolute discretion. The unpaid principal of this line of credit bears simple interest at the rate of ten percent per annum. Interest is calculated based on the principal balance as may be adjusted from time to time to reflect additional advances or payments made hereunder. Principal balance and accrued interest shall become due and payable in whole or in part at the demand of the Lender. The Sherman Family Trust (10% Interest) has provided a line of credit to the Company in the amount of $700,000 or so much thereof as may be disbursed to, or for the benefit of the Company by Lender in Lender's sole and absolute discretion. The unpaid principal of this line of credit bears simple interest at the rate of ten percent per annum. Interest is calculated based on the principal balance as may be adjusted from time to time to reflect additional advances or payments made hereunder. Principal balance and accrued interest shall become due and payable in whole or in part at the demand of the Lender. $160,500 due to The Sherman Family Trust (0% Interest) is due and payable in whole or in part at the option of the Holder and bears no interest. Amounts due to Regen Biopharma Inc. are due and payable at the demand of the holder and bear simple interest at a rate of 10% per annum.

 

NOTE 6.  RELATED PARTY TRANSACTIONS

 

As of February 28, 2015 the Company remains indebted to David R. Koos in the principal amount of $125,867  due and payable in whole or in part at the demand of David Koos and bearing simple interest at a rate of 15% per annum.

 

As of February 28, 2015 the Company remains indebted to Regen Biopharma, Inc. in the principal amount of $12,051  due and payable in whole or in part at the demand of Regen Biopharma, Inc and bearing simple interest at a rate of 10% per annum. David Koos, the Company’s Chairman and CEO, is also the Chairman and CEO of Regen of Regen Biopharma, Inc.

 

 On October 1, 2014 Regen Biopharma Inc. entered into an agreement to sublease approximately 2,320 square feet of office space from the Company. Entest Biomedical Inc. is under common control with Regen Biopharma, Inc. as the Chairman and CEO of the Company also serves as the Chairman and CEO of Regen Biopharma, Inc. The sublease is on a month to month basis and rent payable to the Company by Regen Biopharma Inc is equal to the rent payable to the lessor by the Company and is to be paid in at such time specified in accordance with the original lease agreement between the Company and the lessor. 

 

On January 20, 2015 the sublease was amended retroactive to January 1, 2015 as follows:

 

The rent payable to Entest BioMedical, Inc. by the subtenant is equal to Five Thousand Dollars per month ($5,000) and is to be paid in at such time specified in accordance with the original lease agreement between the Entest BioMedical, Inc. (“Entest”) and the lessor. All charges for utilities connected with premises which are to be paid under the master lease shall be paid by Regen Biopharma, Inc. for the term of this sublease to the extent that such charges exceed the difference between the rent payable to the lessor by Entest under the master lease and the rent payable to Entest by Regen Biopharma, Inc.

 

NOTE 7.  INCOME TAXES

 

As of February 28, 2015
Deferred tax assets:
Net operating tax carry forwards		$	2,244,537
Other			-0-
Gross deferred tax assets			2,244,537
Valuation allowance			(2,244,537	)
Net deferred tax assets		$	-0-

 

As of  February 28, 2015  the Company has a Deferred Tax Asset of $ 2,244,537 completely attributable to net operating loss carry forwards of approximately $ 6,601,548 (which expire 20 years from the date the loss was incurred) consisting of:

 

(a) $ 13,647 of Net Operating Loss carry forwards acquired in the reverse acquisition of Entest BioMedical, Inc., a California corporation, and

 

(b) $ 6,587,931 of Net Operating Loss carry forwards attributable to Entest BioMedical, Inc.

 

Realization of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences and carry forwards are expected to be available to reduce taxable income. A valuation allowance is recorded when it is “more likely-than-not” that a deferred tax asset will not be realized. In addition, the reverse acquisition in which Entest BioMedical, Inc. was involved in 2009 has resulted in a change of control.  Internal Revenue Code Sec 382 limits the amount of income that may be offset by net operating loss (NOL) carryovers after an ownership change. As a result, the Company has recorded a valuation allowance reducing all deferred tax assets to $ -0-.

