Earth Science Tech, Inc. (ETST)

FORM S-1/A | Securities Registration Statement
Sep. 28, 2019 12:16 AM
|
About: Earth Science Tech, Inc. (ETST)View as PDF
Earth Science Tech, Inc. (Form: S-1/A, Received: 09/30/2019 06:02:29)

 

 

 

As filed with the U.S. Securities and Exchange Commission on September 27, 2019

 

File number: 333-230543

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM S-1/A

(Amendment No. 6)

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

 

EARTH SCIENCE TECH, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   2834   80-0931484
(State   (Primary Standard Industrial   (IRS Employer
of Incorporation)   Classification Number)   Identification Number)

 

8000 NW 31st Street, Unit 19

Doral, FL 33122

(Address, including zip code, and telephone number, including area code,

of registrant’s principal executive offices)

 

Please send copies of all communications to:

 

Davisson & Associates, PA

4124 Quebec Avenue North, Suite 306

Minneapolis, MN 55427

Tel. No.: (763) 355-5678

Fax No.: (763) 355-5679

(Address, including zip code, and telephone, including area code)

 

Approximate date of proposed sale to the public: From time to time after the effective date of this registration statement.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X]

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

If this Form is a post-effective amendment filed pursuant to rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

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

 

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

 

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

 

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of securities to be registered   Number of shares of common stock to be registered
(1)
    Proposed Maximum Offering Price Per Share
(2)
    Proposed Maximum Aggregate Offering Price     Amount of Registration
Fee (3)
 
Common Stock     5,873,370     $ 0.83     $ 4,992,364.5     $ 605.07 (4)

 

(1) In accordance with Rule 416(a), this registration statement shall also cover an indeterminate number of shares that may be issued and resold resulting from stock splits, stock dividends or similar transactions.

 

(2) Based on the reported closing price for our common stock on September 20, 2019 of $0.5399. The shares offered, hereunder, may be sold by the selling stockholder from time to time in the open market, through privately negotiated transactions, or a combination of these methods at market prices prevailing at the time of sale or at negotiated prices.

 

(3) The fee is calculated by multiplying the aggregate offering amount by .0001212, pursuant to Section 6(b) of the Securities Act of 1933.

 

(4) Amount previously paid $605.07.

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission acting pursuant to said Section 8(a), may determine.

 

 

 

 
 

 

PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED SEPTEMBER 10, 2019

 

The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

Earth Science Tech, Inc.

5,873,370 Common Shares

 

The selling stockholder identified in this prospectus may offer an indeterminate number of shares of its common stock, which will consist of up to 5,873,370 shares of common stock to be sold by GHS Investments LLC (“GHS”) pursuant to an Equity Financing Agreement (the “Financing Agreement”) dated February 28, 2019. As of the date hereof, we have 52,283,400 shares of common stock issued and outstanding. If issued presently, the 5,873,370 shares of common stock registered for resale by GHS would represent approximately 11.23% of our issued and outstanding shares of common stock as of the date hereof. Additionally, as of the date hereof, the 5,873,370 shares of our common stock registered for resale herein would represent approximately 30% of the Company’s public float.

 

The selling stockholder may sell all or a portion of the shares being offered pursuant to this prospectus at fixed prices and prevailing market prices at the time of sale, at varying prices, or at negotiated prices.

 

We will not receive any proceeds from the sale of the shares of our common stock by GHS. However, we will receive proceeds from our initial sale of shares to GHS pursuant to the Financing Agreement. We will sell shares to GHS at a price equal to 80% of the lowest trading price of our common stock during the ten (10) consecutive trading day period immediately preceding the date on which the Company delivers a put notice to GHS (the “Market Price”). There will be a minimum of ten (10) trading days between purchases. No Purchase will be made in an amount greater than three hundred and fifty thousand dollars ($350,000).

 

GHS is an underwriter within the meaning of the Securities Act of 1933, and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act of 1933 in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act of 1933.

 

Our common stock is traded on OTC Markets under the symbol “ETST”. On September 20, 2019, the reported closing price for our common stock was $0.5399 per share.

 

Prior to this offering, there has been a limited market for our securities. While our common stock is on the OTC Markets, there has been limited and fluctuating trading volume. There is no guarantee that an active trading market will remain or develop in our securities.

 

We are currently under control of a court appointed receiver (the “Receiver”). The Receiver has broad powers under N.R.S. 78.630, including the power to reorganize the Registrant or liquidate it and it is not necessary for the Court to state that he has the power to reorganize the corporation or that he has the power to liquidate it. Those powers are granted by statute when he is appointed as a Receiver. As of the date of this prospectus the Receiver has determined that there is a viable underlying business; and he plans to effect a reorganization of it and its operations. In “reorganizing” the Company, the Receiver plans to restructure its debt. In considering whether to reorganize, the Receiver first determined that there was not a reason to liquidate and wind up its affairs. Having determined that the Company was not a candidate for liquidation, the Receiver determined that, given the current operations and the potential for increasing revenues with the addition of capital, that the Company will likely be in a position to pay its expenses as they come due when the Company’s debt is restructured. As of the date hereof, no definitive plan has been developed that addresses precisely how the debt will be restructured; and because of the amount at issue in the Cromogen Litigation (See Legal Proceedings on Page 53, the Receiver will not put a plan of reorganization together until after that matter is resolved on appeal. While the Cromogen Litigation remains ongoing, the Receiver plans to use the proceeds from this offering for working capital to increase the Company’s sales, to meet its current expenses (excluding debt incurred prior to the Receiver’s appointment, which is stayed with in receivership, pending the plan of reorganization), including the costs of receivership and for the ongoing costs of the Cromogen Litigation. If the Receiver is successful in increasing the Company’s sales and operations, of which there can be no assurances, he believes that the Company will be able to meet its expenses as they come due out of operations, including the costs of receivership and the payments associated with the Company’s restructured debt; and that there will be sufficient funds to support continued growth of the Company’s sales and operations. If successful, this reorganizational approach will allow the Receiver to structure larger payments to claimants than would otherwise be possible. The Receiver intends to continue with the Company’s business plan but with a greater focus on producing additional revenue from the existing Company products as well as new versions of its existing products that may be developed. Thus, once the Cromogen Litigation is resolved, the Receiver will prepare the plan of reorganization and seek to have it ratified by way of motion before the Court. Along with the filing of the motion to ratify the plan of reorganization, the Receiver will provide direct notice to each of the affected parties as well as by filing a Current Report with the Commission on Form 8-K. The Receiver does NOT require the approval of any of the claimants or the Company stakeholders before preparing the plan of reorganization or making the motion for its to ratification.. Any party objecting to its treatment under the plan of reorganization, or to the plan itself, may only do so by making a separate motion so objecting and this is its only recourse. Unlike motion practice in litigation where there is a plaintiff and defendant; and where one party makes a motion while the other responds by way of filing and serving a reply objecting to the motion, along with a memorandum in support of the their position, in the case of the Receiver’s motion to ratify the plan of reorganization, an objecting party to the plan may only object by way of making a separate motion objecting with the Court. However, the Receiver has the ability and authority under N.R.S. 78.630 to deny a claim, accept a claim or accept a claim in part and deny a claim in part as part of its duties acting as receiver; and further, underlying this power and authority is the requirement that the Receiver, as a receiver in equity, take into consideration, the fairness and reasonableness that his reorganization plan has on all of the claimants and stakeholders. As such, an objecting party moving to challenge the plan of reorganization has a substantial burden to overcome because the Court will give great deference to a Receiver; and it is extremely unlikely that the Court would not ratify the reorganization plan. In fact, the Receiver has never had such a challenge by an objecting party accepted by a court in any of the over 30 matters where he has served as receiver. Once the plan of reorganization has been ratified by the Court, it becomes executable and after six months, becomes non-appealable (See Nevada Rules of Civil Procedure Rule 60(c)(1)). Following ratification of the plan of reorganization and its implementation, the Receiver will move the Court to be dismissed, the Court will grant the Receiver’s motion for dismissal as receiver and the Company will be returned to prior management, who will continue operating and managing the Company under its business plan, initially, as it may have been modified and improved by the Receiver. However, once the Receiver has been dismissed by the Court and control is ceded back to the prior management, the Receiver is no longer in control and management is free to manage the Company as it sees fit.

 

This case is particularly complex because of the matters at issue in the Cromogen Litigation; and as such, it is not possible to predict, even approximately or with any degree of certainty, how long it will take to complete the Cromogen Litigation; and since the plan of reorganization is on hold pending the outcome, the plan of reorganization is on hold as a result; although once started, the plan itself will only take a few weeks to complete. Additionally it is not possible to determine, once the plan of reorganization is developed, how long it will take to have it ratified. Initially it depends on the Court and its availability to schedule a hearing; however then, if there are objections in the form of motions, it will take additional time as the Court needs to schedule hearing(s) for them and the Receiver needs to respond to those motion(s). If a claimant’s motion objecting is successful, the court will generally instruct a receiver to develop a new plan of reorganization that takes into account, those issues raised by the complaining/moving party with which the Court may agree. In theory, this could continue indefinitely until there were no longer complaining parties and the Court finally ratifies the Receiver’s plan of reorganization, as modified. However, in practice, courts give substantial deference to receivers, since they do not have the expertise or experience necessary to develop reorganization plans and they see this as the purview of the receiver. Once ratified, there is a six month period that the Court’s decision is appealable; and although an appeal requires the posting of a bond and the basis for appeal in these matters is extremely limited, there is still the possibility that a claimant or stakeholder could bring an appeal challenging the ratification of the plan of reorganization, notwithstanding the obstacles to bringing an appeal. As a result of these issues, it is impossible to predict how long the Company will be in receivership or what the ultimate cost of receivership will be.

 

 
 

 

Reorganizations are fluid, constantly changing processes and every situation is different. As long as there is a viable underlying business, the Receiver has sufficient powers to be able to reorganize it and restructure debt in virtually any way necessary so that the Company will be able to pay its debts as they come due when it emerges from receivership. The potential number of structural changes, and types of consideration and structures for the payment to creditors are too numerous to list and are limited only by the Receiver’s creativity. Adding to this complexity, is the fact that the Receiver is also allowed to classify creditors and other constituents according to classes that it creates based on criteria the it establishes; and it may treat those different classes differently. As a receiver in equity, Mr. Stevens is also allowed to consider the fundamental fairness to all of the stakeholders and analyzing the facts of each stakeholder and what they have at risk compared with other stakeholders as he puts the plan of reorganization in place. In addition to considering issues of fairness and reasonableness, some of the tools available to a receiver in a reorganization are: canceling shares of stock where little or no consideration was paid or where allowing those shares to remain outstanding would be unfair to the other shareholders, classifying creditors into various classes, using receiver’s certificates as super priority debt instruments, promissory notes, including convertible notes, stock of various classes, including newly created classes, pledging a portion of a company’s revenue, structured payments to be made over time, granting security interests, etc.; and these tools are all available as a means to restructure the Company’s debt and to pay creditors and service providers. During the time that the Company is in receivership, the Receiver is required to make periodic status reports to the Court providing such information as the Court requires, as requested by the Court. When the plan of reorganization is finally established and ratified, the Company will be returned to the control of its prior management and the Company will continue as reorganized, as though it had never been in receivership (except with restructured debt and ideally, with any improvements in operations that the Receiver may have put in place. The stakeholders that are directly affected by the reorganization will be notified by the Receiver as to how their claims will be treated under the plan of reorganization; and the claimants and other stakeholders will also receive notice of actions taken in connection with the reorganization through the filing of a Current Report on Form 8-K. These items will also be disclosed in the Registrant’s Periodic Reports filed with the Commission of Forms 10-K and 10Q, as required. If the Receiver is not successful in reorganizing the Company, the Company may be forced to liquidate its business and this may result in a loss of the entire investment for the investors in this offering.

 

This offering is highly speculative and these securities involve a high degree of risk and should be considered only by persons who can afford the loss of their entire investment. See “Risk Factors” beginning on page 11. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

The date of this prospectus is September 27, 2019.

 

 
 

 

Table of Contents

 

The following table of contents has been designed to help you find information contained in this prospectus. We encourage you to read the entire prospectus.

 

Prospectus Summary 1
Summary Consolidated Financial Information 9
Risk Factors 11
Cautionary Note Regarding Forward-Looking Statements 25
Use of Proceeds 26
Market for Our Common Stock and Related Stockholder Matters 26
Determination of Offering Price 26
Dilution 26
Selling Security Holder 27
The Offering 28
Plan of Distribution 29
Description of the securities to be registered 30
Interests of Named Experts and Counsel 33
Information with respect to the Registrant 33
Management’s Discussion and Analysis of Financial Condition and Results of Operations 41
Business 46
Directors, Executive Officers and Key Employees 55
Executive Compensation 58
Security Ownership of Certain Beneficial Owners and Management 60
Transactions With Related Persons 62
Index to Consolidated Financial Statements F-1

 

You may only rely on the information contained in this prospectus or that we have referred you to. We have not authorized any person to give you any supplemental information or to make any representations for us. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other than the Common Stock offered by this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any Common Stock in any circumstances in which such offer or solicitation is unlawful. Neither the delivery of this prospectus nor any sale made in connection with this prospectus shall, under any circumstances, create any implication that there has been no change in our affairs since the date of this prospectus is correct as of any time after its date. You should not rely upon any information about our company that is not contained in this prospectus. Information contained in this prospectus may become stale. You should not assume the information contained in this prospectus or any prospectus supplement is accurate as of any date other than their respective dates, regardless of the time of delivery of this prospectus, any prospectus supplement or of any sale of the shares. Our business, financial condition, results of operations, and prospects may have changed since those dates. The selling stockholders are offering to sell and seeking offers to buy shares of our common stock only in jurisdictions where offers and sales are permitted.

 

In this prospectus, “Earth Science” the “Company,” “we,” “us,” and “our” refer to Earth Science Tech, Inc., a Nevada corporation.

 

i
 

 

PROSPECTUS SUMMARY

 

You should carefully read all information in the prospectus, including the financial statements and their explanatory notes under the Financial Statements prior to making an investment decision.

 

This summary highlights selected information appearing elsewhere in this prospectus. While this summary highlights what we consider to be important information about us, you should carefully read this entire prospectus before investing in our Common Stock, especially the risks and other information we discuss under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operation” and our consolidated financial statements and related notes beginning on page F-1. Our fiscal year end is March 31 and our fiscal years ended March 31, 2019 and 2018 are sometimes referred to herein as fiscal years 2019 and 2018, respectively as well as for the three months ended June 30, 2019 and June 30, 2018. Some of the statements made in this prospectus discuss future events and developments, including our future strategy and our ability to generate revenue, income and cash flow. These forward-looking statements involve risks and uncertainties which could cause actual results to differ materially from those contemplated in these forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements”. Unless otherwise indicated or the context requires otherwise, the words “we,” “us,” “our”, the “Company” or “our Company” or “Earth Science” refer to Earth Science Tech, Inc., a Nevada corporation, and each of our subsidiaries.

 

Corporate History

 

Earth Science Tech, Inc. (“ETST” or the “Company”) was incorporated under the laws of the State of Nevada on April 23, 2010 under the name Ultimate Novelty Sports Inc. The Company provided consulting services to the athletic facilities industry and offered a full range of consulting services, including start-up strategy development, membership pricing and management, operational analysis, marketing and public relations and staff training.

 

On May 6, 2010, the Company formed a wholly owned subsidiary, Ultimate Novelty Sports Inc., an Ontario, Canada Corporation (“UNSI Canada”). On October 30, 2013, pursuant to a sale of subsidiary agreement (the “Sale of Subsidiary Agreement”) the Company sold all of the capital stock of UNSI Canada to Optimal, Inc., a Nevada corporation.

 

On January 29, 2014, the Company entered into a consulting agreement with Pure Health, Inc. (“Pure”), a Puerto Rican corporation (the “Pure Consulting Agreement”). The purpose of the Pure Consulting Agreement was to retain Pure to consult the Company with regard to the development of health and wellness products as well as nutritional supplements, including idea generation, preforming and designing formulations for products to be used in the health and nutrition market.

 

On March 6, 2014, the Company changed its name from Ultimate Novelty Sports, Inc. to Earth Science Tech, Inc. (the “Name Change”).

 

On May 28, 2014 the Financial Industry Regulatory Authority (“FINRA”) approved the Name Change and a change of trading symbol from UNOV to ETST.

 

On June 6, 2014, the Company filed with the Secretary of State of the State of Nevada Articles of Amendment to the Articles of Incorporation and a Certificate of Designation creating a Preferred A class of stock with 10,000,000 preferred A shares (the “Preferred A Shares”) having a par value of $0.001 per share.

 

On March 6, 2015, the Company entered into a License and Distribution Agreement (the “I Vape License and Distribution Agreement”) with I Vape Vapor, Inc. a Minnesota corporation (“I Vape”). Pursuant to the I Vape License and Distribution Agreement the Company licensed to I Vape the rights to use the Company’s Ultra-High Grade CBD Rich Hemp Oil in I Vape’s E-Cigarettes within the U.S. As part of the I Vape License and Distribution Agreement, the Company formed Earth Science Tech Vapor One, Inc., a wholly owned Florida corporation subsidiary.

 

Today, ETST is a biotechnology company focused on unique nutraceuticals and bioceuticals designed to excel in industries such as health, wellness, nutrition, supplements, cosmetics and alternative medicine to improve the quality of life for consumers worldwide. ETST seeks to deliver non-prescription nutritional and dietary supplements that help with treating symptoms such as: chronic pain, joint pain, inflammation, seizures, high blood pressure, memory loss, depression, weight management, nausea, aging and overall wellness. This may include products such as CBD as a natural constituent of hemp oil, vitamins, minerals, herbs, botanicals, personal care products, homeopathies, functional foods and other products. These products will be in various formulations and delivery forms including capsules, tablets, soft gels, chewables, liquids, creams, sprays, powders, and whole herbs.

 

In particular, ETST is focused on researching and developing innovative hemp extracts and making them accessible worldwide. ETST plans to be a supplier of high quality hemp oil enriched with high-grade CBD. ETST’s primary goal is to advance different high quality hemp extracts with a broad profile of cannabinoids and additional natural molecules found in industrial hemp and to identify their distinct properties.

 

1

 

 

On January 11, 2019, the Company entered into an agreement with Aaron Decker, and Derrick West, individuals, pursuant to which the Company will transfer, set over and assign to Mr. Decker and Mr. West 95% of the issued and outstanding shares of common stock of Kannabidioid, Inc. This transfer of KBD and its business places Mr. Decker and Mr. West or their corporate nominee in full control of KBD for all purposes, subject to their undertaking aggressively and assiduously to pursue the growth of Kannabidioid, Inc.’s business and to maximize its customer base, product line, and profitability. ETST entered into this agreement because management determined that the opportunities for the growth of its other product lines will require that it deploy its resources on these other product lines such that it’s better to allow another management team to build the KBD business. In allowing another management team to build the KBD business, it is expected that ETST will not only continue to benefit from the sales, but it may also be in a position to benefit from its growth without the necessity of deploying additional resources to realize that growth.

 

On January 11, 2019, the Company received notice that Strongbow Advisors, Inc. (“Strongbow”), and Robert Stevens (“Stevens”, and together with Strongbow, the “Receiver”) had been appointed by the Nevada District Court, as Receiver for the Registrant in Case No. A-18-784952-C (the “Order).

 

The Company sought the appointment of the Receiver after it found itself in an imminent danger of insolvency following the issuance by an arbitration panel of an award (the “Award”) in the sum of $3,994,522.5 million in favor of Cromogen Biotechnology Corporation (“Cromogen”) in the matter entitled Cromogen Biotechnology Corporation vs. Earth Science Tech, Inc. (the “Cromogen Litigation”). The Nevada District Court found that the Company was in fact insolvent and ordered the appointment of the Receiver.

 

The Award consisted of a sum for breach of contract against the Company in the amount of $120,265.00, a sum for costs and fees against the Company in the amount of $111,057.00 and a sum for the claim of tortuous interference and conversion against the Company in the amount of $3,763,200.00. The District Court in Florida had confirmed the Award granted by the arbitration panel, denying however, the award of fees that the arbitration panel had granted Cromogen.

 

The Cromogen Litigation is now on appeal and the Company is optimistic about its prospects on appeal. Nevertheless, the outcome remains speculative and so notwithstanding its prospects for success on appeal, and faced with such a large judgment and the imminent danger of insolvency, the Company determined that it was in the best interest of its shareholders and creditors to seek protection under receivership and the appointment of a receiver. As of the date of this prospectus, the Company remains insolvent as the outcome of the Cromogen Litigation remains speculative.

 

As part of the impact of the receivership, the Court issued a Writ of Injunction or “Blanket Stay” covering the Company and its assets during the time that the Company is in receivership. As a result of the “Blanket Stay” the Company’s estate is protected from creditors and interference with its administration is prevented while the Company’s financial issues are being fully analyzed and resolved. As part of this process, creditors will be notified and required to provide claims in writing under oath on or before the deadline stated in the notice provided by the Receiver or those claims will be barred under NRS §78.675. The Blanket Stay will remain in place unless otherwise waived by the Receiver, or it is vacated by the Court or alternatively, lifted by the Court, upon a “motion to lift stay” duly made and approved by the Nevada District Court.

 

The appointment of the Receiver was approved unanimously by the Board and by a majority of the Company’s shareholders. Strongbow and Stevens were selected because of their reputation in helping (i) companies restructure and (ii) to execute on their business plans, albeit under a debt and capital structure that allows them to succeed. Stevens and Strongbow assist companies by helping them raise the capital needed not only to pay debts, but build and grow their businesses. The Receiver, however, is an agent of the court, and will be independent and neutral in managing the Company’s operations and trying to preserve the Company’s value for the creditors and shareholders.

 

We are currently under control of a court appointed receiver (the “Receiver”). The Receiver has broad powers under N.R.S. 78.630, including the power to reorganize the Registrant or liquidate it and it is not necessary for the Court to state that he has the power to reorganize the corporation or that he has the power to liquidate it. Those powers are granted by statute when he is appointed as a Receiver. As of the date of this prospectus the Receiver has determined that there is a viable underlying business; and he plans to effect a reorganization of it and its operations. In “reorganizing” the Company, the Receiver plans to restructure its debt. In considering whether to reorganize, the Receiver first determined that there was not a reason to liquidate and wind up its affairs. Having determined that the Company was not a candidate for liquidation, the Receiver determined that, given the current operations and the potential for increasing revenues with the addition of capital, that the Company will likely be in a position to pay its expenses as they come due when the Company’s debt is restructured. As of the date hereof, no definitive plan has been developed that addresses precisely how the debt will be restructured; and because of the amount at issue in the Cromogen Litigation (See Legal Proceedings on Page 53, the Receiver will not put a plan of reorganization together until after that matter is resolved on appeal. While the Cromogen Litigation remains ongoing, the Receiver plans to use the proceeds from this offering for working capital to increase the Company’s sales, to meet its current expenses (excluding debt incurred prior to the Receiver’s appointment, which is stayed with in receivership, pending the plan of reorganization), including the costs of receivership and for the ongoing costs of the Cromogen Litigation. If the Receiver is successful in increasing the Company’s sales and operations, of which there can be no assurances, he believes that the Company will be able to meet its expenses as they come due out of operations, including the costs of receivership and the payments associated with the Company’s restructured debt; and that there will be sufficient funds to support continued growth of the Company’s sales and operations. If successful, this reorganizational approach will allow the Receiver to structure larger payments to claimants than would otherwise be possible. The Receiver intends to continue with the Company’s business plan but with a greater focus on producing additional revenue from the existing Company products as well as new versions of its existing products that may be developed. Thus, once the Cromogen Litigation is resolved, the Receiver will prepare the plan of reorganization and seek to have it ratified by way of motion before the Court. Along with the filing of the motion to ratify the plan of reorganization, the Receiver will provide direct notice to each of the affected parties as well as by filing a Current Report with the Commission on Form 8-K. The Receiver does NOT require the approval of any of the claimants or the Company stakeholders before preparing the plan of reorganization or making the motion for its to ratification.. Any party objecting to its treatment under the plan of reorganization, or to the plan itself, may only do so by making a separate motion so objecting and this is its only recourse. Unlike motion practice in litigation where there is a plaintiff and defendant; and where one party makes a motion while the other responds by way of filing and serving a reply objecting to the motion, along with a memorandum in support of the their position, in the case of the Receiver’s motion to ratify the plan of reorganization, an objecting party to the plan may only object by way of making a separate motion objecting with the Court. However, the Receiver has the ability and authority under N.R.S. 78.630 to deny a claim, accept a claim or accept a claim in part and deny a claim in part as part of its duties acting as receiver; and further, underlying this power and authority is the requirement that the Receiver, as a receiver in equity, take into consideration, the fairness and reasonableness that his reorganization plan has on all of the claimants and stakeholders. As such, an objecting party moving to challenge the plan of reorganization has a substantial burden to overcome because the Court will give great deference to a Receiver; and it is extremely unlikely that the Court would not ratify the reorganization plan. In fact, the Receiver has never had such a challenge by an objecting party accepted by a court in any of the over 30 matters where he has served as receiver. Once the plan of reorganization has been ratified by the Court, it becomes executable and after six months, becomes non-appealable (See Nevada Rules of Civil Procedure Rule 60(c)(1)). Following ratification of the plan of reorganization and its implementation, the Receiver will move the Court to be dismissed, the Court will grant the Receiver’s motion for dismissal as receiver and the Company will be returned to prior management, who will continue operating and managing the Company under its business plan, initially, as it may have been modified and improved by the Receiver. However, once the Receiver has been dismissed by the Court and control is ceded back to the prior management, the Receiver is no longer in control and management is free to manage the Company as it sees fit.

 

This case is particularly complex because of the matters at issue in the Cromogen Litigation; and as such, it is not possible to predict, even approximately or with any degree of certainty, how long it will take to complete the Cromogen Litigation; and since the plan of reorganization is on hold pending the outcome, the plan of reorganization is on hold as a result; although once started, the plan itself will only take a few weeks to complete. Additionally it is not possible to determine, once the plan of reorganization is developed, how long it will take to have it ratified. Initially it depends on the Court and its availability to schedule a hearing; however then, if there are objections in the form of motions, it will take additional time as the Court needs to schedule hearing(s) for them and the Receiver needs to respond to those motion(s). If a claimant’s motion objecting is successful, the court will generally instruct a receiver to develop a new plan of reorganization that takes into account, those issues raised by the complaining/moving party with which the Court may agree. In theory, this could continue indefinitely until there were no longer complaining parties and the Court finally ratifies the Receiver’s plan of reorganization, as modified. However, in practice, courts give substantial deference to receivers, since they do not have the expertise or experience necessary to develop reorganization plans and they see this as the purview of the receiver. Once ratified, there is a six month period that the Court’s decision is appealable; and although an appeal requires the posting of a bond and the basis for appeal in these matters is extremely limited, there is still the possibility that a claimant or stakeholder could bring an appeal challenging the ratification of the plan of reorganization, notwithstanding the obstacles to bringing an appeal. As a result of these issues, it is impossible to predict how long the Company will be in receivership or what the ultimate cost of receivership will be.

 

Reorganizations are fluid, constantly changing processes and every situation is different. As long as there is a viable underlying business, the Receiver has sufficient powers to be able to reorganize it and restructure debt in virtually any way necessary so that the Company will be able to pay its debts as they come due when it emerges from receivership. The potential number of structural changes, and types of consideration and structures for the payment to creditors are too numerous to list and are limited only by the Receiver’s creativity. Adding to this complexity, is the fact that the Receiver is also allowed to classify creditors and other constituents according to classes that it creates based on criteria the it establishes; and it may treat those different classes differently. As a receiver in equity, Mr. Stevens is also allowed to consider the fundamental fairness to all of the stakeholders and analyzing the facts of each stakeholder and what they have at risk compared with other stakeholders as he puts the plan of reorganization in place. In addition to considering issues of fairness and reasonableness, some of the tools available to a receiver in a reorganization are: canceling shares of stock where little or no consideration was paid or where allowing those shares to remain outstanding would be unfair to the other shareholders, classifying creditors into various classes, using receiver’s certificates as super priority debt instruments, promissory notes, including convertible notes, stock of various classes, including newly created classes, pledging a portion of a company’s revenue, structured payments to be made over time, granting security interests, etc.; and these tools are all available as a means to restructure the Company’s debt and to pay creditors and service providers. During the time that the Company is in receivership, the Receiver is required to make periodic status reports to the Court providing such information as the Court requires, as requested by the Court. When the plan of reorganization is finally established and ratified, the Company will be returned to the control of its prior management and the Company will continue as reorganized, as though it had never been in receivership (except with restructured debt and ideally, with any improvements in operations that the Receiver may have put in place . The stakeholders that are directly affected by the reorganization will be notified by the Receiver as to how their claims will be treated under the plan of reorganization; and the claimants and other stakeholders will also receive notice of actions taken in connection with the reorganization through the filing of a Current Report on Form 8-K. These items will also be disclosed in the Registrant’s Periodic Reports filed with the Commission of Forms 10-K and 10Q, as required. If the Receiver is not successful in reorganizing the Company, the Company may be forced to liquidate its business and this may result in a loss of the entire investment for the investors in this offering.

 

On February 28, 2019, the Company entered into an Equity Financing Agreement (the “GHS Equity Financing Agreement”) and Registration Rights Agreement (the “GHS Registration Rights Agreement”) with GHS Investments LLC, a Nevada limited liability company (“GHS”). Under the terms of the Equity Financing Agreement, GHS agreed to provide the Company with up to $5,000,000 upon effectiveness of a registration statement on Form S-1 (the “Registration Statement”) filed with the U.S. Securities and Exchange Commission (the “Commission”).

 

Following effectiveness of the Registration Statement, the Company shall have the discretion to deliver puts to GHS and GHS will be obligated to purchase shares of the Company’s common stock, par value $0.001 per share based on the investment amount specified in each put notice. Additionally, in accordance with the Equity Financing Agreement, the Company shall issue GHS a promissory note in the principal amount of $30,000 to offset transaction costs (the “Note”).

 

Business Overview

 

Earth Science Tech, Inc. (“ETST”) offers high-grade full spectrum cannabinoid oil on the market. There are positive results in studies on breast cancer and immune cells through the University of Central Oklahoma, in addition to studies through DV Biologics that prove the Company’s CBD oil formulation lowers cortisol and functions as a neuro-protectant, with positive result case studies through key health organizations. ETST formulates, markets and distributes the CBD oil used for its studies to the public, offering the most effective quality of CBD on the market.

 

The Company’s’ subsidiaries include Nutrition Empire, Inc., Cannabis Therapeutics, Inc. and Earth Science Pharmaceutical Inc. Earth Science Foundation, Inc. is a non-profit favored entity of the Company focused on developing its role as a world leader in the CBD space, expanding its work in the pharmaceutical and medical device sectors:

 

Earth Science Pharmaceutical (“ESP”) is a wholly-owned subsidiary of Earth Science Tech, committed to the development of low cost, non-invasive diagnostic tools, medical devices, testing processes and vaccines for sexually transmitted infections and/or diseases. ESP’s CEO and chief science officer, Dr. Michel Aubé, is leading the Company’s research and development efforts. The Company’s first medical device, Hygee™, is a home kit designed for the detection of STIs, such as chlamydia, from a self-obtained gynecological specimen. ESP is working to develop and bring to market medical devices and vaccines that meet the specific needs of women.

 

2

 

 

Cannabis Therapeutics (“CTI”) is a wholly-owned subsidiary of Earth Science Tech, Inc. poised to take a leadership role in the development of new, leading-edge cannabinoid-based pharmaceutical and nutraceutical products. CTI is invested in research and development to explore and harness the medicinal power of cannabidiol. The Company holds three provisional application patents for a CBD product that is focused on developing treatments for breast and ovarian cancers, as well as two generic CBD based pharmaceutical drugs.

 

Earth Science Foundation (“ESF”) is a favored entity of Earth Science Tech, Inc. ESF is in the process of becoming a non-profit organization to accept grants and donations to conduct further studies and help donate Earth Science Tech’s effective CBD products to those in need.

 

On January 29, 2014, the Company entered into a consulting agreement with Pure Health, Inc. (“Pure”), a Puerto Rican corporation (the “Pure Consulting Agreement”). The purpose of the Pure Consulting Agreement was to retain Pure to consult the Company with regard to the development of health and wellness products as well as nutritional supplements, including idea generation, preforming and designing formulations for products to be used in the health and nutrition market.

 

On March 24, 2014, the Company entered into a Founders Agreement (the “Founders Agreement”) with Majorca Group, Ltd., a Marshall Islands Corporation (“Majorca”). Pursuant to the Founders Agreement, for a consideration of 25,000,000 restricted shares of Common Stock, Majorca was to provide certain services to the Company, including: (i) securing an agreement with an established company in the nutritional and health care industry for product development including idea generation, preforming and designing formulations for products to be used in the health and nutrition market; (ii) arranging for the development and formulation of two new products for the Company using FDA approved labs to produce the products; (iii) developing, implementing and launching a Nutritional, Formulation and Dietary Supplement ecommerce platform; (iv) securing an agreement with an established hemp based Biotechnology Company that has developed proprietary cultivation and processing ability allowing for the accessibility & democratization of cannabinoid extracts for the neutraceutical market; (v) developing, implementing and launching an online portal and mobile app dealing with cannabis and hemp. Further, creating scale-able API that has a database of cannabis and cannabis related products, businesses, and opportunities; and (vi) securing an agreement with a leading supplier in the business of producing or otherwise procuring, distributing and/or selling electronic cigarette products.

 

On August 22, 2016, the Company entered into an asset purchase agreement (the “BEO Purchase Agreement”) to acquire substantially all of BEO ITS, Inc., a Canadian corporation (“BEO”), for 225,000 shares of Common Stock of the Company and $9,225.00 in cash.

 

On January 27, 2017, the Company entered into a joint venture agreement (the “Nutrition Specialties Joint Venture”) with Nutrition Specialties, LLC (“Nutrition Specialties”). The purpose of the Nutrition Specialties Joint Venture was to market sports supplement products produced by Nutrition Specialties incorporating cannabidiol (CBD) supplied by the Company and marketed by the Company’s sales personnel. Nutrition Specialties was to purchase the CBD for the sports supplements products from the Company.

 

On January 24, 2017, the Company entered into a joint venture agreement (the “Kamavore Joint Venture”) with Kamavore, a Canadian corporation (“Kamavore”). The purpose of the Kamavore Joint Venture was to produce and market chocolate products incorporating CBD supplied by the Company. Karmavore was to purchase the CBD for the chocolate products from the Company. Both the Company and Kamavore were to market the CBD chocolate products.

 

On June 8, 2017, the Company formed KannaBidioid, Inc. (“KBD”), a wholly owned subsidiary. The purpose of KBD was to enter into the recreational vape/smoke space. Through KBD, the Company formulated, produced and sold Kanna-infused cannabidiol (CBD) based e-liquids and gummy edibles. On January 11, 2019, the Company entered into an agreement with Aaron Decker, and Derrick West, individuals, pursuant to which the Company has transferred, set over and assigned to Mr. Decker and Mr. West 95% of the issued and outstanding shares of common stock of Kannabidioid, Inc.

 

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On July 1, 2017, the Company entered into an exclusive distribution agreement (the “Bionatus Distribution Agreement”) with Laboratoire Bionatus Pharmacognosique (“Bionatus”) to be the exclusive distributor in the U.S. for a new line of products to be developed jointly by Bionatus and the Company (the “New Products”). Pursuant to the Bionatus Distribution Agreement the Company will be the exclusive supplier of the hemp oil for the New Products.

 

On August 9, 2018 the Company entered into a participation agreement (the “FMG Participation Agreement”) with Fortune Media Group (the “FMG”) for the production and broadcasting of a television and social media infomercial, promoting the Company’s products. Pursuant to the FMG Participation Agreement, for a fee of $24,900, FMG was to produce and distribute two promotional videos for the Company; the first is for a 60 second direct TV commercial or infomercial and the second is for a 15 second video to be used for social media. FMG will promote the Company through its integrated social media outlets and consumer engagement strategies.

 

On October 12, 2018 Canna Inno Laboratories Inc. a Canadian corporation (“Canna Inno”) and a wholly owned subsidiary of the Company, entered into an agreement for the clinical study of the protocols to be used in the processing of samples collected using Canna Inno’s MSN-2 collection device, which is used in testing and diagnosing of chlamydia and gonorrhea (the “Clinical Trials Agreement”).

 

On December 16, 2018, the Company entered into a manufacturing agreement (the “Dermagate Manufacturing Agreement”) with Dermagate, Inc. to manufacture, assemble, and supply 5,000 units of the company’s MSN-2 medical device, Hygee, for purchase by the Company, on an exclusive basis. The Hygee device itself, is a modified panty liner worn by women to allow for the self-collection of a gynecological specimen. Currently the device allows human cells to be collected and tested for two types of infections, chlamydia and gonorrhea. It provides women with the ability to be self-collect specimens in a non-clinical setting, send them to a laboratory that will process the specimens and notify them if they test positive for either sexually transmitted disease so that they can seek treatment. This technology allows the Company to provide diagnostic services to high-risk women and girls who are not inclined to visit traditional medical settings. The kit can be ordered on-line for home screening.

 

Nutraceutical Products

 

The Company is engaged in the development, marketing, production, and sales of CBD products for personal health, some of which may utilize patent-pending formulations. The Company offers the highest purity and quality high-grade full spectrum cannabinoid oil on the market. There are positive results in studies on breast cancer and immune cells through the University of Central Oklahoma, in addition to studies through DV Biologics that prove the Company’s CBD oil formulation lowers cortisol and functions as a neuro-protectant, with positive result case studies through key health organizations. ETST formulates, markets and distributes the CBD oil used for its studies to the public, offering the most effective quality of CBD on the market.

 

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Extraction Method and Quality

 

We believe our high-grade CBD-rich hemp oil contains the high quality natural CBD because it’s formulated using a wide array of cutting-edge technologies, including super critical extraction process (CO 2), isolation, and micron filtration. Super critical extraction is a gentle approach and the key method in the extraction of our CBD. The method exploits the fact that CO 2 at low temperature and under high pressure becomes liquid and thereby draws the cannabinoids and terpenes from the plant material. Using state-of-the-art equipment, carbon dioxide (CO 2) is compressed to upwards of 10,000 psi. At these extremes CO 2 becomes ‘super critical’ where it retains the properties of both a liquid and a gas at the same time. The cold temperature does not damage any heat-sensitive nutrients like vitamins or enzymes. When the super critical fluid is added to the nutrient-rich hemp it releases the phytonutrients. The CO 2 is then free and recycled, leaving a concentrated and pure extract that we believe is more easily digested. These low temperatures thru the extraction process preserve a broad spectrum of valuable and beneficial molecules that are often lost using other extraction methods. This gentle method permits the production of a purer form of CBD-rich hemp oil while conserving other valuable and beneficial molecules that are originally contained in the hemp plant. We believe that there are over 400 phytonutrients that exist in hemp plants.

 

Our CBD-rich hemp oil does not contain any synthetic cannabinoids and is not an isolate. It contains everything that is naturally occurring in the original industrial hemp plant. With our high quality CBD-rich hemp oil you benefit from the natural interaction of phytonutrients in their balanced wide-ranging form that may offer the most benefit for overall wellness. Our commercialized CBD based product line, High Grade Full Spectrum Cannabinoids, offers 7 distinct cannabinoids maximizing all the therapeutic benefits the industrial hemp plant has to offer.