 

Income tax is calculated at the 34% Federal Corporate Rate.

 

NOTE 8.  ACQUISITION OF ENTEST CA

 

On July 10, 2009 the Company acquired 100% of Entest CA, a California corporation and wholly owned subsidiary of the Company, from BMSN for consideration consisting of (a) the issuance to BMSN of 10,000,000 newly issued common shares of Entest and (b) the return by Mr. Rick Plote of 10,000,000 shares of Entest’s common stock previously issued to him by Entest for cancellation.

 

NOTE 9.  ACQUISITION OF THE ASSETS OF PET POINTERS, INC.

 

On January 4, 2011 Entest CA acquired from Pet Pointers, Inc., a California corporation doing business as McDonald Animal Hospital (“Seller”), and Dr. Gregory McDonald DVM (“McDonald”) all the goodwill from McDonald and assets of Seller except cash and accounts receivables used in connection with the operation of a veterinary medical clinic located at 225 S. Milpas Street, Santa Barbara, CA 93103 (the "Business").

 

Consideration for the acquisition consisted of:

 

   I. $70,000 in cash

 

   II. $210,000 of the Company’s common shares valued at the closing price per share as of January 4, 2011

 

   III. Payment of no more than $78,000 to a creditor of the Seller to be paid in monthly installments of $1,500 per month

 

   IV. Payment of no more than $25,000 to additional creditors of the Seller to be paid in monthly installments of $825 per month

 

   V. Payment of $50,000 to McDonald on the first business day of the fourth month following the closing of the acquisition (“Closing”).

 

NOTE 10. DISPOSITION OF THE ASSETS OF PET POINTERS, INC.

 

On November 28, 2012 the “Company executed an agreement (“Agreement”) with Gregory McDonald ("McDonald"), Pet Pointers, Inc. ("Pet Pointer") whereby Mc Donald and Pet Pointer would acquire from the Company all assets (with the exception of cash and accounts receivable) utilized by the Company in the operation of the McDonald Animal Hospital, a full service veterinary clinic owned and operated by the Company and located in Santa Barbara, California (“McDonald Asset Sale”).

On October 10, 2012 a Complaint (“Complaint”) was filed in the Superior Court of the State of California against the Company and David Koos by McDonald, a former employee of the Company, alleging breach of contract and breach of the covenant of good faith and dealing in connection with the assumption of lease obligations by the Company in connection with the acquisition of the assets of Pet Pointers, Inc breach of contract and breach of the covenant of good faith and dealing in connection with an employment agreement enters into with McDonald inc connection with the Acquisition, breach of contract in connection with the Acquisition purchase agreement, breach of the covenant of good faith and dealing in connection with the Acquisition purchase agreement, implied indemnity in connection to amounts owed by McDonald to Anthony and Judi Marinelli, the Internal Revenue Service, and the California Franchise Tax Board, intentional misrepresentation, negligent misrepresentation , failure to pay wages and violations of Sections 2802, 203, and 2806 of the California Labor Code. The Complaint sought judgment for nominal damages, actual damages, compensatory damages, lost wages, compensation, expenses wage benefits and penalties pursuant to California Labor Code Sections 203 et al, 2802 and 2806, indemnification, accrued interest, punitive damages, costs of suit and attorney’s fees.

As consideration to the Company for the assets acquired, McDonald and Pet Pointers provided to the Company a General release whereby McDonald and Pet Pointer waive, release and discharge the Company and their respective assignees, officers, directors, shareholders, boards, owners, employees, attorneys, agents, trustors, trustees, beneficiaries, heirs, successors, and representatives from all known and unknown claims, demands, causes of action, attorney's fees, costs, or expenses including: 

(1) All claims relating to the Complaint.

(2) Those owed by McDonald to Anthony and Judi Marinelli which the Company became obligated to pay on McDonald’s behalf pursuant to the asset purchase agreement entered into between the Company and Gregory McDonald and Pet Pointers, Inc on January 4, 2011.

(3) Those amounts owed by McDonald to the Internal Revenue Service which the Company became obligated to pay on McDonald’s behalf pursuant to the asset purchase agreement entered into between the Company and Gregory McDonald and Pet Pointers, Inc on January 4, 2011.

(4) Those amounts owed by McDonald to the California Franchise Tax Board which the Company became obligated to pay on McDonald’s behalf pursuant to the asset purchase agreement entered into between the Company and Gregory McDonald and Pet Pointers, Inc on January 4, 2011.

Assets disposed of pursuant to the Agreement include approximately $4,840 of Property Plant and Equipment net of accumulated depreciation as well as all inventory held at the McDonald Animal Hospital.

Assets disposed of pursuant to the Agreement also include 

(i) Essentially all intellectual property, including computer software, utilized in connection with the operation of the McDonald Animal Hospital

(ii) All telephone numbers, fax numbers, service marks, trademarks, trade names, fictitious business names, websites, business email addresses, vendor lists, promotional materials, vendor records and any and all business records including, but not limited to, such items stored in computer memories, microfiche, paper record or by any other means relevant to the operation of the McDonald Animal Hospital.

(iii) All customer lists, customer contacts, and any and all customer records that are related to the McDonald Animal Hospital.

As a result of the agreement, the Company recorded a non-cash pre-tax charge for the impairment of goodwill recorded in connection with the acquisition of the McDonald Animal Hospital of approximately $405,000 for the quarter ended November 30, 2012.

Pursuant to the Agreement, the Company is obligated to make payment of $13,000 within five days of the Closing of the Agreement as such term is defined in the Agreement.

Pursuant to the Agreement, the Company agrees to waive, release and discharge McDonald and Pet Pointer from all known and unknown claims, demands, causes of action, attorney's fees, costs, or expenses.

 

NOTE 11. COMMITMENTS AND CONTINGENCIES

 

On November 1, 2011, the Company entered into an agreement to lease approximately 2,320 square feet of office space beginning December 1, 2011 for a period of five years.

 

Rent to be charged to the Company pursuant to the lease is as follows:

 

$2,996 per month for the period beginning December 1, 2011 and ending November 30, 2012

$3,116 per month for the period beginning December 1, 2012 and ending November 30, 2013

$3,241 per month for the period beginning December 1, 2013 and ending November 30, 2014

$3,371 per month for the period beginning December 1, 2014 and ending November 30, 2015

$3,506 per month for the period beginning December 1, 2015 and ending November 30, 2016

 

This property is utilized as office space. The Company believes that the foregoing property is adequate to meet its current needs. While it is anticipated that the Company will require access to laboratory facilities in the future, the Company believes that access to such facilities are available from a variety of sources. 

 

NOTE 12. STOCKHOLDERS EQUITY

 

The stockholders' equity section of the Company contains the following classes of capital stock as of February 28, 2015:

 

Common Stock:

 

$0.0001 par value, 6,000,000,000 shares authorized and 2,405,570,752 shares issued and outstanding as of February 28, 2015.

 

Preferred Stock:

 

$0.0001 par value 5,000,000 shares authorized of which:

 

	(a)	100,000 are authorized as Series AA Preferred Stock of which 100,000 shares are issued and outstanding  as of  February 28, 2015  and
	(b)	4,400,000 are authorized as Series B Preferred Stock of which 4,201,397 shares are issued and outstanding as of February 28, 2015.
	(c)	300,000  are authorized as Series AAA Preferred Stock of which 80,000 shares are issued and outstanding  as of  February 28, 2015.

 

Upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary (collectively, a “Liquidation”), before any distribution or payment shall be made to any of the holders of Common Stock or any other series of preferred stock, the holders of Series B Preferred Stock shall be entitled to receive out of the assets of the Company, whether such assets are capital, surplus or earnings, an amount equal to $0.10 per share of Series B Preferred Stock (the “Liquidation Amount”) plus all declared and unpaid dividends thereon, for each share of Series B Preferred Stock held by them.