 

Other competitors and companies may use certain methods for extracting hemp including toxic solvents and/or high heat which we believe are unsustainable, dangerous and don’t extract the full balance of nutrients from the industrial hemp plant. One of the most popular processes used to extract hemp oils is alcohol extraction, due to its simplicity and low costs. This may lead to a product that still contains trace amounts of alcohol, as it can be difficult to separate out after extraction. The alcohol extraction used by other companies and our competitors requires the hemp and alcohol mixture to be boiled for long periods of time, potentially damaging sensitive nutrients and important components of the oil. Most companies that claim to be full spectrum only contain 2-5 cannabinoids compared to the 7 we offer in our commercialized batches.

 

Our CBD-rich hemp oil is sourced from the high quality industrial hemp plants grown by generational family farmers. In order to produce consistent and nutritious CBD-rich oils, these hemp plants are grown domestically currently in Oregon, Colorado, and Kentucky.

 

We lab test our hemp oil multiple times during the manufacturing process, from seed to shelf. This includes being tested for cannabinoid panel content, terpenoids, pesticides, residual solvents, mycotoxins, and micros.

 

Retail of Nutraceutical Products

 

The Company will sell our dietary supplements through our website at www.earthsciencetech.com, in retail stores, clinics, and pharmacies.

 

On July 18, 2014, Earth Science Tech, Inc. entered into a Lease Agreement with LG Coral Gables, LLC for the lease of a retail establishment located in Coral Gables, Florida for a term of 5 years at a monthly rent of $3,442 with a security deposit of $17,211. The lease includes charges for common area maintenance expenses, and taxes of $1,059.

 

Nutrition Empire derived its revenue through both Retail and Direct Online via their website www.nutritionempire.com. Nutrition Empire was managed by leading veterans in the nutritional and dietary supplement arena. Nutrition Empire had a web portal in order to offer a full online inventory of leading supplement names at competitive prices as well as our CBD products. Nutrition Empire was closed 2017 and Nutrition empire since has been dormant.

 

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Strategic Focus

 

Our missions are to educate the public on the many and varied nutritional and health benefits of CBD-rich hemp oil, to optimize purity in formulation, and to find new product delivery systems. Our corporate strategy in developing our operations is as follows:

 

To design and produce CBD enhanced nutraceutical products for sale to the general public. We intend to create high-grade CBD-rich hemp oil and other CBD containing products unique to the current market in the nutraceuticals industry. We believe that our formulations will set us apart from competing products for promoting health. We have formulated and produced our initial CBD products, intended for, subject to performance, treating various symptoms of diseases and ailments or for overall health. The Company plans to expand manufacturing and marketing of these CBD products with expansion of products over the next five years.

 

To offer a wide selection of health and nutrition products through online, clinics, pharmacies, and in-store retail. Through our wholly owned subsidiary, we plan to continue expanding retail sales of nutritional supplements through online, clinics, pharmacies, and in-store sales. Our product selection includes many high-quality supplement brands, and includes our proprietary CBD-rich hemp oil.

 

Competition

 

The nutraceutical industry is subject to significant competition and pricing pressures. We may experience significant competitive pricing pressures as well as competitive products. Several significant competitors may offer products with prices that may match or are lower than ours. We believe that the products we offer are generally competitive with those offered by other supplement and nutraceutical companies; however, we believe that our products are unique and will set themselves apart from competing products. It is possible that one or more of our competitors could develop a significant research advantage over us that allows them to provide superior products or pricing, which could put us at a competitive disadvantage. Continued pricing pressure or improvements in research and shifts in customer preferences away from natural supplements could adversely impact our customer base or pricing structure and have a material and adverse effect on our business, financial condition, results of operations and cash flows.

 

Government Approvals and Regulations

 

The formulation, manufacturing, processing, labeling, packaging, advertising and distribution of our products are subject to regulation by several federal agencies, including the Food and Drug Administration (“FDA”), the Federal Trade Commission (“FTC”), the Consumer Product Safety Commission, the U.S. Department of Agriculture (“USDA”) and the Environmental Protection Agency (“EPA”). These activities are also regulated by various agencies of the states and localities in which our products are sold. The FDA regulates the processing, formulation, safety, manufacture, packaging, labeling and distribution of dietary supplements (including vitamins, minerals, and herbs) and cosmetics, whereas the FTC has jurisdiction to regulate the advertising of these products.

 

The Dietary Supplement Health and Education Act of 1994 (“DSHEA”) defines “dietary supplements” as vitamins, minerals, herbs, other botanicals, amino acids and other dietary substances for human use to supplement the diet, as well as concentrates, metabolites, constituents, extracts or combinations of such dietary ingredients. New dietary ingredients (those not marketed in the U.S. prior to October 15, 1994) must be the subject of a notification submitted to the FDA unless the ingredient has been “present in the food supply as an article used for food” without being “chemically altered.” The notification must be submitted to the FDA at least 75 days before the initial marketing of the new dietary ingredient. The FDA has issued guidance regarding the content of a new dietary ingredient notification. Should the FDA choose to enforce the guidance, it could have a negative effect on the innovation and continued marketing of dietary supplements; the FDA may not accept any particular evidence of safety for any new dietary ingredient, preventing the marketing of those dietary ingredients.

 

6

 

 

DSHEA permits “statements of nutritional support” to be included in labeling for dietary supplements without premarket FDA approval, however, such statements must be submitted within 30 days of marketing and must bear a label disclosure that “This statement has not been evaluated by the Food and Drug Administration. This product is not intended to diagnose, treat, cure, or prevent any disease.” Statements of nutritional support may describe how a particular dietary ingredient affects the structure, function or general well-being of the body, or the mechanism of action by which a dietary ingredient may affect body structure, function or well-being, but may not expressly or implicitly represent that a dietary supplement will diagnose, cure, mitigate, treat, or prevent a disease. A company using such statements must possess scientific evidence substantiating that the statement is truthful and not misleading. Any statements determined to be outside of these guidelines or unsubstantiated would be prevented from being used.

 

DSHEA also provides that so-called “third-party literature,” a peer-reviewed scientific publication linking a particular dietary ingredient with health benefits, may be used “in connection with the sale of a dietary supplement to consumers” without the literature being subject to regulation as labeling. Third-party literature must not be false or misleading; the literature may not “promote” a particular manufacturer or brand of dietary supplement; and a balanced view of the available scientific information on the subject matter must be presented. Any dissemination of non-compliant literature could subject our product to regulatory action as an illegal drug.

 

The FDA’s Good Manufacturing Practices (“GMP”) regulations require dietary supplements to be prepared, packaged and held in compliance with strict rules, and require quality control provisions similar to those in the GMP regulations for drugs. The FDA could in the future choose to inspect one of our facilities for compliance with these regulations, and could cause non-compliant products made or held in the facility to be subject to FDA enforcement actions.

 

The FDA has broad authority to enforce the provisions of the FDCA and their regulation of foods, dietary supplements and cosmetics may increase or become more restrictive in the future. Additional legislation could be passed which would impose substantial new regulatory requirements for dietary supplements, potentially raising our costs and hindering our business.

 

Our advertising is subject to regulation by the Federal Trade Commission, or FTC, under the Federal Trade Commission Act. In recent years the FTC has initiated numerous investigations of dietary supplement and weight loss products and companies. Additionally, some states also permit advertising and labeling laws to be enforced by private attorney generals, who may seek relief for consumers, seek class action certifications, seek class wide damages and product recalls of products sold by us. Any of these types of adverse actions against us by governmental authorities or private litigants could have a material adverse effect on our business, financial condition and results of operations.

 

In addition to FDA and FTC regulations, our products may face further regulation under the Single Convention on Narcotic Drugs 1961, which governs international trade and domestic control of narcotic substances including cannabis extracts. Countries may interpret and implement their treaty obligations in a way that creates a legal obstacle to our obtaining marketing approval for our products in those countries. These countries may not be willing or able to amend or otherwise modify their laws and regulations to permit our products to be marketed, or achieving such amendments to the laws and regulations may take a prolonged period of time. In the case of countries with similar obstacles, we would be unable to market our product candidates in countries in the near future or perhaps at all if the laws and regulations in those countries do not change.

 

Controlled Substance Regulation

 

At some point our products may be developed and be subject to U.S. controlled substance laws and regulations and failure to comply with these laws and regulations, or the cost of compliance with these laws and regulations, may adversely affect the results of our business operations, both during clinical development and post approval, and our financial condition.

 

Certain products we may develop could contain controlled substances as defined in the federal Controlled Substances Act of 1970, or CSA. Controlled substances that are pharmaceutical products are subject to a high degree of regulation under the CSA, which establishes, among other things, certain registration, manufacturing quotas, security, recordkeeping, reporting, import, export and other requirements administered by the DEA. The DEA classifies controlled substances into five schedules: Schedule I, II, III, IV or V substances. Schedule I substances by definition have a high potential for abuse, no currently “accepted medical use” in the United States, lack accepted safety for use under medical supervision, and may not be prescribed, marketed or sold in the United States. Pharmaceutical products approved for use in the United States may be listed as Schedule II, III, IV or V, with Schedule II substances considered to present the highest potential for abuse or dependence and Schedule V substances the lowest relative risk of abuse among such substances. Schedule I and II drugs are subject to the strictest controls under the CSA, including manufacturing and procurement quotas, security requirements and criteria for importation. In addition, dispensing of Schedule II drugs is further restricted. For example, they may not be refilled without a new prescription. We do not intend to produce “controlled substances” at this time, due to regulatory complications.

 

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Subsidiaries

 

The Company’s’ subsidiaries include Nutrition Empire, Inc., Cannabis Therapeutics, Inc. and Earth Science Pharmaceutical Inc. Earth Science Foundation, Inc. is a non-profit favored entity of the Company. All intercompany balances and transactions have been eliminated on consolidation.

 

Employees

 

As of September 27, 2019, the Company had seven (7) employees. None of our employees are represented by a union or covered by a collective bargaining agreement. We have not experienced any work stoppages and we consider our relationship with our employees to be good.

 

Website

 

Our corporate website address is https://earthsciencetech.com.

 

GHS Equity Financing Agreement and Registration Rights Agreement

 

Summary of the Offering

 

Shares currently outstanding (1):   52,283,400
     
Shares being offered:   5,873,370
     
Shares to be outstanding after the offering  

58,156,770

     
Shares to Offering Price per share:   The selling stockholders may sell all or a portion of the shares being offered pursuant to this prospectus at fixed prices and prevailing market prices at the time of sale, at varying prices or at negotiated prices.
     
Use of Proceeds:   We will not receive any proceeds from the sale of the shares of our Common Stock by the Selling Stockholder. However, we will receive proceeds from our initial sale of shares to GHS, pursuant to the Financing Agreement. The proceeds from the initial sale of shares will be used for the purpose of working capital and for potential acquisitions.
     
Trading Symbol:   ETST
     
Risk Factors:   See “Risk Factors” beginning on page 11 herein and the other information in this prospectus for a discussion of the factors you should consider before deciding to invest in shares of our common stock.

 

(1) The number of shares of our Common Stock outstanding prior to and to be outstanding immediately after this offering, as set forth in the table above, is based on 52,884,983 shares outstanding as of September 20, 2019 and excluding 5,873,370 shares of Common Stock issuable in this offering.

 

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SUMMARY CONSOLIDATED FINANCIAL INFORMATION

 

The following summary consolidated statements of operations data for the fiscal years ended March 31, 2019 and 2018 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Additionally, the three months ended June 30, 2019 and 2018 have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus. The summary consolidated balance sheet data as of June 30, 2019 are derived from our consolidated financial statements that are included elsewhere in this prospectus. The historical financial data presented below is not necessarily indicative of our financial results in future periods, and the results for the quarter ended June 30, 2019 is not necessarily indicative of our operating results to be expected for the full fiscal year ending March 31, 2020 or any other period. The summary consolidated balance sheet data as of March 31, 2019 is derived from our consolidated financial statements that are included elsewhere in this prospectus. The results for the year ended March 31, 2019 is not necessarily indicative of our financial results in future periods. You should read the summary consolidated financial data in conjunction with those financial statements and the accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our consolidated financial statements are prepared and presented in accordance with United States generally accepted accounting principles, or U.S. GAAP. Our consolidated financial statements have been prepared on a basis consistent with our audited financial statements and include all adjustments, consisting of normal and recurring adjustments that we consider necessary for a fair presentation of the financial position and results of operations as of and for such periods.

 

EARTH SCIENCE TECH, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

 

    For the three     For the three  
    Months Ended     Months Ended  
    June 30, 2019     June 30, 2018  
             
Revenue   $ 227,635     $ 166,891  
Cost of revenues     114,509       107,482  
Gross Profit     113,126       59,409  
                 
Operating Expenses:                
                 
Compensation - officers     49,788       57,442  
Officer Compensation Stock     89,790       98,000  
Employee Compensation Stock     -       20,182  
Marketing     20,623       29,267  
General and administrative     207,122       171,435  
Donations     -       -  
Loss on disposal of assets     -       -  
Professional fees     16,791       9,976  
Bad Debt Expense     -       -  
Cost of legal proceedings     49,022       125,994  
Research and development     22,113       65,245  
Total operating expenses     455,249       577,541  
                 
Loss from operations     (342,123 )     (518,132 )
                 
Other Income (Expenses)                
Interest expense     (1,191 )     (1,191 )
Int Exp-Convertible Note 1-GHS     (2,864 )        
Int Exp-Convertible Note 2-GHS     (44,732 )        
Int Exp-Convertible Note 3-GHS     (57,770 )        
Int Exp-Convertible Note 4-GHS     (57,418 )        
Int Exp Promissory Note-GHS     (599 )        
Interest income     -       -  
Total other income (expenses)     (164,574 )     (1,191 )
                 
Net loss before income taxes     (506,697 )     (519,323 )
                 
Income taxes     -       -  
                 
Net loss   $ (506,697 )   $ (519,323 )

 

EARTH SCIENCE TECH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

    For the Years Ended March 31,  
    2019     2018  
Revenue   $ 770,635     $ 463,108  
Cost of revenues     475,622       270,222  
Gross Profit     295,013       192,886  
                 
Operating Expenses:                
Compensation - officers     223,404       260,936  
Officer Compensation Stock     424,055       170,775  
Marketing     242,719       332,986  
General and administrative     514,467       653,242  
Donations             35,500  
Loss on disposal of assets             60,792  
Patent Impairment Expenses     34,334          
Professional fees     172,127       70,289  
Bad Debt Expense     31,211       87,342  
Cost of legal proceedings     453,553       79,447  
Research and development     338,856       150,451  
Total operating expenses     2,434,726       1,901,760  
                 
Loss from operations     (2,139,713 )     (1,708,874 )
                 
Other Income (Expenses)                
Interest expense     (75,632 )     (4,765 )
Interest income                
Total other income (expenses)     (75,632 )     (4,765 )
                 
Net loss before income taxes     (2,215,345 )     (1,713,639 )
                 
Income taxes                
                 
Net loss   $ (2,215,345 )   $ (1,713,639 )
                 
Net loss per common share:                
Loss per common share-Basic and Diluted   $ (0.04 )   $ (0.04 )

 

9

 

 

EARTH SCIENCE TECH, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

    March 31 2019     March 31, 2018  
ASSETS                
Current Assets:                
Cash   $ 127,524     $ 72,038  
Accounts Receivable(net allowance of $128,420 and $111,301 respectively)   $ 70,934     $ 69,050  
Prepaid expenses and other current assets     33,751       6,033  
Inventory     161,309       134,784  
Total current assets     393,518       281,905  
                 
Property and equipment, net     11,362       18,490  
                 
Other Assets:                
Patent, net             38,740  
Deposits     6,191       6,191  
Total other assets     6,191       44,931  
Total Assets   $ 411,071     $ 345,326  
                 
LIABILITIES AND STOCKHOLDERS’S EQUITY                
                 
Current Liabilities:                
Accounts payable   $ 98,109     $ 80,439  
Accrued expenses   $ 85,440     $ 93,987  
Accrued settlement     231,323       231,323  
Convertible Note 1-GHS     113,300          
Promissory Note-GHS     30,000          
Notes payable - related parties     59,558       59,558  
Total current liabilities     617,730       465,307  
Total liabilities     617,730       465,307  
                 
Commitments and contingencies                
                 
Stockholders’ (Deficit) Equity:                
Convertible preferred stock with liquidation preference, par value of $0.001 per share,10,000,000 shares authorized: 5,200,000 issued and outstanding     5,200       5,200  
Common stock, par value $0.001 per share, 75,000,000 shares authorized; 52,205,400 and 46,150,207 shares issued and outstanding as of March 31, 2019 and March 31, 2018 respectively     52,206       46,150  
Additional paid-in capital     27,449,487       25,326,876  
Accumulated deficit     (27,713,552 )     (25,498,207 )
Total stockholders’ (Deficit)Equity     (206,659 )     (119,981 )
Total Liabilities and Stockholders’ (Deficit) Equity   $ 411,071     $ 345,326  

 

10

 

 

RISK FACTORS

 

This investment has a high degree of risk. Before you invest you should carefully consider the risks and uncertainties described below and the other information in this prospectus. If any of the following risks actually occur, our business, operating results and financial condition could be harmed and the value of our stock could go down. This means you could lose all or a part of your investment. You should carefully consider the risks described below together with all of the other information included in our public filings before making an investment decision with regard to our securities. The statements contained in or incorporated into this document that are not historic facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. If any of the following events described in these risk factors actually occur, our business, financial condition or results of operations could be harmed. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. Moreover, additional risks not presently known to us or that we currently deem less significant also may impact our business, financial condition or results of operations, perhaps materially. For additional information regarding risk factors, see “Forward-Looking Statements.”

 

Special Information Regarding Forward-Looking Statements

 

This filing contains a number of forward-looking statements that reflect management’s current views and expectations with respect to our business, strategies, products, future results and events, and financial performance. All statements made in this filing other than statements of historical fact, including statements addressing operating performance, clinical developments which management expects or anticipates will or may occur in the future, including statements related to our technology, market expectations, future revenues, financing alternatives, statements expressing general optimism about future operating results, and non-historical information, are forward looking statements. In particular, the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “may,” variations of such words, and similar expressions identify forward-looking statements, but are not the exclusive means of identifying such statements, and their absence does not mean that the statement is not forward-looking. These forward-looking statements are subject to certain risks and uncertainties, including those discussed below. Our actual results, performance or achievements could differ materially from historical results as well as those expressed in, anticipated, or implied by these forward-looking statements. We do not undertake any obligation to revise these forward-looking statements to reflect any future events or circumstances.

 

11

 

 

Readers should not place undue reliance on these forward-looking statements, which are based on management’s current expectations and projections about future events, are not guarantees of future performance, are subject to risks, uncertainties and assumptions (including those described below), and apply only as of the date of this filing. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors which could cause or contribute to such differences include, but are not limited to, the risks to be discussed in this Form S-1 Registration and in the press releases and other communications to shareholders issued by us from time to time which attempt to advise interested parties of the risks and factors which may affect our business. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. For additional information regarding forward-looking statements, see “Forward-Looking Statements.”

 

RISKS RELATED TO OUR COMPANY AND THE BUSINESS

 

Because we have a limited history of operations, and our other ventures are in the development stage or not of yet capitalized, we anticipate our operating expenses will increase prior to earning revenue, and we may never achieve profitability.

 

The Company launched its first product hemp products in 2015. As we continue to conduct research and development of other CBD and cannabinoid products, we anticipate increases in our operating expenses, without realizing significant revenues from operations. Within the next 12 months, these increases in expenses will be attributed to the cost of (i) administration and start-up costs, (ii) research and development, (iii) advertising, (iv) legal and accounting fees at various stages of operation, (v) joint venture activities, (vi) creating and maintaining distribution and supply chain channels.

 

As a result of some or all of these factors in combination, the Company may incur losses in the foreseeable future. There is no history upon which to base any assumption as to the likelihood that the Company will prove successful in its research and development projects. We cannot provide investors with any assurance that our business will attract customers and investors. If we were unable to address these risks our business could fail.

 

Failure to raise additional capital to fund operations could harm our business and results of operations.

 

Our primary source of operating funds from 2015 through the June 30, 2019 fiscal year end has been from revenue generated from proceeds from sales of our CBD products and full spectrum oils powders and gelcaps as well as the sale of our common stock. The Company has experienced net losses from operations since inception, but expects these conditions to improve in 2019 and beyond as it develops its business model. The Company has stockholders’ deficiencies at March 31, 2019 and June 30, 2019 and will require additional financing to fund future operations. Currently, we do not have any firm committed arrangements for financing and can provide no assurance to investors that we will be able to obtain financing when required. No assurance can be given that the Company will obtain access to capital markets in the future or that financing, adequate to satisfy the cash requirements of implementing our business strategies, will be available on acceptable terms. The inability of the Company to gain access to capital markets or obtain acceptable financing could have an adverse effect upon the results of its operations and upon its financial conditions.

 

We may not have the liquidity to support our future operations and capital requirements.

 

Whether we can achieve cash flow levels sufficient to support our operations cannot be accurately predicted. Unless such cash flow levels are achieved, in addition to the proceeds from this offering, we may need to borrow additional funds or sell debt or equity securities, or some combination thereof, to provide funding for our operations. Such additional funding may not be available on commercially reasonable terms, or at all. If adequate funds are not available when needed, our financial condition and operating results would be materially and adversely affected and we may not be able to operate our business without significant changes in our operations, or at all.

 

We are currently under the control of a court-appointed receiver.

 

On January 11, 2019, the Company received notice that Strongbow Advisors, Inc., and Robert Stevens had been appointed by the Nevada District Court, as Receiver for the Registrant in Case No. A-18-784952-C.

 

The company sought the appointment of the Receiver after it found itself in an imminent danger of insolvency following the issuance by an arbitration panel of an award in the sum of $3,994,522.5 million in favor of Cromogen Biotechnology Corporation in the matter entitled Cromogen Biotechnology Corporation vs. Earth Science Tech, Inc. The Nevada District Court found that the Company was in fact insolvent and ordered the appointment of the Receiver.

 

The Award consisted a sum for breach of contract against the Company in the amount of $120,265, a sum for costs and fees against the Company in the amount of $111,057 and a sum for the claim of tortuous interference and conversion against the Company in the amount of $3,763,200. The District Court in Florida had confirmed the Award granted by the arbitration panel, denying however, the award of fees that the arbitration panel had granted Cromogen.

 

The Cromogen Litigation is now on appeal and the Company is optimistic about its prospects on appeal. Nevertheless, the outcome remains speculative and so notwithstanding its prospects for success on appeal, and faced with such a large judgment and the imminent danger of insolvency, the Company determined that it was in the best interest of its shareholders and creditors to seek protection under receivership and the appointment of a receiver. As of the date of this prospectus, the Company remains insolvent as the outcome of the Cromogen Litigation remains speculative.

 

As part of the impact of the receivership, the Court issued a Writ of Injunction or “Blanket Stay” covering the Company and its assets during the time that the Company is in receivership. As a result of the “Blanket Stay” the Company’s estate is protected from creditors and interference with its administration is prevented while the Company’s financial issues are being fully analyzed and resolved. As part of this process, creditor were notified and required to provide claims in writing under oath on or before the deadline stated in the notice provided by the Receiver and those claims that were not submitted are barred under NRS §78.675. The Blanket Stay will remain in place unless otherwise waived by the Receiver, or it is vacated by the Court or alternatively, lifted by the Court, upon a “motion to lift stay” duly made and approved by the Nevada District Court.

 

12

 

 

The appointment of the Receiver was approved unanimously by the Board and by a majority of the Company’s shareholders. Strongbow and Stevens were selected because of their reputation in helping (i) companies restructure and (ii) to execute on their business plans, albeit under a debt and capital structure that allows them to succeed. Stevens and Strongbow assist companies by helping them raise the capital needed not only to pay debts, but build and grow their businesses. The Receiver, however, is an agent of the court, and will be independent and neutral in managing the Company’s operations and trying to preserve the Company’s value for the creditors and shareholders.

 

There are a number of possible outcomes to the receivership, including reorganization (restructuring the Company’s debt), settlement and payment to creditors, or liquidation. The Receiver’s plan is to reorganize the Company so that the Company can continue with its current business model and may continue to do so when it emerges from receivership and is back under the control of the Company’s prior management. Towards that end, the Receiver has broad authority under the Nevada Revised Statutes, some of which are specifically set forth under the Court Order; and the Receiver is allowed, under the Statute and specifically under Section 3(p) of the Order, to borrow money, incur debt, and issue stock, debentures and other financial instruments. The Receiver intends to use the proceeds from our initial sale of shares to GHS for working capital to increase the Company’s sales, to meet its current expenses (excluding debt incurred prior to the Receiver’s appointment which is stayed pending the plan of reorganization), including the costs of receivership and for the ongoing costs of the Cromogen Litigation. If the Receiver is not successful in increasing the Company’s sales or its plan for reorganizing the Company does not prove successful (ie the debt as restructured is more that the Company can support), the Company’s results could be materially adversely impacted and the Company may be forced to liquidate its business. This could result in a loss on the investment for the shareholders of the Company and the investors in this offering.

 

We sell our products in highly competitive markets, which results in pressure on our profit margins and limits our ability to maintain or increase the market share of our services.

 

The nutraceutical industry is subject to significant competition and pricing pressures. We will experience significant competitive pricing pressures as well as competitive products. Several significant competitors offer products with prices that may match or are lower than ours. We believe that the products we offer are generally competitive with those offered by other supplement and nutraceutical companies. It is possible that one or more of our competitors could develop a significant research advantage over us that allows them to provide superior products or pricing, which could put us at a competitive disadvantage. Continued pricing pressure or improvements in research and shifts in customer preferences away from natural supplements could adversely impact our customer base or pricing structure and have a material and adverse effect on our business, financial condition, results of operations and cash flows.

 

Marijuana, and Cannabinoids and CBD with more than 0.3% THC are illegal under federal law

 

Marijuana, and CBD containing in excess of 0.3% THC are Schedule 1 controlled substances and are illegal under federal law, specifically the Controlled Substances Act (21 U.S.C. § 811). Even in states that have legalized the use of marijuana, its sale and use remain violations of federal law. CBD and cannabinoids derived from industrial hemp are not distinguishable. Although the products we buy are certified as THC free, if there were mistakes in processing or mislabeling and THC were found in our products we could be subject to enforcement and prosecution which would have a negative impact on our business and operation.

 

Laws and regulations affecting our industry are constantly changing.

 

The constant evolution of laws and regulations affecting the marijuana industry could detrimentally affect our operations. Local, state and federal medical marijuana laws and regulations are broad in scope and subject to changing interpretations. These changes may require us to incur substantial costs associated with legal and compliance fees and ultimately require us to alter our business plan. Furthermore, violations of these laws, or alleged violations, could disrupt our business and result in a material adverse effect on our operations. In addition, we cannot predict the nature of any future laws, regulations, interpretations or applications, and it is possible that regulations may be enacted in the future that will be directly applicable to our business.

 

Our future growth is largely dependent upon our ability to successfully compete with new and existing competitors by developing or acquiring new products that achieve market acceptance with acceptable margins.

 

Our business operates in markets that are characterized by rapidly changing products, evolving industry standards and potential new entrants. For example, a number of new companies with innovative products, which promise significant health benefits are established every year and are competitive with our products. If these companies gain market acceptance, our ability to grow our business could be materially and adversely affected. Accordingly, our future success depends upon a number of factors, including our ability to accomplish the following: identify emerging trends in our target end-markets; develop, acquire and maintain competitive products; enhance our products by adding innovative features that differentiate us from our competitors; and develop or acquire and bring products to market quickly and cost-effectively. Our ability to develop or acquire new products based on quality research can affect our competitive position and requires the investment of significant resources. These acquisitions and development efforts divert resources from other potential investments in our businesses, and they may not lead to the development of new research or products on a timely basis. New or enhanced products may not satisfy consumer preferences and potential product failures may cause consumers to reject these products. As a result, these products may not achieve market acceptance and our brand image could suffer. In addition, our competitors may introduce superior designs or business strategies, impairing our brand and the desirability of our products, which may cause consumers to defer or forego purchases of our products or services. Also, the markets for our products and services may not develop or grow as we anticipate. The failure of our products to gain market acceptance, the potential for product defects or the obsolescence of our products could significantly reduce our revenue, increase our operating costs or otherwise adversely affect our business, financial condition, results of operations or cash flows.

 

13

 

 

Our business is dependent on laws pertaining to the cannabis industry:

 

The federal government has issued guidance to federal prosecutors concerning marijuana enforcement under the Controlled Substances Act (CSA). The Cole Memorandum updates that guidance in light of state ballot initiatives that legalize under state law the possession of small amounts of marijuana and provide for the regulation of marijuana production, processing, and sale. The guidance set forth herein applies to all federal enforcement activity, including civil enforcement and criminal investigations and prosecutions, concerning marijuana in all states.

 

Congress has determined that marijuana is a dangerous drug and that the illegal distribution and sale of marijuana is a serious crime that provides a significant source of revenue to large-scale criminal enterprises, gangs, and cartels. The Department of Justice is committed to enforcement of the Controlled Substance Act (CSA) consistent with those determinations. The Department is also committed to using its limited investigative and prosecutorial resources to address the most significant threats in the most effective, consistent, and rational way. In furtherance of those objectives, as several states enacted laws relating to the use of marijuana for medical purposes, the Department in recent years has focused its efforts on certain enforcement priorities that are particularly important to the federal government:

 

  Preventing the distribution of marijuana to minors;
     
  Preventing revenue from the sale of marijuana from going to criminal enterprises, gangs, and cartels;
     
  Preventing the diversion of marijuana from states where it is legal under state law in some form to other states;
     
  Preventing state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity;
     
  Providing the necessary resources and demonstrate the willingness to enforce their laws, and,
     
  Enacting regulations in a manner that ensures they do not undermine federal enforcement priorities.

 

In jurisdictions that have enacted laws legalizing marijuana in some form, and that have also implemented strong and effective regulatory and enforcement systems to control the cultivation, distribution, sale, and possession of marijuana, conduct in compliance with those laws and regulations is less likely to threaten the federal priorities set forth above. Indeed, a robust system may affirmatively address those priorities by, for example, implementing effective measures to prevent diversion of marijuana outside of the regulated system and to other states, prohibiting access to marijuana by minors, and replacing an illicit marijuana trade that funds criminal enterprises with a tightly regulated market in which revenues are tracked and accounted for. In those circumstances, consistent with the traditional allocation of federal-state efforts in this area, enforcement of state law by state and local law enforcement and regulatory bodies should remain the primary means of addressing marijuana-related activity. If state enforcement efforts are not sufficiently robust to protect against the harms set forth above, the federal government may seek to challenge the regulatory structure itself in addition to continuing to bring individual enforcement actions, including criminal prosecutions, focused on those harms.

 

14

 

 

As with the Department’s previous statements on this subject, this memorandum is intended solely as a guide to the exercise of investigative and prosecutorial discretion. This memorandum does not alter in any way the Department’s authority to enforce federal law, including federal laws relating to marijuana, regardless of state law. Neither the guidance herein nor any state or local law provides a legal defense to a violation of federal law, including any civil or criminal violation of the CSA. Even in jurisdictions with strong and effective regulatory systems, evidence that particular conduct threatens federal priorities will subject that person or entity to federal enforcement action, based on the circumstances. This memorandum is not intended to, does not, and may not be relied upon to create any rights, substantive or procedural, enforceable at law by any party in any matter civil or criminal. It applies prospectively to the exercise of prosecutorial discretion in future cases and does not provide defendants or subjects of enforcement action with a basis for reconsideration of any pending civil action or criminal prosecution. Finally, nothing herein precludes investigation or prosecution, even in the absence of any one of the factors listed above, in particular circumstances where investigation and prosecution otherwise serves an important federal interest.

 

As to the Company engaging in business outside of the jurisdiction of the U.S.A., the Company must first assume that the laws in other country(s), territories or destinations are similar to that of the U.S. Federal Government, however, the Company must then retain competent legal counsel in this outside jurisdiction and insisting that they understand and obtain a copy of these foreign laws and rules and should gain the expertise and representation of a foreign specialist or attorney in the foreign destination being considered prior to engaging in any cannabis, marijuana or hemp business.

 

Our business is subject to risk of government action:

 

While we will use our best efforts to comply with all laws, including federal, state and local laws and regulations, there is a possibility that governmental action to enforce any alleged violations may result in legal fees and damage awards that would adversely affect us.

 

Because our business is dependent upon continued market acceptance by consumers, any negative trends will adversely affect our business operations.

 

We are substantially dependent on continued market acceptance and proliferation of consumers of cannabis, medical marijuana and recreational marijuana as well as CBD and full spectrum cannabinoids. We believe that as marijuana becomes more accepted the stigma associated with marijuana use will diminish and as a result consumer demand will continue to grow. While we believe that the market and opportunity in the marijuana space continues to grow, we cannot predict the future growth rate and size of the market. Any negative outlook on the marijuana industry will adversely affect our business operations.

 

In addition, it is believed by many that large well-funded businesses may have a strong economic opposition to the cannabis industry. We believe that the pharmaceutical industry clearly does not want to cede control of any product that could generate significant revenue. For example, medical marijuana will likely adversely encroach, impact or displace the existing market for the current “marijuana pill” Marinol, sold by the mainstream pharmaceutical industry. The pharmaceutical industry is well funded with a strong and experienced lobby that eclipses the funding of the medical marijuana movement. Any inroads the pharmaceutical industry could make in halting the impending cannabis industry could have a detrimental impact on our business.

 

The possible FDA Regulation of cannabis marijuana and CBD, and the possible registration of facilities where cannabis is grown and CBD products are produced, if implemented, could negatively affect the cannabis industry generally, which could directly affect our financial condition:

 

The FDA has not approved cannabis, marijuana, industrial hemp or CBD derived from cannabis or industrial hemp as a safe and effective drug for any indication. The FDA considers these substances illegal Schedule 1 drugs. As of the date of this filing, we have not, and do not intend to file an IND with the FDA, concerning any of our products that may contain cannabis, industrial hemp or CBD derived from industrial hemp. Further, The FDA has concluded that products containing cannabis, marijuana industrial hemp or CBD derived from industrial hemp are excluded from the dietary supplement definition under sections 201(ff)(3)(B)(i) and (ii) of the U.S. Food, Drug & Cosmetic Act, respectively. Our products are not marketed or sold as dietary supplements. However, at some indeterminate future time, the FDA may choose to change its position concerning products containing cannabis, marijuana, or CBD derived from industrial hemp, and may choose to enact regulations that are applicable to such products, including, but not limited to: the growth, cultivation, harvesting and processing of cannabis and marijuana; regulations covering the physical facilities where cannabis and marijuana are grown; and possible testing to determine efficacy and safety of CBD. In this hypothetical event, our industrial hemp based products containing CBD may be subject to regulation. In the hypothetical event that some or all of these regulations are imposed, we do not know what the impact would be on the cannabis industry in general, and what costs, requirements and possible prohibitions may be enforced. If we are unable to comply with the conditions and possible costs of possible regulations and/or registration as may be prescribed by the FDA, we may be unable to continue to operate our business.

 

15

 

 

We may have difficulty accessing the service of banks.

 

On February 14, 2014, the U.S. government issued rules allowing banks to legally provide financial services to state-licensed marijuana businesses. A memorandum issued by the Justice Department to federal prosecutors re-iterated guidance previously given, this time to the financial industry that banks can do business with legal marijuana businesses and “may not” be prosecuted. The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued guidelines to banks that “it is possible to provide financial services” to state-licensed marijuana businesses and still be in compliance with federal anti-money laundering laws. The guidance falls short of the explicit legal authorization that banking industry officials had pushed the government to provide and to date, it is not clear if any banks have relied on the guidance and taken on legal marijuana companies as clients. The aforementioned policy may be administration dependent and a change in presidential administrations may cause a policy reversal and retraction of current policies, wherein legal marijuana businesses may not have access to the banking industry.

 

Banking regulations in our business are costly and time consuming:

 

In assessing the risk of providing services to a marijuana-related business, a financial institutions may conduct customer due diligence that includes: (i) verifying with the appropriate state authorities whether the business is duly licensed and registered; (ii) reviewing the license application (and related documentation) submitted by the business for obtaining a state license to operate its marijuana-related business; (iii) requesting from state licensing and enforcement authorities available information about the business and related parties; (iv) developing an understanding of the normal and expected activity for the business, including the types of products to be sold and the type of customers to be served (e.g., medical versus recreational customers); (v) ongoing monitoring of publicly available sources for adverse information about the business and related parties; (vi) ongoing monitoring for suspicious activity, including for any of the red flags described in this guidance; and (vii) refreshing information obtained as part of customer due diligence on a periodic basis and commensurate with the risk. With respect to information regarding state licensure obtained in connection with such customer due diligence, a financial institution may reasonably rely on the accuracy of information provided by state licensing authorities, where states make such information available. These regulatory reviews may be time consuming and costly. Currently we are not licensed and have operated in a manner to avoid the necessity of licensure by not using products containing THC, nevertheless CBD and cannibinoids are still part of the cannabis plant and as such are considered schedule 1 drugs, as such many banks will not transact business with us. We have been successful to date in finding merchant credit card processing and a bank that will do business with us. If either of them decided to cease doing business with us we would not have a way to receive payment and our operations would be negatively affected unless we could find a new bank or processor that would work with us, of which there can be no assurance.

 

Due to our involvement in the cannabis industry, we may have a difficult time obtaining the various insurances that are desired to operate our business, which may expose us to additional risk and financial liability:

 

Insurance that is otherwise readily available, such as general liability, and directors and officer’s insurance, is more difficult for us to find, and more expensive, because we are service providers to companies in the cannabis industry. There are no guarantees that we will be able to find such insurances in the future, or that the cost will be affordable to us. If we are forced to go without such insurances, it may prevent us from entering into certain business sectors, may inhibit our growth, and may expose us to additional risk and financial liabilities.

 

16

 

 

The Company’s industry is highly competitive and we have less capital and resources than many of our competitors which may give them an advantage in developing and marketing products similar to ours or make our products obsolete:

 

We are involved in a highly competitive industry where we may compete with numerous other companies who offer alternative methods or approaches, who may have far greater resources, more experience, and personnel perhaps more qualified than we do. Such resources may give our competitors an advantage in developing and marketing products similar to ours or products that make our products obsolete. There can be no assurance that we will be able to successfully compete against these other entities.

 

Our products and services are new and our industry is rapidly evolving:

 

Due consideration must be given to our prospects in light of the risks, uncertainties and difficulties frequently encountered by companies in their early stage of development, particularly companies in the rapidly evolving legal cannabis industry. To be successful in this industry, we must, among other things:

 

  develop and introduce functional and attractive service offerings;
     
  attract and maintain a large base of consumers;
     
  increase awareness of our brands and develop consumer loyalty;
     
  establish and maintain strategic relationships with distribution partners and service providers;
     
  respond to competitive and technological developments;
     
  attract, retain and motivate qualified personnel.

 

We cannot guarantee that we will succeed in achieving these goals, and our failure to do so would have a material adverse effect on our business, prospects, financial condition and operating results.

 

Some of our products and services are new and are only in early stages of commercialization. We are not certain that these products and services will function as anticipated or be desirable to its intended market. Also, some of our products may have limited functionalities, which may limit their appeal to consumers and put us at a competitive disadvantage. If our current or future products and services fail to function properly or if we do not achieve or sustain market acceptance, we could lose customers or could be subject to claims which could have a material adverse effect on our business, financial condition and operating results.