 

If, upon any Liquidation, the assets of the Company shall be insufficient to pay the Liquidation Amount, together with declared and unpaid dividends thereon, in full to all holders of Series B Preferred Stock, then the entire net assets of the Company shall be distributed among the holders of the Series B Preferred Stock, ratably in proportion to the full amounts to which they would otherwise be respectively entitled and such distributions may be made in cash or in property taken at its fair value (as determined in good faith by the Board), or both, at the election of the Board..

 

Non Voting Convertible Preferred Stock having a $1.00 par value:

 

200,000 shares authorized of which 0 shares are issued and outstanding as of February 28, 2015 .

 

Non Voting Convertible Preferred Stock shall convert at the option of the holder into shares of the corporation’s common stock at a conversion price equal to seventy percent (70%) of the lowest Closing Price for the five (5) trading days immediately preceding written receipt by the corporation of the holder’s intent to convert.

 

“CLOSING PRICE" shall mean the closing bid price for the corporation’s common stock on the Principal Market on a Trading Day as reported by Bloomberg Finance L.P.

 

“PRINCIPAL MARKET" shall mean the principal trading exchange or market for the corporation’s common stock.

 

“TRADING DAY” shall mean a day on which the Principal Market shall be open for business.

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

CERTAIN FORWARD-LOOKING INFORMATION

 

Information provided in this Quarterly report on Form 10Q may contain forward-looking statements within the meaning of Section 21E or Securities Exchange Act of 1934 that are not historical facts and information. These statements represent the Company's expectations or beliefs, including, but not limited to, statements concerning future and operating results, statements concerning industry performance, the Company's operations, economic performance, financial conditions, margins and growth in sales of the Company's products, capital expenditures, financing needs, as well assumptions related to the forgoing. For this purpose, any statements contained in this Quarterly Report that are not statement of historical fact may be deemed to be forward-looking statements. These forward-looking statements are based on current expectations and involve various risks and uncertainties that could cause actual results and outcomes for future periods to differ materially from any forward-looking statement or views expressed herein. The Company's financial performance and the forward-looking statements contained herein are further qualified by other risks including those set forth from time to time in the documents filed by the Company with the Securities and Exchange Commission, including the Company's most recent Form 10K for the year ended August 31, 2014. All references to” We”, “Us”, “Company” or the “Company” refer to Entest BioMedical, Inc.

 

Material Changes in Financial Condition

 

As of February 28, 2015, we had Cash on Hand of $7,426 and as of August 31, 2014 we had Cash on Hand of $734.

 

The increase in Cash on Hand of approximately 911 %  is primarily attributable to loans made by the company’s CEO to the Company during the six months ended February 28, 2015 and rental revenue received by the company during the same period offset by expenses  incurred by the Company in the operation of its business.

 

As of February 28, 2015 we had Accounts Payable of $105,419 and as of August 31, 2014 we had Accounts Payable of $115,849.

 

The decrease in Accounts Payable of approximately 9% is primarily attributable to the payment by the Company of $50,590 of Accounts Payable during the six months ended February 28, 2015 offset by the incurring of  $40,160 of additional Accounts Payable during that same quarter.

 

As of February 28, 2015 we had Accrued Expenses of $254,189 and as of August 31, 2014 we had Accrued Expenses of $182,549.

 

The increase in Accrued Expenses of approximately 39% is primarily attributable to the accrual of $60,000 of additional salary due to David Koos, the Company’s Chief Executive Officer, but unpaid during the six months ended February 28, 2015 and the accrual of $6,763 and $7,377of unpaid interest expense during the quarters ended November 30, 2014 and February 28, 2015 respectively offset by the satisfaction of $2,500 of salary previously accrued due to a non management employee.

 

Material Changes in Results of Operations

 

Revenues from continuing operations were $0 for the three months ended February 28, 2015 and -0- for the three months ended February 28, 2014.  Net Losses from continuing operations were $84,031 for the three months ended February 28, 2015 and $159,164 for the same period ended 2014.