 

As is typical in a new and rapidly evolving industry, demand and market acceptance for recently introduced products and services are subject to a high level of uncertainty and risk. Because the market for the Company is new and evolving, it is difficult to predict with any certainty the size of this market and its growth rate, if any. We cannot guarantee that a market for the Company will develop or that demand for Company’s products and services will emerge or be sustainable. If the market fails to develop, develops more slowly than expected or becomes saturated with competitors, our business, financial condition and operating results would be materially adversely affected.

 

17

 

 

Adverse publicity or consumer perception of our products and any similar products distributed by others could harm our reputation and adversely affect our sales and revenues.

 

We believe we are highly dependent upon positive consumer perceptions of the safety and quality of our products as well as similar products distributed by other health and wellness companies. Consumer perception of health products, nutrition supplements and our products in particular can be substantially influenced by scientific research or findings, national media attention and other publicity about product use. Adverse publicity from these sources regarding the safety, quality or efficacy of nutritional supplements and our products could harm our reputation and results of operations. The mere publication of news articles or reports asserting that such products may be harmful or questioning their efficacy could have a material adverse effect on our business, financial condition and results of operations, regardless of whether such news articles or reports are scientifically supported or whether the claimed harmful effects would be present at the dosages recommended for such products.

 

Our operating results may fluctuate, which makes our results difficult to predict and could cause our results to fall short of expectations.

 

Our operating results may fluctuate as a result of a number of factors, many of which may be outside of our control. As a result, comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance. Our quarterly, year-to-date, and annual expenses as a percentage of our revenues may differ significantly from our historical or projected rates. Our operating results in future quarters may fall below expectations. Each of the following factors may affect our operating results:

 

our ability to deliver products in a timely manner in sufficient volumes;
   
 our ability to recognize product trends;
   
our loss of one or more significant customers;
   
 the introduction of successful new products by our competitors;
   
adverse media reports on the use or efficacy of nutritional supplements; and
   
our inability to make our online division profitable.

 

Because our business is changing and evolving, our historical operating results may not be useful to you in predicting our future operating results.

 

The loss of key management personnel could adversely affect our business.

 

We depend on the continued services of our executive officers and senior management team as they work closely with independent representative and are responsible for our day-to-day operations. Our success depends in part on our ability to retain our executive officers, to compensate our executive officers at attractive levels, and to continue to attract additional qualified individuals to our management team. Although we have entered into employment agreements with members of our senior management team, and do not believe that any of them are planning to leave or retire in the near term, we cannot assure that our senior managers will remain with us. The loss or limitation of the services of any of our executive officers or members of our senior management team, or the inability to attract additional qualified management personnel, could have a material adverse effect on our business, financial condition, results of operations, or independent associate relations.

 

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Independent Sales Representatives could fail to comply with our policies and procedures or make improper product, compensation, marketing or advertising claims that violate laws or regulations, which could result in claims against us that could harm our financial condition and operating results.

 

We sell our products through a sales force of independent representatives. The independent representatives are independent contractors and, accordingly, we are not in a position to provide the same direction, motivation, and oversight as we would if associates were our own employees. As a result, there can be no assurance that our representatives will participate in our marketing strategies or plans, accept our introduction of new products, or comply with our policies and procedures. All independent representatives will be required to sign a written contract and agree to adhere to our policies and procedures, which prohibit associates from making false, misleading or other improper claims regarding products or income potential from the distribution of the products. However, independent representatives may from time to time, without our knowledge and in violation of our policies, create promotional materials or otherwise provide information that does not accurately describe our marketing program. There is a possibility that some jurisdictions could seek to hold us responsible for independent representatives activities that violate applicable laws or regulations, which could result in government or third-party actions or fines against us, which could harm our financial condition and operating results.

 

Uncertainty of profitability:

 

Our business strategy may result in increased volatility of revenues and earnings. As we only have a limited number of products developed at this time, our overall success will depend on a limited number of products and our ability to develop or find new ones or new applications as well as our research and development efforts, which may cause variability and unsteady profits and losses depending on the products offered and their market acceptance.

 

Our revenues and our profitability may be adversely affected by economic conditions and changes in the market for medical and recreational marijuana. Our business is also subject to general economic risks that could adversely impact the results of operations and financial condition.

 

Because of the anticipated nature of the products that we offer and attempt to develop, it is difficult to accurately forecast revenues and operating results and these items could fluctuate in the future due to a number of factors. These factors may include, among other things, the following:

 

  Our ability to raise sufficient capital to take advantage of opportunities and generate sufficient revenues to cover expenses.
     
  Our ability to source strong opportunities with sufficient risk adjusted returns.
     
  Our ability to manage our capital and liquidity requirements based on changing market conditions generally and changes in the developing legal medical marijuana and recreational marijuana industries.
     
  The acceptance of the terms and conditions of our service.
     
  The amount and timing of operating and other costs and expenses.
     
  The nature and extent of competition from other companies that may reduce market share and create pressure on pricing and investment return expectations.
     
  Adverse changes in the national and regional economies in which we will participate, including, but not limited to, changes in our performance, capital availability, and market demand.
     
  Adverse changes in the projects in which we plan to invest which result from factors beyond our control, including, but not limited to, a change in circumstances, capacity and economic impacts.

 

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  Adverse developments in the efforts to legalize marijuana or increased federal enforcement.
     
  Changes in laws, regulations, accounting, taxation, and other requirements affecting our operations and business.
     
  Our operating results may fluctuate from year to year due to the factors listed above and others not listed. At times, these fluctuations may be significant.

 

Management of growth will be necessary for us to be competitive:

 

Successful expansion of our business will depend on our ability to effectively attract and manage staff, strategic business relationships, and shareholders. Specifically, we will need to hire skilled management and technical personnel as well as manage partnerships to navigate shifts in the general economic environment. Expansion has the potential to place significant strains on financial, management, and operational resources, yet failure to expand will inhibit our profitability goals.

 

We are entering a potentially highly competitive market:

 

The markets for businesses in the medical marijuana and recreational marijuana industries as well as their related CBD and cannabinoid industries are competitive and evolving. In particular, we face strong competition from larger companies that may be in the process of offering similar products and services to ours. Many of our current and potential competitors have longer operating histories, significantly greater financial, marketing and other resources and larger client bases than we have (or may be expected to have).

 

Given the rapid changes affecting the global, national, and regional economies generally and the medical marijuana and recreational marijuana industries, in particular, we may not be able to create and maintain a competitive advantage in the marketplace. Our success will depend on our ability to keep pace with any changes in its markets, especially with legal and regulatory changes. Our success will depend on our ability to respond to, among other things, changes in the economy, market conditions, and competitive pressures. Any failure by us to anticipate or respond adequately to such changes could have a material adverse effect on our financial condition, operating results, liquidity, cash flow and our operational performance.

 

If we fail to protect our intellectual property, our business could be adversely affected:

 

Our viability will depend, in part, on our ability to develop and maintain the proprietary aspects of our products and brands to distinguish our products from our competitors’ products. We rely on trade secrets and confidentiality provisions to establish and protect our intellectual property. Any infringement or misappropriation of our intellectual property could damage its value and limit our ability to compete. We may have to engage in litigation to protect the rights to our intellectual property, which could result in significant litigation costs and require a significant amount of our time. Competitors may also harm our sales by designing products that mirror the capabilities of our products or technology without infringing on our intellectual property rights. If we do not obtain sufficient protection for our intellectual property, or if we are unable to effectively enforce our intellectual property rights, our competitiveness could be impaired, which would limit our growth and future revenue. We may also find it necessary to bring infringement or other actions against third parties to seek to protect our intellectual property rights. Litigation of this nature, even if successful, is often expensive and time-consuming to prosecute, and there can be no assurance that we will have the financial or other resources to enforce our rights or be able to enforce our rights, or prevent other parties from developing similar technology or designing around our intellectual property.

 

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Our lack of sufficient patent and/or trademark or copyright protection and any unauthorized use of our proprietary information and technology may affect our business:

 

We currently rely on a combination of protections by contracts, including confidentiality and nondisclosure agreements, and common law rights, such as trade secrets, to protect our intellectual property. However, we cannot assure you that we will be able to adequately protect our technology or other intellectual property from misappropriation in the U.S. and abroad. This risk may be increased due to the lack of certain patent and/or copyright protection. Furthermore, patent applications that we file may not result in issuance of a patent, or, if a patent is issued, the patent may not be issued in a form that is advantageous to us. Despite our efforts to protect our intellectual property rights, others may independently develop similar products, duplicate our products or design around our patents and other rights. In addition, it is difficult to monitor compliance with, and enforce, our intellectual property rights on a worldwide basis in a cost-effective manner. In jurisdictions where foreign laws provide less intellectual property protection than afforded in the U.S., our technology or other intellectual property may be compromised, and our business could be materially adversely affected. If any of our proprietary rights are misappropriated or we are forced to defend our intellectual property rights, we will have to incur substantial costs. Such litigation could result in substantial costs and diversion of our resources, including diverting the time and effort of our senior management, and could disrupt our business, as well as have a material adverse effect on our business, prospects, financial condition and results of operations. We can provide no assurance that we will have the financial resources to oppose any actual or threatened infringement by any third party. Furthermore, any patent or copyrights that we may be granted may be held by a court to infringe on the intellectual property rights of others and subject us to the payment of damage awards.

 

Ordinary and necessary business deduction other than the cost of goods sold are disallowed by the Internal Revenue Services for Cannabis companies under IRC Section 280E:

 

At this juncture, we do not believe that IRS 280E interferes with our businesses model from deducting ordinary and necessary business expenses because we believe that we are in compliance with the 2014 Farm Bill and/or the products we sell are either from participants that are compliant with the 2014 Farm Bill or are made from lawfully imported industrial hemp full spectrum cannabinoids or CBD. Although we believe that the Farm Bill applies to commercial activity in that it references the “marketing,” “sale” and “transportation,” of industrial hemp and hemp products that are derived from an authorized state program, it is possible that our suppliers may not be in compliance with the Farm Bill or that a government agency or prosecutor could take a narrower view of the activity allowed under the Farm Bill or import laws, if that were the case we could be seen as selling and distributing a Schedule 1 substance under the CSA and we would therefore be subject to IRC Section 280E. IRC Section 280E only allows the cost of goods sold to be deducted from revenues earned from the sale of cannabis and cannabis products that come under the purview of the CSA. If that were the case we would not be able to deduct many of our overhead expenses. To the extent that we have subsidiaries and other lines of trade or business, many of those overhead expenses could be allocated to those subsidiaries that are note involved in products that come within the CSA so we would have an opportunity to deduct those disallowed expenses elsewhere. Nevertheless, the revenue that is derived from those other trade or businesses may not be as large as the corresponding deductions so be may still not be able to realize the full benefit of those expenses and instead have net operating losses in the other trade or businesses that we would not be able to use or would have to carry-forward indefinitely. In addition, if the Company enters the cannabis industry more directly, for example if the company were to purchase a marijuana dispensary that was legal under state law and operated in compliance with state law, IRC Section 280E would unquestionably be applicable in which case the onerous tax burden might significantly impact the profitability of the Company and may make the pricing of its products less competitive, to the extent that competitors could manage to find a way to not have their operations subject to IRC Section 280E. Notwithstanding the forgoing, there can be no assurance that if we were to reallocate items of deduction form business segments that were involved in the sales of products coming within the CSA that the Internal Revenue Service (“IRS”) would not challenge those deductions or disallow them on some other basis. This could result in an onerous tax burden.

 

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RISK FACTORS RELATED TO OUR SECURITIES

 

We may in the future issue more shares which could cause a loss of control by our present management and current stockholders.

 

We may issue further shares as consideration for the cash or assets or services out of our authorized but unissued common stock that would, upon issuance, represent a majority of the voting power and equity of our Company. The result of such an issuance would be those new stockholders and management would control our Company, and persons unknown could replace our management at this time. Such an occurrence would result in a greatly reduced percentage of ownership of our Company by our current shareholders, which could present significant risks to investors.

 

The regulation of penny stocks by SEC and FINRA may discourage the tradability of our securities.

 

We are a “penny stock” company. None of our securities currently trade in any market and, if ever available for trading, will be subject to a Securities and Exchange Commission rule that imposes special sales practice requirements upon broker-dealers who sell such securities to persons other than established customers or Accredited Investors. For purposes of the rule, the phrase “Accredited Investors” means, in general terms, institutions with assets in excess of $5,000,000, or individuals having a net worth in excess of $1,000,000 or having an annual income that exceeds $200,000 (or that, when combined with a spouse’s income, exceeds $300,000). For transactions covered by the rule, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser’s written agreement to the transaction prior to the sale. Effectively, this discourages broker-dealers from executing trades in penny stocks. Consequently, the rule will affect the ability of purchasers of our stock to sell their securities in any market that might develop therefore because it imposes additional regulatory burdens on penny stock transactions.

 

In addition, the Securities and Exchange Commission has adopted a number of rules to regulate “penny stocks”. Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange Act of 1934, as amended. Because our securities constitute “penny stocks” within the meaning of the rules, the rules would apply to us and to our securities. The rules will further affect the ability of owners of shares to sell our securities in any market that might develop for them because it imposes additional regulatory burdens on penny stock transactions.

 

Shareholders should be aware that, according to Securities and Exchange Commission, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii) “boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired consequent investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities.

 

Our common stock market prices may be volatile, which substantially increases the risk that investors may not be able to sell their Securities at or above the price that was paid for the security.

 

Because of the limited trading market for our common stock and because of the possible price volatility, shareholders may not be able to sell their shares of common stock when desired. The inability to sell Securities in a rapidly declining market may substantially increase the risk of loss because of such illiquidity and because the price for our Securities may suffer greater declines because of our price volatility.

 

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Certain factors, some of which are beyond our control, that may cause our share price to fluctuate significantly include, but are not limited to the following:

 

● variations in our quarterly operating results;

 

● loss of a key relationship or failure to complete significant transactions;

 

● additions or departures of key personnel; and

 

● fluctuations in stock market price and volume.

 

Additionally, in recent years the stock market in general, and the personal care markets in particular, have experienced extreme price and volume fluctuations. In some cases, these fluctuations are unrelated or disproportionate to the operating performance of the underlying company. These market and industry factors may materially and adversely affect our stock price, regardless of our operating performance. In the past, class action litigation often has been brought against companies following periods of volatility in the market price of those companies common stock. If we become involved in this type of litigation in the future, it could result in substantial costs and diversion of management attention and resources, which could have a further negative effect on shareholders’ investments in our stock.

 

Because we may issue additional shares of our common stock, investment in our company could be subject to substantial dilution:

 

Investors’ interests in our Company will be diluted and investors may suffer dilution in their net book value per share when we issue additional shares. We are authorized to issue 75,000,000 shares of common stock, $0.001 par value per share. As of the date hereof there are 52,884,983 shares of our common stock issued and outstanding. We anticipate that all or at least some of our future funding, if any, will be in the form of equity financing from the sale of our common stock. If we do sell more common stock, investors’ investment in our company will likely be diluted. Dilution is the difference between what investors pay for their stock and the net tangible book value per share immediately after the additional shares are sold by us. If dilution occurs, any investment in our company’s common stock could seriously decline in value.

 

Trading in our common stock on the OTCQB Exchange has been subject to wide fluctuations:

 

Our common stock is currently quoted for public trading on the OTCQB Exchange. The trading price of our common stock has been subject to wide fluctuations. Trading prices of our common stock may fluctuate in response to a number of factors, many of which will be beyond our control. The stock market has generally experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies with limited business operation. There can be no assurance that trading prices and price earnings ratios previously experienced by our common stock will be matched or maintained. These broad market and industry factors may adversely affect the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation has often been instituted. Such litigation, if instituted, could result in substantial costs for us and a diversion of management’s attention and resources.

 

Our common stock is currently quoted only on the OTCQB marketplace, which may have an unfavorable impact on our stock price and liquidity:

 

Our common stock is quoted on the OTCQB Marketplace. The OTCQB Marketplace is a significantly more limited market than the New York Stock Exchange or the NASDAQ stock market. The quotation of our shares of common stock on the OTCQB Marketplace may result in a less liquid market available for existing and potential stockholders to trade shares of our common stock, could depress the trading price of our common stock and could have a long-term adverse impact on our ability to raise capital in the future.

 

There can be no assurance that there will be an active market for our shares of common stock either now or in the future. Market liquidity will depend on the perception of our operating business and any steps that our management might take to bring us to the awareness of investors. There can be no assurance given that there will be any awareness generated. Consequently, investors may not be able to liquidate their investment or liquidate at a price that reflects the value of the business. As a result, holders of our securities may not find purchasers for our securities should they desire to sell them. Consequently, our securities should be purchased only by investors having no need for liquidity in their investment and who can hold our securities for an indefinite period of time.

 

Nevada law, our Articles of Incorporation and our by-laws provides for the indemnification of our officers and directors at our expense, and correspondingly limits their liability, which may result in a major cost to us and hurt the interests of our shareholders because corporate resources may be expended for the benefit of officers and/or directors:

 

Our Articles of Incorporation and By-Laws include provisions that eliminate the personal liability of our directors for monetary damages to the fullest extent possible under the laws of the State of Nevada or other applicable law. These provisions eliminate the liability of our directors and our shareholders for monetary damages arising out of any violation of a director of his fiduciary duty of due care. Under Nevada law, however, such provisions do not eliminate the personal liability of a director for (i) breach of the director’s duty of loyalty, (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violation of law, (iii) payment of dividends or repurchases of stock other than from lawfully available funds, or (iv) any transaction from which the director derived an improper benefit. These provisions do not affect a director’s liabilities under the federal securities laws or the recovery of damages by third parties.

 

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We do not intend to pay cash dividends on any investment in the shares of stock of our Company and any gain on an investment in our Company will need to come through an increase in our stock’s price, which may never happen:

 

We have never paid any cash dividends and currently do not intend to pay any cash dividends for the foreseeable future. To the extent that we require additional funding currently not provided for, our funding sources may prohibit the payment of a dividend. Because we do not currently intend to declare dividends, any gain on an investment in our company will need to come through an increase in the stock’s price. This may never happen and investors may lose all of their investment in our company.

 

Because our securities are subject to penny stock rules, you may have difficulty reselling your shares:

 

Our shares as penny stocks, are covered by Section 15(g) of the Securities Exchange Act of 1934 which imposes additional sales practice requirements on broker/dealers who sell our company’s securities including the delivery of a standardized disclosure document; disclosure and confirmation of quotation prices; disclosure of compensation the broker/dealer receives; and, furnishing monthly account statements. These rules apply to companies whose shares are not traded on a national stock exchange, trade at less than $5.00 per share, or who do not meet certain other financial requirements specified by the Securities and Exchange Commission. These rules require brokers who sell “penny stocks” to persons other than established customers and “accredited investors” to complete certain documentation, make suitability inquiries of investors, and provide investors with certain information concerning the risks of trading in such penny stocks. These rules may discourage or restrict the ability of brokers to sell our shares of common stock and may affect the secondary market for our shares of common stock. These rules could also hamper our ability to raise funds in the primary market for our shares of common stock.

 

FINRA sales practice requirements may also limit a stockholder’s ability to buy and sell our stock:

 

In addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority (known as “FINRA”) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common shares, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

 

RISKS RELATED TO THE OFFERING

 

Our existing stockholders may experience significant dilution from the sale of our common stock pursuant to the GHS financing agreement.

 

The sale of our common stock to GHS Investments LLC in accordance with the Financing Agreement may have a dilutive impact on our shareholders. As a result, the market price of our common stock could decline. In addition, the lower our stock price is at the time we exercise our put options, the more shares of our common stock we will have to issue to GHS in order to exercise a put under the Financing Agreement. If our stock price decreases, then our existing shareholders would experience greater dilution for any given dollar amount raised through the offering.

 

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The perceived risk of dilution may cause our stockholders to sell their shares, which may cause a decline in the price of our common stock. Moreover, the perceived risk of dilution and the resulting downward pressure on our stock price could encourage investors to engage in short sales of our common stock. By increasing the number of shares offered for sale, material amounts of short selling could further contribute to progressive price declines in our common stock.

 

The issuance of shares pursuant to the GHS financing agreement may have a significant dilutive effect.

 

Depending on the number of shares we issue pursuant to the GHS Financing Agreement, it could have a significant dilutive effect upon our existing shareholders. Although the number of shares that we may issue pursuant to the Financing Agreement will vary based on our stock price (the higher our stock price, the less shares we have to issue), there may be a potential dilutive effect to our shareholders, based on different potential future stock prices, if the full amount of the Financing Agreement is realized. Dilution is based upon common stock put to GHS and the stock price discounted to GHS’s purchase price of 80% of the lowest trading price during the pricing period.

 

GHS Investments LLC will pay less than the then-prevailing market price of our common stock which could cause the price of our common stock to decline.

 

Our common stock to be issued under the GHS Financing Agreement will be purchased at a twenty percent (20%) discount, or eighty percent (80%) of the lowest trading price for the Company’s common stock during the ten (10) consecutive trading days immediately preceding the date on which the Company delivers a put notice to GHS.

 

GHS has a financial incentive to sell our shares immediately upon receiving them to realize the profit between the discounted price and the market price. If GHS sells our shares, the price of our common stock may decrease. If our stock price decreases, GHS may have further incentive to sell such shares. Accordingly, the discounted sales price in the Financing Agreement may cause the price of our common stock to decline.

 

We may not have access to the full amount under the financing agreement.

 

The lowest trading price of the Company’s common stock during the ten (10) consecutive trading days immediately preceding the filing of this Registration Statement was approximately $0.55. At that price we would be able to sell shares to GHS under the Financing Agreement at the discounted price of $0.416. At that discounted price, the 5,873,370 shares would only represent $2,443,321.92, which is below the full amount of the Financing Agreement.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Forward-looking statements involve risks and uncertainties and include statements regarding, among other things, our projected revenue growth and profitability, our growth strategies and opportunity, anticipated trends in our market and our anticipated needs for working capital. They are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plans,” “potential,” “projects,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend” or the negative of these words or other variations on these words or comparable terminology. These statements may be found under the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” as well as in this prospectus generally. In particular, these include statements relating to future actions, prospective products, market acceptance, future performance or results of current and anticipated products, sales efforts, expenses, and the outcome of contingencies such as legal proceedings and financial results.

 

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Examples of forward-looking statements in this prospectus include, but are not limited to, our expectations regarding our business strategy, business prospects, operating results, operating expenses, working capital, liquidity and capital expenditure requirements. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products, the cost, terms and availability of components, pricing levels, the timing and cost of capital expenditures, competitive conditions and general economic conditions. These statements are based on our management’s expectations, beliefs and assumptions concerning future events affecting us, which in turn are based on currently available information. These assumptions could prove inaccurate. Although we believe that the estimates and projections reflected in the forward-looking statements are reasonable, our expectations may prove to be incorrect.

 

Important factors that could cause actual results to differ materially from the results and events anticipated or implied by such forward-looking statements include, but are not limited to:

 

● increased levels of competition;

 

● changes in the market acceptance of our products;

 

● changes in political, economic or regulatory conditions generally and in the markets in which we operate;

 

● our relationships with our key customers;

 

● our ability to retain and attract senior management and other key employees;

 

● our ability to quickly and effectively respond to new technological developments;

 

● our ability to protect our trade secrets or other proprietary rights, operate without infringing upon the proprietary rights of others and prevent others from infringing on the proprietary rights of the Company; and

 

● other risks, including those described in the “Risk Factors” discussion of this prospectus.

 

We operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all of those risks, nor can we assess the impact of all of those risks on our business or the extent to which any factor may cause actual results to differ materially from those contained in any forward-looking statement. The forward-looking statements in this prospectus are based on assumptions management believes are reasonable. However, due to the uncertainties associated with forward-looking statements, you should not place undue reliance on any forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and unless required by law, we expressly disclaim any obligation or undertaking to publicly update any of them in light of new information, future events, or otherwise.

 

USE OF PROCEEDS

 

We will not receive any proceeds from the sale of the shares of our Common Stock by the Selling Stockholder. However, we will receive proceeds from our initial sale of shares to GHS, pursuant to the Financing Agreement. The proceeds from the initial sale of shares will be used for the purpose of working capital to increase the Company’s sales, for marketing, advertising, and promotion as well as development and introduction of improvements to our existing products as well as to meet the Company’s ongoing expenses including the costs of receivership and the Cromogen Litigation.

 

MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS

 

Market and Other Information

 

Our Common Stock is quoted on the OTCQB Marketplace under the trading symbol “ETST”.

 

As of September 20, 2019, there were approximately 151 holders of record of our common stock. The last reported sale price of our Common Stock on September 20, 2019 on the OTCQB Marketplace was $0.5399 per share. Please note that price of our Common Stock on the OTCQB Marketplace reflects inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

 

Quarter ended   High     Low  
July 1, 2019 through September 20, 2019   $ 0.94     $ 0.405  
June 30, 2019   $ 0.9499     $ 0.301  
March 31, 2019   $ 0.929     $ 0.55  
December 31, 2018   $ 2.45     $ 0.525  
September 30, 2018   $ 1.64     $ 0.421  
June 30, 2018   $ 0.96     $ 0.421  
March 31, 2018   $ 1.62     $ 0.56  
December 31, 2017   $ 1.5     $ 0.443  
September 30, 2017   $ 0.923     $ 0.324  
June 30, 2017   $ 1.75     $ 0.61  
March 31, 2017   $ 3.95     $ 0.344  

 

Dividend Policy

 

To date, we have not paid any dividends on our common stock and do not anticipate paying any such dividends in the foreseeable future. The declaration and payment of dividends on the common stock is at the discretion of our Board and will depend on, among other things, our operating results, financial condition, capital requirements, contractual restrictions or such other factors as our Board may deem relevant. We currently expect to use all available funds to finance the future development and expansion of our business and do not anticipate paying dividends on our Common Stock in the foreseeable future.

 

DETERMINATION OF OFFERING PRICE

 

We have not set an offering price for the shares registered hereunder, as the only shares being registered are those sold pursuant to the GHS Financing Agreement. GHS may sell all or a portion of the shares being offered pursuant to this prospectus at fixed prices and prevailing market prices at the time of sale, at varying prices or at negotiated prices.

 

DILUTION

 

Not applicable. The shares registered under this registration statement are not being offered for purchase. The shares are being registered on behalf of our selling shareholders pursuant to the GHS Financing Agreement.

 

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SELLING SECURITY HOLDER

 

The selling stockholder identified in this prospectus may offer and sell up to 5,873,370 shares of our common stock, which consists of shares of common stock to be sold by GHS pursuant to the Financing Agreement. If issued presently, the shares of common stock registered for resale by GHS would represent approximately 11.23% of our issued and outstanding shares of common stock as of September 20, 2019. Additionally, the 5,873,370 shares of our common stock registered for resale herein would represent approximately 30% of the Company’s public float.

 

We may require the selling stockholder to suspend the sales of the shares of our common stock being offered pursuant to this prospectus upon the occurrence of any event that makes any statement in this prospectus or the related registration statement untrue in any material respect or that requires the changing of statements in those documents in order to make statements in those documents not misleading.

 

The selling stockholder identified in the table below may from time to time offer and sell under this prospectus any or all of the shares of common stock described under the column “Shares of Common Stock Being Offered” in the table below.

 

GHS will be deemed to be an underwriter within the meaning of the Securities Act. Any profits realized by such selling stockholder may be deemed to be underwriting commissions.

 

Information concerning the selling stockholder may change from time to time and, if necessary, we will amend or supplement this prospectus accordingly. We cannot give an estimate as to the number of shares of common stock that will actually be held by the selling stockholder upon termination of this offering, because the selling stockholders may offer some or all of the common stock under the offering contemplated by this prospectus or acquire additional shares of common stock. The total number of shares that may be sold, hereunder, will not exceed the number of shares offered, hereby. Please read the section entitled “Plan of Distribution” in this prospectus.

 

The manner in which the selling stockholder acquired or will acquire shares of our common stock is discussed below under “The Offering.”

 

The following table sets forth the name of each selling stockholder, the number of shares of our common stock beneficially owned by such stockholder before this offering, the number of shares to be offered for such stockholder’s account and the number and (if one percent or more) the percentage of the class to be beneficially owned by such stockholder after completion of the offering. The number of shares owned are those beneficially owned, as determined under the rules of the SEC, and such information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares of our common stock as to which a person has sole or shared voting power or investment power and any shares of common stock which the person has the right to acquire within 60 days, through the exercise of any option, warrant or right, through conversion of any security or pursuant to the automatic termination of a power of attorney or revocation of a trust, discretionary account or similar arrangement, and such shares are deemed to be beneficially owned and outstanding for computing the share ownership and percentage of the person holding such options, warrants or other rights, but are not deemed outstanding for computing the percentage of any other person. Beneficial ownership percentages are calculated based on 52,884,983 shares of our common stock outstanding as of September 20, 2019.

 

Unless otherwise set forth below, (a) the persons and entities named in the table have sole voting and sole investment power with respect to the shares set forth opposite the selling stockholder’s name, subject to community property laws, where applicable, and (b) no selling stockholder had any position, office or other material relationship within the past three years, with us or with any of our predecessors or affiliates. The number of shares of common stock shown as beneficially owned before the offering is based on information furnished to us or otherwise based on information available to us at the timing of the filing of the registration statement of which this prospectus forms a part.

 

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    Shares Owned by the Selling Stockholders before the     Shares of Common Stock     Number of Shares to be Owned by
Selling Stockholder After the
Offering and Percent of Total Issued
and Outstanding Shares
 
Name of Selling Stockholder   Offering (1)     Being Offered     # of Shares (2)     % of Class (2)  
GHS Investments LLC (3)                       0       5,873,370                        0       * %

 

Notes:

 

* less than 1%

 

(1) Beneficial ownership is determined in accordance with Securities and Exchange Commission rules and generally includes voting or investment power with respect to shares of common stock. Shares of common stock subject to options, warrants and convertible debentures currently exercisable or convertible, or exercisable or convertible within 60 days, are counted as outstanding. The actual number of shares of common stock issuable upon the conversion of the convertible debentures is subject to adjustment depending on, among other factors, the future market price of our common stock, and could be materially less or more than the number estimated in the table.

 

(2) Because the selling stockholders may offer and sell all or only some portion of the 5,873,370 shares of our common stock being offered pursuant to this prospectus and may acquire additional shares of our common stock in the future, we can only estimate the number and percentage of shares of our common stock that any of the selling stockholders will hold upon termination of the offering.

 

(3) Mark Grober exercises voting and dispositive power with respect to the shares of our common stock that are beneficially owned by GHS Investments LLC.

 

(4) Consists of up to 5,873,370 shares of common stock to be sold by GHS pursuant to the Financing Agreement.

 

THE OFFERING

 

On February 28, 2019, we entered into an Equity Financing Agreement (the “Financing Agreement”) with GHS Investments LLC (“GHS”). Although we are not mandated to sell shares under the Financing Agreement, the Financing Agreement gives us the option to sell to GHS, up to $5,000,000 worth of our common stock until February 27, 2021. The $5,000,000 was stated as the total amount of available funding in the Financing Agreement because this was the maximum amount that GHS agreed to offer us in funding. In connection with the Financing Agreement, the Company executed a promissory note dated February 28, 2019, in the principal amount of $30,000 (the “Note”) as payment of the commitment fee for the Financing Agreement. There is no assurance the market price of our common stock will increase in the future. The number of common shares that remain issuable may not be sufficient, dependent upon the share price, to allow us to access the full amount contemplated under the Financing Agreement. Based on the lowest closing price of our common stock during the ten (10) consecutive trading days preceding the filing date of this registration statement was approximately $0.55, the registration statement covers the offer and possible sale of $2,443,321.92 worth of our shares.

 

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The purchase price of the common stock will be set at eighty percent (80%) of the lowest trading price of the common stock during the ten (10) consecutive trading day period immediately preceding the date on which the Company delivers a put notice to GHS. In addition, there is an ownership limit for GHS of 4.99%.

 

GHS is not permitted to engage in short sales involving our common stock during the term of the commitment period. In accordance with Regulation SHO, however, sales of our common stock by GHS after delivery of a put notice of such number of shares reasonably expected to be purchased by GHS under a put will not be deemed a short sale.

 

● In addition, we must deliver the other required documents, instruments and writings required. GHS is not required to purchase the put shares unless:

 

● Our registration statement with respect to the resale of the shares of common stock delivered in connection with the applicable put shall have been declared effective;

 

● We shall have obtained all material permits and qualifications required by any applicable state for the offer and sale of the registrable securities; and

 

● We shall have filed all requisite reports, notices, and other documents with the SEC in a timely manner.

 

As we draw down on the equity line of credit, shares of our common stock will be sold into the market by GHS. The sale of these shares could cause our stock price to decline. In turn, if our stock price declines and we issue more puts, more shares will come into the market, which could cause a further drop in our stock price. You should be aware that there is an inverse relationship between the market price of our common stock and the number of shares to be issued under the equity line of credit. If our stock price declines, we will be required to issue a greater number of shares under the equity line of credit. We have no obligation to utilize the full amount available under the equity line of credit.

 

Neither the Financing Agreement nor any of our rights or GHS’s rights thereunder may be assigned to any other person.

 

PLAN OF DISTRIBUTION

 

Each of the selling stockholders named above and any of their pledgees and successors-in-interest may, from time to time, sell any or all of their shares of common stock on OTC Markets or any other stock exchange, market or trading facility on which the shares of our common stock are traded or in private transactions. These sales may be at fixed prices and prevailing market prices at the time of sale, at varying prices or at negotiated prices. The selling stockholders may use any one or more of the following methods when selling shares:

 

● ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

 

● block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

 

● purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

 

● privately negotiated transactions;

 

● broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share; or

 

● a combination of any such methods of sale.

 

Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.

 

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GHS is an underwriter within the meaning of the Securities Act of 1933 and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act of 1933 in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act of 1933. GHS has informed us that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the common stock of our company. Pursuant to a requirement by FINRA, the maximum commission or discount to be received by any FINRA member or independent broker-dealer may not be greater than 8% of the gross proceeds received by us for the sale of any securities being registered pursuant to Rule 415 promulgated under the Securities Act of 1933.

 

Discounts, concessions, commissions and similar selling expenses, if any, attributable to the sale of shares will be borne by the selling stockholder. The selling stockholder may agree to indemnify any agent, dealer, or broker-dealer that participates in transactions involving sales of the shares if liabilities are imposed on that person under the Securities Act of 1933.

 

We are required to pay certain fees and expenses incurred by us incident to the registration of the shares covered by this prospectus. We have agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act of 1933. We will not receive any proceeds from the resale of any of the shares of our common stock by the selling stockholders. We may, however, receive proceeds from the sale of our common stock under the Financing Agreement with GHS. Neither the Financing Agreement with GHS nor any rights of the parties under the Financing Agreement with GHS may be assigned or delegated to any other person.

 

We have entered into an agreement with GHS to keep this prospectus effective until GHS has sold all of the common shares purchased by it under the Financing Agreement and has no right to acquire any additional shares of common stock under the Financing Agreement.

 

The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

 

Under applicable rules and regulations under the Securities Exchange Act of 1934, any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the selling stockholders will be subject to applicable provisions of the Securities Exchange Act of 1934 and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the common stock by the selling stockholders or any other person. We will make copies of this prospectus available to the selling stockholders.

 

DESCRIPTION OF SECURITIES TO BE REGISTERED

 

General

 

We are authorized to issue an aggregate of seventy-five million (75,000,000) shares of common stock, $0.001 par value per share and ten million (10,000,000) shares of preferred stock, $0.001 par value per share, in one or more series and to fix the voting powers, preferences and other rights and limitations of the preferred stock. As of September 20, 2019, we had 52,884,983 shares of common stock outstanding and 5,200,000 shares of Class A Preferred Stock outstanding.

 

Each share of common stock shall have one (1) vote per share. Our common stock does not provide a preemptive, subscription or conversion rights and there are no redemption or sinking fund provisions or rights. Our common stock holders are not entitled to cumulative voting for election of Board of Directors.

 

Our shares of preferred stock rank senior to all classes of common stock in the event of liquidation, dissolution or winding up of the Company, whether voluntary or involuntary. Holders of our preferred stock are not entitled to receive dividends. The holders of our preferred stock, in order to maintain their proportionate voting percentage of the Company’s common stock, are entitled to receive that number of preferred stock necessary to maintain their proportionate voting percentage of the Company’s common stock to prevent the dilution of the preferred stock held by such holders. The 5,200,000 shares of Class A Preferred Stock, except as otherwise required by Nevada law, shall equal 52% of the voting equity of the common stock.

 

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Dividends

 

We have not paid any dividends on our common stock since our inception and do not intend to pay any dividends in the foreseeable future.

 

The declaration of any future cash dividends is at the discretion of our board of directors and depends upon our earnings, if any, our capital requirements and financial position, our general economic conditions, and other pertinent conditions. It is our present intention not to pay any cash dividends in the foreseeable future, but rather to reinvest earnings, if any, in our business operations.

 

Warrants

 

The Company does not currently have any warrants issued or outstanding.

 

Options

 

The Company has not granted any options since inception.

 

Transfer Agent

 

The Company’s transfer agent is Action Stock Transfer, Inc., 2469 E Fort Union Blvd., Suite 214, Salt Lake City, UT 84121.

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

There were no equity compensation plans formally approved by the shareholders of the Company as of the date of this filing.

 

Anti-Takeover Effects of Various Provisions of Nevada Law

 

Provisions of the Nevada Revised Statutes, our articles of incorporation, as amended, and bylaws could make it more difficult to acquire us by means of a tender offer, a proxy contest or otherwise, or to remove incumbent officers and directors. These provisions, summarized below, would be expected to discourage certain types of takeover practices and takeover bids our Board may consider inadequate and to encourage persons seeking to acquire control of us to first negotiate with us. We believe that the benefits of increased protection of our ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us will outweigh the disadvantages of discouraging takeover or acquisition proposals because, among other things, negotiation of these proposals could result in an improvement of their terms.

 

Blank Check Preferred

 

Our articles of incorporation permit our Board to issue preferred stock with voting, conversion and exchange rights that could negatively affect the voting power or other rights of our Common Stockholders. The issuance of our preferred stock could delay or prevent a change of control of our Company.

 

Amendments to our Articles of Incorporation and Bylaws

 

Under the Nevada Revised Statutes, our articles of incorporation may not be amended by stockholder action alone.

 

Nevada Anti-Takeover Statute

 

We may be subject to Nevada’s Combination with Interested Stockholders Statute (Nevada Corporation Law Sections 78.411-78.444) which prohibits an “interested stockholder” from entering into a “combination” with the corporation, unless certain conditions are met. An “interested stockholder” is a person who, together with affiliates and associates, beneficially owns (or within the prior two years, did beneficially own) 10% or more of the corporation’s capital stock entitled to vote.

 

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Limitations on Liability and Indemnification of Officers and Directors

 

The Nevada Revised Statutes limits or eliminates the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors’ fiduciary duties as directors.

 

The limitation of liability and indemnification provisions under the Nevada Revised Statues and in our articles of incorporation and bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. However, these provisions do not limit or eliminate our rights, or those of any stockholder, to seek non-monetary relief such as injunction or rescission in the event of a breach of a director’s fiduciary duties. Moreover, the provisions do not alter the liability of directors under the federal securities laws. In addition, your investment may be adversely affected to the extent that, in a class action or direct suit, we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.

 

Authorized but Unissued Shares

 

Our authorized but unissued shares of Common Stock and preferred stock will be available for future issuance without stockholder approval, except as may be required under the listing rules of any stock exchange on which our Common Stock is then listed. We may use additional shares for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued shares of Common Stock and preferred stock could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.