 

The decrease in Net Losses from continuing operations of approximately 47% is primarily attributable to :

(1)

The recognition of $58,000 of expenses related to the issuance of securities below fair value during the quarter ended 2014

(2)

Larger General and Administrative and Consulting Expenses incurred during the quarter ended 2014

(3)

Rental income recognized during the quarter ended 2015

 

Offset by lower rental expenses incurred during the quarter ended 2014 and a $6,000 gain on issuance of Stock above fair value recognized during the quarter ended 2014.

 

Revenues from continuing operations were $0 for the six months ended February 28, 2015 and -0- for the six months ended February 28, 2014.  Net Losses from continuing operations were $174,796 for the six months ended February 28, 2015 and $673,368 for the same period ended 2014.

 

The decrease in Net Losses from continuing operations of approximately 74% is primarily attributable to recognition of $420,369 of expenses related to the issuance of shares for less than par during the three months ended November 30, 2013

 

Liquidity and Capital Resources

 

As of  February 28, 2015 we had $7,426  cash on hand and current liabilities of $769,726 such liabilities consisting of Accounts Payable, Notes Payable, Amounts due to Others and Accrued Expenses.

 

We feel we will not be able to satisfy its cash requirements over the next twelve months and shall be required to seek additional financing.

 

We currently plan to raise additional funds primarily by offering securities for cash and acquiring existing veterinary clinics with the ability to generate cash flow to fund operations.

 

There is no guarantee that we will be able to raise any capital through any type of offerings. We can provide no assurance that we can acquire veterinary clinics which can generate sufficient cash flow to neither fund our operations nor can any assurance be made that we can acquire one or more additional veterinary clinics in the near future or at all. We cannot assure that we will be successful in obtaining additional financing necessary to implement our business plan. We have not received any commitment or expression of interest from any financing source that has given us any assurance that we will obtain the amount of additional financing in the future that we currently anticipate. For these and other reasons, we are not able to assure that we will obtain any additional financing or, if we are successful, that we can obtain any such financing on terms that may be reasonable in light of our current circumstances.

 

During the quarter ended November 30, 2014 the Company incurred net cash borrowings of $17,250 borrowed from the Company’s Chief Executive Officer.

 

During the quarter ended February 28, 2015 the Company incurred net cash borrowings of $799 borrowed from the Company’s Chief Executive Officer.

 

During the quarter ended February 28, 2015 the Company incurred net cash borrowings of $19,000 borrowed from a third party lender.

 

During the quarter ended February 28, 2015 the Company incurred net cash borrowings of $1,629 borrowed from Regen Biopharma, Inc., a corporation under common control with the Company.

 

We were not party to any material commitments for capital expenditures as of the end of the quarter ended February 28, 2015.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

As a smaller reporting company, as defined by Rule 229.10(f) (1) of Regulation S-K, we are not required to provide the information required by this Item. We have chosen to disclose, however, that we have not engaged in any transactions, issued or bought any financial instruments or entered into any contracts that are required to be disclosed in response to this item.

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of David Koos, who is the Company's Principal Executive Officer/Principal Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. The Company's disclosure controls and procedures are designed to provide a reasonable level of assurance of achieving the Company's disclosure control objectives. The Company's Principal Executive Officer/Principal Financial Officer has concluded that the Company's disclosure controls and procedures are, in fact, effective at this reasonable assurance level as of the period covered.

 

Changes in Internal Controls over Financial Reporting

 

In connection with the evaluation of the Company's internal controls during the period commencing on December 1, 2014 and ending on February 28, 2015, David Koos, who is both the Company's Principal Executive Officer and Principal Financial Officer has determined that there were no changes to the Company's internal controls over financial reporting that have been materially affected, or is reasonably likely to materially effect, the Company's internal controls over financial reporting.

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

None.

 

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

 

None. 

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Reserved

 

None.

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

31.1	Certification of Chief Executive Officer
31.2	Certification of  Chief Financial Officer
32.1	Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002
10.1	Amendment to Sublease Agreement

 

SIGNATURES

 

In accordance with the requirements of the Exchange Act, the Company caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	Entest BioMedical, Inc.
	a Nevada corporation
Dated: April 8, 2015	By: /s/ David R. Koos
	David R. Koos
	Chief Executive Officer