 

Penny Stock Considerations

 

Our shares will be “penny stocks” as that term is generally defined in the Securities Exchange Act of 1934 to mean equity securities with a price of less than $5.00 per share. Thus, our shares will be subject to rules that impose sales practice and disclosure requirements on broker-dealers who engage in certain transactions involving a penny stock. Under the penny stock regulations, a broker-dealer selling a penny stock to anyone other than an established customer must make a special suitability determination regarding the purchaser and must receive the purchaser’s written consent to the transaction prior to the sale, unless the broker-dealer is otherwise exempt.

 

In addition, under the penny stock regulations, the broker-dealer is required to:

 

● Deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the Securities and Exchange Commission relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt;

 

● Disclose commissions payable to the broker-dealer and our registered representatives and current bid and offer quotations for the securities;

 

● Send monthly statements disclosing recent price information pertaining to the penny stock held in a customer’s account, the account’s value, and information regarding the limited market in penny stocks; and

 

● Make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction, prior to conducting any penny stock transaction in the customer’s account.

 

Because of these regulations, broker-dealers may encounter difficulties in their attempt to sell shares of our common stock, which may affect the ability of selling shareholders or other holders to sell their shares in the secondary market and have the effect of reducing the level of trading activity in the secondary market. These additional sales practice and disclosure requirements could impede the sale of our securities, if our securities become publicly traded. In addition, the liquidity for our securities may be decreased, with a corresponding decrease in the price of our securities. Our shares in all probability will be subject to such penny stock rules and our shareholders will, in all likelihood, find it difficult to sell their securities.

 

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INTERESTS OF NAMED EXPERTS AND COUNSEL

 

The consolidated financial statements for the Company for the years then ended March 31, 2019 and 2018 included in this prospectus have been audited by BF Borgers CPA PC, an independent registered public accounting firm, to the extent and for the periods set forth in our report and are incorporated herein in reliance upon such report given upon the authority of said firm as experts in auditing and accounting.

 

The legality of the shares offered under this registration statement will be passed upon by Davisson & Associates, PA.

 

INFORMATION WITH RESPECT TO THE REGISTRANT

 

Corporate History

 

Earth Science Tech, Inc. (“ETST” or the “Company”) was incorporated under the laws of the State of Nevada on April 23, 2010 under the name Ultimate Novelty Sports Inc. The Company provided consulting services to the athletic facilities industry and offered a full range of consulting services, including start-up strategy development, membership pricing and management, operational analysis, marketing and public relations and staff training.

 

On May 6, 2010, the Company formed a wholly owned subsidiary, Ultimate Novelty Sports Inc., an Ontario, Canada Corporation (“UNSI Canada”). On October 30, 2013, pursuant to a sale of subsidiary agreement (the “Sale of Subsidiary Agreement”) the Company sold all of the capital stock of UNSI Canada to Optimal, Inc., a Nevada corporation.

 

On January 29, 2014, the Company entered into a consulting agreement with Pure Health, Inc. (“Pure”), a Puerto Rican corporation (the “Pure Consulting Agreement”). The purpose of the Pure Consulting Agreement was to retain Pure to consult the Company with regard to the development of health and wellness products as well as nutritional supplements, including idea generation, preforming and designing formulations for products to be used in the health and nutrition market.

 

On March 6, 2014, the Company changed its name from Ultimate Novelty Sports, Inc. to Earth Science Tech, Inc (the “Name Change”).

 

On May 28, 2014 the Financial Industry Regulatory Authority (“FINRA”) approved the Name Change and a change of trading symbol from UNOV to ETST.

 

On June 6, 2014, the Company filed with the Secretary of State of the State of Nevada Articles of Amendment to the Articles of Incorporation and a Certificate of Designation creating a Preferred A class of stock with 10,000,000 preferred A shares (the “Preferred A Shares”) having a par value of $0.001 per share.

 

On March 6, 2015, the Company entered into a License and Distribution Agreement (the “I Vape License and Distribution Agreement”) with I Vape Vapor, Inc. a Minnesota corporation (“I Vape”). Pursuant to the I Vape License and Distribution Agreement the Company licensed to I Vape the rights to use the Company’s Ultra-High Grade CBD Rich Hemp Oil in I Vape’s E-Cigarettes within the U.S. As part of the I Vape License and Distribution Agreement, the Company formed Earth Science Tech Vapor One, Inc., a wholly owned Florida corporation subsidiary.

 

Today, ETST is a biotechnology company focused on unique nutraceuticals and bioceuticals designed to excel in industries such as health, wellness, nutrition, supplements, cosmetics and alternative medicine to improve the quality of life for consumers worldwide. ETST seeks to deliver non-prescription nutritional and dietary supplements that help with treating symptoms such as: chronic pain, joint pain, inflammation, seizures, high blood pressure, memory loss, depression, weight management, nausea, aging and overall wellness. This may include products such as CBD as a natural constituent of hemp oil, vitamins, minerals, herbs, botanicals, personal care products, homeopathies, functional foods and other products. These products will be in various formulations and delivery forms including capsules, tablets, soft gels, chewables, liquids, creams, sprays, powders, and whole herbs.

 

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In particular, ETST is focused on researching and developing innovative hemp extracts and making them accessible worldwide. ETST plans to be a supplier of high quality hemp oil enriched with high-grade CBD. ETST’s primary goal is to advance different high quality hemp extracts with a broad profile of cannabinoids and additional natural molecules found in industrial hemp and to identify their distinct properties.

 

On January 11, 2019, the Company entered into an agreement with Aaron Decker, and Derrick West, individuals, pursuant to which the Company will transfer, set over and assign to Mr. Decker and Mr. West 95% of the issued and outstanding shares of common stock of Kannabidioid, Inc.

 

On January 11, 2019, the Company received notice that Strongbow Advisors, Inc. (“Strongbow”), and Robert Stevens (“Stevens”, and together with Strongbow, the “Receiver”) had been appointed by the Nevada District Court, as Receiver for the Registrant in Case No. A-18-784952-C.

 

The Company sought the appointment of the Receiver after it found itself in an imminent danger of insolvency following the issuance by an arbitration panel of an award (the “Award”) in the sum of $3,994,522.5 million in favor of Cromogen Biotechnology Corporation (“Cromogen”) in the matter entitled Cromogen Biotechnology Corporation vs. Earth Science Tech, Inc. (the “Cromogen Litigation”). The Nevada District Court found that the Company was in fact insolvent and ordered the appointment of the Receiver.

 

The Award consisted of a sum for breach of contract against the Company in the amount of $120,265.00, a sum for costs and fees against the Company in the amount of $111,057.00 and a sum for the claim of tortuous interference and conversion against the Company in the amount of $3,763,200.00. The District Court in Florida had confirmed the Award granted by the arbitration panel, denying however, the award of fees that the arbitration panel had granted Cromogen.

 

The Cromogen Litigation is now on appeal and the Company is optimistic about its prospects on appeal. Nevertheless, the outcome remains speculative and so notwithstanding its prospects for success on appeal, and faced with such a large judgment and the imminent danger of insolvency, the Company determined that it was in the best interest of its shareholders and creditors to seek protection under receivership and the appointment of a receiver. As of the date of this prospectus, the Company remains insolvent as the outcome of the Cromogen Litigation remains speculative.

 

As part of the impact of the receivership, the Court issued a Writ of Injunction or “Blanket Stay” covering the Company and its assets during the time that the Company is in receivership. As a result of the “Blanket Stay” the Company’s estate is protected from creditors and interference with its administration is prevented while the Company’s financial issues are being fully analyzed and resolved. As part of this process, creditors will be notified and required to provide claims in writing under oath on or before the deadline stated in the notice provided by the Receiver or those claims will be barred under NRS §78.675. The Blanket Stay will remain in place unless otherwise waived by the Receiver, or it is vacated by the Court or alternatively, lifted by the Court, upon a “motion to lift stay” duly made and approved by the Nevada District Court.

 

The appointment of the Receiver was approved unanimously by the Board and by a majority of the Company’s shareholders. Strongbow and Stevens were selected because of their reputation in helping (i) companies restructure and (ii) to execute on their business plans, albeit under a debt and capital structure that allows them to succeed. Stevens and Strongbow assist companies by helping them raise the capital needed not only to pay debts, but build and grow their businesses. The Receiver, however, is an agent of the court, and will be independent and neutral in managing the Company’s operations and trying to preserve the Company’s value for the creditors and shareholders.

 

The Receiver has broad powers under N.R.S. 78.630, including the power to reorganize the Registrant or liquidate it and it is not necessary for the Court to state that he has the power to reorganize the corporation or that he has the power to liquidate it. Those powers are granted by statute when he is appointed as a Receiver. As of the date of this prospectus the Receiver has determined that there is a viable underlying business; and he plans to effect a reorganization of it and its operations. In “reorganizing” the Company, the Receiver plans to restructure its debt. In considering whether to reorganize, the Receiver first determined that there was not a reason to liquidate and wind up its affairs. Having determined that the Company was not a candidate for liquidation, the Receiver determined that, given the current operations and the potential for increasing revenues with the addition of capital, that the Company will likely be in a position to pay its expenses as they come due when the Company’s debt is restructured. As of the date hereof, no definitive plan has been developed that addresses precisely how the debt will be restructured; and because of the amount at issue in the Cromogen Litigation (See Legal Proceedings on Page 53, the Receiver will not put a plan of reorganization together until after that matter is resolved on appeal. While the Cromogen Litigation remains ongoing, the Receiver plans to use the proceeds from this offering for working capital to increase the Company’s sales, to meet its current expenses (excluding debt incurred prior to the Receiver’s appointment, which is stayed with in receivership, pending the plan of reorganization), including the costs of receivership and for the ongoing costs of the Cromogen Litigation. If the Receiver is successful in increasing the Company’s sales and operations, of which there can be no assurances, he believes that the Company will be able to meet its expenses as they come due out of operations, including the costs of receivership and the payments associated with the Company’s restructured debt; and that there will be sufficient funds to support continued growth of the Company’s sales and operations. If successful, this reorganizational approach will allow the Receiver to structure larger payments to claimants than would otherwise be possible. The Receiver intends to continue with the Company’s business plan but with a greater focus on producing additional revenue from the existing Company products as well as new versions of its existing products that may be developed. Thus, once the Cromogen Litigation is resolved, the Receiver will prepare the plan of reorganization and seek to have it ratified by way of motion before the Court. Along with the filing of the motion to ratify the plan of reorganization, the Receiver will provide direct notice to each of the affected parties as well as by filing a Current Report with the Commission on Form 8-K. The Receiver does NOT require the approval of any of the claimants or the Company stakeholders before preparing the plan of reorganization or making the motion for its to ratification.. Any party objecting to its treatment under the plan of reorganization, or to the plan itself, may only do so by making a separate motion so objecting and this is its only recourse. Unlike motion practice in litigation where there is a plaintiff and defendant; and where one party makes a motion while the other responds by way of filing and serving a reply objecting to the motion, along with a memorandum in support of the their position, in the case of the Receiver’s motion to ratify the plan of reorganization, an objecting party to the plan may only object by way of making a separate motion objecting with the Court. However, the Receiver has the ability and authority under N.R.S. 78.630 to deny a claim, accept a claim or accept a claim in part and deny a claim in part as part of its duties acting as receiver; and further, underlying this power and authority is the requirement that the Receiver, as a receiver in equity, take into consideration, the fairness and reasonableness that his reorganization plan has on all of the claimants and stakeholders. As such, an objecting party moving to challenge the plan of reorganization has a substantial burden to overcome because the Court will give great deference to a Receiver; and it is extremely unlikely that the Court would not ratify the reorganization plan. In fact, the Receiver has never had such a challenge by an objecting party accepted by a court in any of the over 30 matters where he has served as receiver. Once the plan of reorganization has been ratified by the Court, it becomes executable and after six months, becomes non-appealable (See Nevada Rules of Civil Procedure Rule 60(c)(1)). Following ratification of the plan of reorganization and its implementation, the Receiver will move the Court to be dismissed, the Court will grant the Receiver’s motion for dismissal as receiver and the Company will be returned to prior management, who will continue operating and managing the Company under its business plan, initially, as it may have been modified and improved by the Receiver. However, once the Receiver has been dismissed by the Court and control is ceded back to the prior management, the Receiver is no longer in control and management is free to manage the Company as it sees fit.

 

This case is particularly complex because of the matters at issue in the Cromogen Litigation; and as such, it is not possible to predict, even approximately or with any degree of certainty, how long it will take to complete the Cromogen Litigation; and since the plan of reorganization is on hold pending the outcome, the plan of reorganization is on hold as a result; although once started, the plan itself will only take a few weeks to complete. Additionally it is not possible to determine, once the plan of reorganization is developed, how long it will take to have it ratified. Initially it depends on the Court and its availability to schedule a hearing; however then, if there are objections in the form of motions, it will take additional time as the Court needs to schedule hearing(s) for them and the Receiver needs to respond to those motion(s). If a claimant’s motion objecting is successful, the court will generally instruct a receiver to develop a new plan of reorganization that takes into account, those issues raised by the complaining/moving party with which the Court may agree. In theory, this could continue indefinitely until there were no longer complaining parties and the Court finally ratifies the Receiver’s plan of reorganization, as modified. However, in practice, courts give substantial deference to receivers, since they do not have the expertise or experience necessary to develop reorganization plans and they see this as the purview of the receiver. Once ratified, there is a six month period that the Court’s decision is appealable; and although an appeal requires the posting of a bond and the basis for appeal in these matters is extremely limited, there is still the possibility that a claimant or stakeholder could bring an appeal challenging the ratification of the plan of reorganization, notwithstanding the obstacles to bringing an appeal. As a result of these issues, it is impossible to predict how long the Company will be in receivership or what the ultimate cost of receivership will be.

 

Reorganizations are fluid, constantly changing processes and every situation is different. As long as there is a viable underlying business, the Receiver has sufficient powers to be able to reorganize it and restructure debt in virtually any way necessary so that the Company will be able to pay its debts as they come due when it emerges from receivership. The potential number of structural changes, and types of consideration and structures for the payment to creditors are too numerous to list and are limited only by the Receiver’s creativity. Adding to this complexity, is the fact that the Receiver is also allowed to classify creditors and other constituents according to classes that it creates based on criteria the it establishes; and it may treat those different classes differently. As a receiver in equity, Mr. Stevens is also allowed to consider the fundamental fairness to all of the stakeholders and analyzing the facts of each stakeholder and what they have at risk compared with other stakeholders as he puts the plan of reorganization in place. In addition to considering issues of fairness and reasonableness, some of the tools available to a receiver in a reorganization are: canceling shares of stock where little or no consideration was paid or where allowing those shares to remain outstanding would be unfair to the other shareholders, classifying creditors into various classes, using receiver’s certificates as super priority debt instruments, promissory notes, including convertible notes, stock of various classes, including newly created classes, pledging a portion of a company’s revenue, structured payments to be made over time, granting security interests, etc.; and these tools are all available as a means to restructure the Company’s debt and to pay creditors and service providers. During the time that the Company is in receivership, the Receiver is required to make periodic status reports to the Court providing such information as the Court requires, as requested by the Court. When the plan of reorganization is finally established and ratified, the Company will be returned to the control of its prior management and the Company will continue as reorganized, as though it had never been in receivership (except with restructured debt and ideally, with any improvements in operations that the Receiver may have put in place . The stakeholders that are directly affected by the reorganization will be notified by the Receiver as to how their claims will be treated under the plan of reorganization; and the claimants and other stakeholders will also receive notice of actions taken in connection with the reorganization through the filing of a Current Report on Form 8-K. These items will also be disclosed in the Registrant’s Periodic Reports filed with the Commission of Forms 10-K and 10Q, as required. If the Receiver is not successful in reorganizing the Company, the Company may be forced to liquidate its business and this may result in a loss of the entire investment for the investors in this offering.

 

On February 28, 2019, the Company entered into an Equity Financing Agreement (the “GHS Equity Financing Agreement”) and Registration Rights Agreement (the “GHS Registration Rights Agreement”) with GHS Investments LLC, a Nevada limited liability company (“GHS”). Under the terms of the Equity Financing Agreement, GHS agreed to provide the Company with up to $5,000,000 upon effectiveness of a registration statement on Form S-1 (the “Registration Statement”) filed with the U.S. Securities and Exchange Commission (the “Commission”)

 

Following effectiveness of the Registration Statement, the Company shall have the discretion to deliver puts to GHS and GHS will be obligated to purchase shares of the Company’s common stock, par value $0.001 per share based on the investment amount specified in each put notice. Additionally, in accordance with the Equity Financing Agreement, the Company shall issue GHS a promissory note in the principal amount of $30,000 to offset transaction costs (the “Note”).

 

Business Overview

 

Earth Science Tech, Inc. (“ETST”) offers high-grade full spectrum cannabinoid oil on the market. There are positive results in studies on breast cancer and immune cells through the University of Central Oklahoma, in addition to studies through DV Biologics that prove the Company’s CBD oil formulation lowers cortisol and functions as a neuro-protectant, with positive result case studies through key health organizations. ETST formulates, markets and distributes the CBD oil used for its studies to the public, offering the most effective quality of CBD on the market.

 

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The Company’s’ subsidiaries include Nutrition Empire, Inc., Cannabis Therapeutics, Inc. and Earth Science Pharmaceutical Inc. Earth Science Foundation, Inc. is a non-profit favored entity of the Company focused on developing its role as a world leader in the CBD space, expanding its work in the pharmaceutical and medical device sectors:

 

Earth Science Pharmaceutical (“ESP”) is a wholly-owned subsidiary of Earth Science Tech, committed to the development of low cost, non-invasive diagnostic tools, medical devices, testing processes and vaccines for sexually transmitted infections and/or diseases. ESP’s CEO and chief science officer, Dr. Michel Aubé, is leading the Company’s research and development efforts. The Company’s first medical device, Hygee™, is a home kit designed for the detection of STIs, such as chlamydia, from a self-obtained gynecological specimen. ESP is working to develop and bring to market medical devices and vaccines that meet the specific needs of women.

 

Cannabis Therapeutics (“CTI”) is a wholly-owned subsidiary of Earth Science Tech, Inc. poised to take a leadership role in the development of new, leading-edge cannabinoid-based pharmaceutical and nutraceutical products. CTI is invested in research and development to explore and harness the medicinal power of cannabidiol. The company holds three provisional application patents for a CBD product that is focused on developing treatments for breast and ovarian cancers, as well as two generic CBD based pharmaceutical drugs.

 

Earth Science Foundation (“ESF”) is a favored entity of Earth Science Tech, Inc. ESF is in the process of becoming a non-profit organization to accept grants and donations to conduct further studies and help donate Earth Science Tech’s effective CBD products to those in need.

 

On January 29, 2014, the Company entered into a consulting agreement with Pure Health, Inc. (“Pure”), a Puerto Rican corporation (the “Pure Consulting Agreement”). The purpose of the Pure Consulting Agreement was to retain Pure to consult the Company with regard to the development of health and wellness products as well as nutritional supplements, including idea generation, preforming and designing formulations for products to be used in the health and nutrition market.

 

On March 24, 2014, the Company entered into a Founders Agreement (the “Founders Agreement”) with Majorca Group, Ltd., a Marshall Islands Corporation (“Majorca”). Pursuant to the Founders Agreement, for a consideration of 25,000,000 restricted shares of Common Stock, Majorca was to provide certain services to the Company, including: (i) securing an agreement with an established company in the nutritional and health care industry for product development including idea generation, preforming and designing formulations for products to be used in the health and nutrition market; (ii) arranging for the development and formulation of two new products for the Company using FDA approved labs to produce the products; (iii) developing, implementing and launching a Nutritional, Formulation and Dietary Supplement ecommerce platform; (iv) securing an agreement with an established hemp based Biotechnology Company that has developed proprietary cultivation and processing ability allowing for the accessibility & democratization of cannabinoid extracts for the neutraceutical market; (v) developing, implementing and launching an online portal and mobile app dealing with cannabis and hemp. Further, creating scale-able API that has a database of cannabis and cannabis related products, businesses, and opportunities; and (vi) securing an agreement with a leading supplier in the business of producing or otherwise procuring, distributing and/or selling electronic cigarette products.

 

On August 22, 2016, the Company entered into an asset purchase agreement (the “BEO Purchase Agreement”) to acquire substantially all of BEO ITS, Inc., a Canadian corporation (“BEO”), for 225,000 shares of Common Stock of the Company and $9,225.00 in cash.

 

On January 27, 2017, the Company entered into a joint venture agreement (the “Nutrition Specialties Joint Venture”) with Nutrition Specialties, LLC (“Nutrition Specialties”). The purpose of the Nutrition Specialties Joint Venture was to market sports supplement products produced by Nutrition Specialties incorporating cannabidiol (CBD) supplied by the Company and marketed by the Company’s sales personnel. Nutrition Specialties was to purchase the CBD for the sports supplements products from the Company.

 

On January 24, 2017, the Company entered into a joint venture agreement (the “Kamavore Joint Venture”) with Kamavore, a Canadian corporation (“Kamavore”). The purpose of the Kamavore Joint Venture was to produce and market chocolate products incorporating CBD supplied by the Company. Karmavore was to purchase the CBD for the chocolate products from the Company. Both the Company and Kamavore were to market the CBD chocolate products.

 

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On June 8, 2017, the Company formed KannaBidioid, Inc. (“KBD”), a wholly owned subsidiary. The purpose of KBD was to enter into the recreational vape/smoke space. Through KBD, the Company formulated, produced and sold Kanna-infused cannabidiol (CBD) based e-liquids and gummy edibles. On January 11, 2019, the Company entered into an agreement with Aaron Decker, and Derrick West, individuals, pursuant to which the Company has transferred, set over and assigned to Mr. Decker and Mr. West 95% of the issued and outstanding shares of common stock of Kannabidioid, Inc.

 

On July 1, 2017, the Company entered into an exclusive distribution agreement (the “Bionatus Distribution Agreement”) with Laboratoire Bionatus Pharmacognosique (“Bionatus”) to be the exclusive distributor in the U.S. for a new line of products to be developed jointly by Bionatus and the Company (the “New Products”). Pursuant to the Bionatus Distribution Agreement the Company will be the exclusive supplier of the hemp oil for the New Products.

 

On August 9, 2018 the Company entered into a participation agreement (the “FMG Participation Agreement”) with Fortune Media Group (the “FMG”) for the production and broadcasting of a television and social media infomercial, promoting the Company’s products. Pursuant to the FMG Participation Agreement, for a fee of $24,900, FMG was to produce and distribute two promotional videos for the Company; the first is for a 60 second direct TV commercial or infomercial and the second is for a 15 second video to be used for social media. FMG will promote the Company through its integrated social media outlets and consumer engagement strategies.

 

On October 12, 2018 Canna Inno Laboratories Inc. a Canadian corporation (“Canna Inno”) and a wholly owned subsidiary of the Company, entered into an agreement for the clinical study of the protocols to be used in the processing of samples collected using Canna Inno’s MSN-2 collection device, which is used in testing and diagnosing of chlamydia and gonorrhea (the “Clinical Trials Agreement”).

 

On December 16, 2018, the Company entered into a manufacturing agreement (the “Dermagate Manufacturing Agreement”) with Dermagate, Inc. to manufacture, assemble, and supply 5,000 units of the company’s MSN-2 medical device, Hygee, for purchase by the Company, on an exclusive basis. The Hygee device itself, is a modified panty liner worn by women to allow for the self-collection of a gynecological specimen. Currently the device allows human cells to be collected and tested for two types of infections, chlamydia and gonorrhea. It provides women with the ability to be self-collect specimens in a non-clinical setting, send them to a laboratory that will process the specimens and notify them if they test positive for either sexually transmitted disease so that they can seek treatment. This technology allows the Company to provide diagnostic services to high-risk women and girls who are not inclined to visit traditional medical settings. The kit can be ordered on-line for home screening.

 

Nutraceutical Products

 

The Company is engaged in the development, marketing, production, and sales of CBD products for personal health, some of which may utilize patent-pending formulations. The Company offers the highest purity and quality high-grade full spectrum cannabinoid oil on the market. There are positive results in studies on breast cancer and immune cells through the University of Central Oklahoma, in addition to studies through DV Biologics that prove the Company’s CBD oil formulation lowers cortisol and functions as a neuro-protectant, with positive result case studies through key health organizations. ETST formulates, markets and distributes the CBD oil used for its studies to the public, offering the most effective quality of CBD on the market.

 

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Extraction Method and Quality

 

We believe our high-grade CBD-rich hemp oil contains the high quality natural CBD because it’s formulated using a wide array of cutting-edge technologies, including super critical extraction process (CO 2), isolation, and micron filtration. Super critical extraction is a gentle approach and the key method in the extraction of our CBD. The method exploits the fact that CO 2 at low temperature and under high pressure becomes liquid and thereby draws the cannabinoids and terpenes from the plant material. Using state-of-the-art equipment, carbon dioxide (CO 2) is compressed to upwards of 10,000 psi. At these extremes CO 2 becomes ‘super critical’ where it retains the properties of both a liquid and a gas at the same time. The cold temperature does not damage any heat-sensitive nutrients like vitamins or enzymes. When the super critical fluid is added to the nutrient-rich hemp it releases the phytonutrients. The CO 2 is then free and recycled, leaving a concentrated and pure extract that we believe is more easily digested. These low temperatures thru the extraction process preserve a broad spectrum of valuable and beneficial molecules that are often lost using other extraction methods. This gentle method permits the production of a purer form of CBD-rich hemp oil while conserving other valuable and beneficial molecules that are originally contained in the hemp plant. We believe that there are over 400 phytonutrients that exist in hemp plants.

 

Our CBD-rich hemp oil does not contain any synthetic cannabinoids and is not an isolate. It contains everything that is naturally occurring in the original industrial hemp plant. With our high quality CBD-rich hemp oil you benefit from the natural interaction of phytonutrients in their balanced wide-ranging form that may offer the most benefit for overall wellness. Our commercialized CBD based product line, High Grade Full Spectrum Cannabinoids, offers 7 distinct cannabinoids maximizing all the therapeutic benefits the industrial hemp plant has to offer.

 

Other competitors and companies may use certain methods for extracting hemp including toxic solvents and/or high heat which we believe are unsustainable, dangerous and don’t extract the full balance of nutrients from the industrial hemp plant. One of the most popular processes used to extract hemp oils is alcohol extraction, due to its simplicity and low costs. This may lead to a product that still contains trace amounts of alcohol, as it can be difficult to separate out after extraction. The alcohol extraction used by other companies and our competitors requires the hemp and alcohol mixture to be boiled for long periods of time, potentially damaging sensitive nutrients and important components of the oil. Most companies that claim to be full spectrum only contain 2-5 cannabinoids compared to the 7 we offer in our commercialized batches.

 

Our CBD-rich hemp oil is sourced from the high quality industrial hemp plants grown by generational family farmers. In order to produce consistent and nutritious CBD-rich oils, these hemp plants are grown domestically currently in Oregon and Kentucky.

 

We lab test our hemp oil multiple times during the manufacturing process, from seed to shelf. This includes being tested for cannabinoid panel content, terpenoids, pesticides, residual solvents, mycotoxins, and micros.

 

Retail of Nutraceutical Products

 

The Company will sell our dietary supplements through our website at www.earthsciencetech.com, in retail stores, clinics, and pharmacies.

 

On July 18, 2014, Earth Science Tech, Inc. entered into a Lease Agreement with LG Coral Gables, LLC for the lease of a retail establishment located in Coral Gables, Florida for a term of 5 years at a monthly rent of $3,442 with a security deposit of $17,211. The lease includes charges for common area maintenance expenses, and taxes of $1,059.

 

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Nutrition Empire derived its revenue through both Retail and Direct Online via their website www.nutritionempire.com. Nutrition Empire was managed by leading veterans in the nutritional and dietary supplement arena. Nutrition Empire had a web portal in order to offer a full online inventory of leading supplement names at competitive prices as well as our CBD products. Nutrition Empire was closed 2017 and Nutrition empire since has been dormant.

 

Strategic Focus

 

Our missions are to educate the public on the many and varied nutritional and health benefits of CBD-rich hemp oil, to optimize purity in formulation, and to find new product delivery systems. Our corporate strategy in developing our operations is as follows:

 

To design and produce CBD enhanced nutraceutical products for sale to the general public. We intend to create high-grade CBD-rich hemp oil and other CBD containing products unique to the current market in the nutraceuticals industry. We believe that our formulations will set us apart from competing products for promoting health. We have formulated and produced our initial CBD products, intended for, subject to performance, treating various symptoms of diseases and ailments or for overall health. The Company plans to expand manufacturing and marketing of these CBD products with expansion of products over the next five years.

 

To offer a wide selection of health and nutrition products through online, clinics, pharmacies, and in-store retail. Through our wholly owned subsidiary, we plan to continue expanding retail sales of nutritional supplements through online, clinics, pharmacies, and in-store sales. Our product selection includes many high-quality supplement brands, and includes our proprietary CBD-rich hemp oil.

 

Competition

 

The nutraceutical industry is subject to significant competition and pricing pressures. We may experience significant competitive pricing pressures as well as competitive products. Several significant competitors may offer products with prices that may match or are lower than ours. We believe that the products we offer are generally competitive with those offered by other supplement and nutraceutical companies; however, we believe that our products are unique and will set themselves apart from competing products. It is possible that one or more of our competitors could develop a significant research advantage over us that allows them to provide superior products or pricing, which could put us at a competitive disadvantage. Continued pricing pressure or improvements in research and shifts in customer preferences away from natural supplements could adversely impact our customer base or pricing structure and have a material and adverse effect on our business, financial condition, results of operations and cash flows.

 

Government Approvals and Regulations

 

The formulation, manufacturing, processing, labeling, packaging, advertising and distribution of our products are subject to regulation by several federal agencies, including the Food and Drug Administration (“FDA”), the Federal Trade Commission (“FTC”), the Consumer Product Safety Commission, the U.S. Department of Agriculture (“USDA”) and the Environmental Protection Agency (“EPA”). These activities are also regulated by various agencies of the states and localities in which our products are sold. The FDA regulates the processing, formulation, safety, manufacture, packaging, labeling and distribution of dietary supplements (including vitamins, minerals, and herbs) and cosmetics, whereas the FTC has jurisdiction to regulate the advertising of these products.

 

The Dietary Supplement Health and Education Act of 1994 (“DSHEA”) defines “dietary supplements” as vitamins, minerals, herbs, other botanicals, amino acids and other dietary substances for human use to supplement the diet, as well as concentrates, metabolites, constituents, extracts or combinations of such dietary ingredients. New dietary ingredients (those not marketed in the U.S. prior to October 15, 1994) must be the subject of a notification submitted to the FDA unless the ingredient has been “present in the food supply as an article used for food” without being “chemically altered.” The notification must be submitted to the FDA at least 75 days before the initial marketing of the new dietary ingredient. The FDA has issued guidance regarding the content of a new dietary ingredient notification. Should the FDA choose to enforce the guidance, it could have a negative effect on the innovation and continued marketing of dietary supplements; the FDA may not accept any particular evidence of safety for any new dietary ingredient, preventing the marketing of those dietary ingredients.

 

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DSHEA permits “statements of nutritional support” to be included in labeling for dietary supplements without premarket FDA approval, however, such statements must be submitted within 30 days of marketing and must bear a label disclosure that “This statement has not been evaluated by the Food and Drug Administration. This product is not intended to diagnose, treat, cure, or prevent any disease.” Statements of nutritional support may describe how a particular dietary ingredient affects the structure, function or general well-being of the body, or the mechanism of action by which a dietary ingredient may affect body structure, function or well-being, but may not expressly or implicitly represent that a dietary supplement will diagnose, cure, mitigate, treat, or prevent a disease. A company using such statements must possess scientific evidence substantiating that the statement is truthful and not misleading. Any statements determined to be outside of these guidelines or unsubstantiated would be prevented from being used.

 

DSHEA also provides that so-called “third-party literature,” a peer-reviewed scientific publication linking a particular dietary ingredient with health benefits, may be used “in connection with the sale of a dietary supplement to consumers” without the literature being subject to regulation as labeling. Third-party literature must not be false or misleading; the literature may not “promote” a particular manufacturer or brand of dietary supplement; and a balanced view of the available scientific information on the subject matter must be presented. Any dissemination of non-compliant literature could subject our product to regulatory action as an illegal drug.

 

The FDA’s Good Manufacturing Practices (“GMP”) regulations require dietary supplements to be prepared, packaged and held in compliance with strict rules, and require quality control provisions similar to those in the GMP regulations for drugs. The FDA could in the future choose to inspect one of our facilities for compliance with these regulations, and could cause non-compliant products made or held in the facility to be subject to FDA enforcement actions.

 

The FDA has broad authority to enforce the provisions of the FDCA and their regulation of foods, dietary supplements and cosmetics may increase or become more restrictive in the future. Additional legislation could be passed which would impose substantial new regulatory requirements for dietary supplements, potentially raising our costs and hindering our business.

 

Our advertising is subject to regulation by the Federal Trade Commission, or FTC, under the Federal Trade Commission Act. In recent years the FTC has initiated numerous investigations of dietary supplement and weight loss products and companies. Additionally, some states also permit advertising and labeling laws to be enforced by private attorney generals, who may seek relief for consumers, seek class action certifications, seek class wide damages and product recalls of products sold by us. Any of these types of adverse actions against us by governmental authorities or private litigants could have a material adverse effect on our business, financial condition and results of operations.

 

In addition to FDA and FTC regulations, our products may face further regulation under the Single Convention on Narcotic Drugs 1961, which governs international trade and domestic control of narcotic substances including cannabis extracts. Countries may interpret and implement their treaty obligations in a way that creates a legal obstacle to our obtaining marketing approval for our products in those countries. These countries may not be willing or able to amend or otherwise modify their laws and regulations to permit our products to be marketed, or achieving such amendments to the laws and regulations may take a prolonged period of time. In the case of countries with similar obstacles, we would be unable to market our product candidates in countries in the near future or perhaps at all if the laws and regulations in those countries do not change.

 

Controlled Substance Regulation

 

At some point our products may be developed and be subject to U.S. controlled substance laws and regulations and failure to comply with these laws and regulations, or the cost of compliance with these laws and regulations, may adversely affect the results of our business operations, both during clinical development and post approval, and our financial condition.

 

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Certain products we may develop could contain controlled substances as defined in the federal Controlled Substances Act of 1970, or CSA. Controlled substances that are pharmaceutical products are subject to a high degree of regulation under the CSA, which establishes, among other things, certain registration, manufacturing quotas, security, recordkeeping, reporting, import, export and other requirements administered by the DEA. The DEA classifies controlled substances into five schedules: Schedule I, II, III, IV or V substances. Schedule I substances by definition have a high potential for abuse, no currently “accepted medical use” in the United States, lack accepted safety for use under medical supervision, and may not be prescribed, marketed or sold in the United States. Pharmaceutical products approved for use in the United States may be listed as Schedule II, III, IV or V, with Schedule II substances considered to present the highest potential for abuse or dependence and Schedule V substances the lowest relative risk of abuse among such substances. Schedule I and II drugs are subject to the strictest controls under the CSA, including manufacturing and procurement quotas, security requirements and criteria for importation. In addition, dispensing of Schedule II drugs is further restricted. For example, they may not be refilled without a new prescription. We do not intend to produce “controlled substances” at this time, due to regulatory complications.

 

Subsidiaries

 

The Company’s’ subsidiaries include Nutrition Empire, Inc., Cannabis Therapeutics, Inc. and Earth Science Pharmaceutical Inc. Earth Science Foundation, Inc. is a non-profit favored entity of the Company. All intercompany balances and transactions have been eliminated on consolidation.

 

Employees

 

As of September 27, 2019, the Company had seven (7) employees. None of our employees are represented by a union or covered by a collective bargaining agreement. We have not experienced any work stoppages and we consider our relationship with our employees to be good.

 

Website

 

Our corporate website address is https://earthsciencetech.com.

 

Holders of Common Equity

 

As of September 27, 2019, there were approximately 151 stockholders of record. An additional number of stockholders are beneficial holders of our common stock in “street name” through banks, brokers and other financial institutions that are the record holders.

 

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Dividend Information

 

We have not paid any cash dividends to our holders of common stock. The declaration of any future cash dividends is at the discretion of our board of directors and depends upon our earnings, if any, our capital requirements and financial position, our general economic conditions, and other pertinent conditions. It is our present intention not to pay any cash dividends in the foreseeable future, but rather to reinvest earnings, if any, in our business operations.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

The following discussion of our financial condition and results of operations for the years ended March 31, 2019 and March 31, 2018 as well as for the three months ended June 30, 2019 and June 30, 2018 should be read in conjunction with our consolidated financial statements and the notes to those statements that are included elsewhere in this Prospectus. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. We use words such as “anticipate”, “estimate”, “plan”, “project”, “continuing”, “ongoing”, “expect”, “believe”, “intend”, “may”, “will”, “should”, “could”, and similar expressions to identify forward-looking statements.

 

OVERVIEW

 

We offer high-grade full spectrum cannabinoid oil to the market through our website and store front/clinic accounts. Through our positive results in studies on breast cancer and immune cells through the University of Central Oklahoma, in addition to studies through DV Biologics that prove the Company’s CBD oil formulation lowers cortisol and functions as a neuro-protectant, with positive result case studies through key health organizations. We formulate, market and distribute the CBD oil used through our studies to the public, offering the most effective quality of CBD on the market.

 

Our medical device division is committed to the developing low cost, non-invasive diagnostic tools, medical devices, testing processes and vaccines for sexually transmitted infections and/or diseases. Our CEO and chief science officer, Dr. Michel Aubé, is leading the Company’s research and development efforts. The Company’s first medical device, Hygee™, is a home kit designed for the detection of STIs, such as chlamydia, from a self-obtained gynecological specimen. We’re currently working to develop and bring to market medical devices and vaccines that meet the specific needs of women.

 

Our R&D division is poised to take a leadership role in the development of new, leading-edge cannabinoid-based pharmaceutical and nutraceutical products. We have invested in research and development to explore and harness the medicinal power of CBD. The company is focused on developing treatments for breast and ovarian cancers, as well as two generic CBD based pharmaceutical drugs.

 

Our favored division effectively became a non-profit organization on February 11, 2019 and is structured to accept grants and donations to conduct further studies and help donate EST’s effective CBD products to those in need.

 

We expect to realize revenue from our consumer products business segment to fund our working capital needs. However, in order to fund our pharmaceutical product development efforts, we will need to raise additional capital either through the issuance of equity and/or the issuance of debt. In the event we are unable to fund our drug development efforts, we may need to curtail or delay such activity.

 

Liquidity and Capital Resources.

 

For the Three-Month Period Ended June 30, 2019 versus June 30, 2018

 

During the three months ended June 30, 2019, net cash used in the Company’s operating activities totaled $(257,696) compared to $(337,572) during the three months ended June 30, 2018. During the three months ended June 30, 2019, net cash used in investing activities totaled $0.00 compared to $0.00 provided by investing activities during the three months ended June 30, 2018. During the three months ended June 30, 2019, net cash provided by financing activities totaled $165,000 compared to $443,050 from financing activities during the three months ended June 30, 2018. During the three months ended June 30, 2019, net cash decreased $(92,626) as compared to the increase of $105,478 during the three months ended June 30, 2018.

 

At June 30, 2019, the Company had cash of $34,828, accounts receivable of $105,797, inventories of $164,023 and prepaid expenses of $6,018 that comprised the Company’s total current assets totaling $326,651. The Company’s property and equipment at June 30, 2019 had a net book value of $9,794.

 

Promissory Note-GHS was initiated 2/28/19 for $30,000. Interest on the unpaid balance will accrue at the rate of 8% per annum, calculated on the basis 365-day year and actual days elapsed until the entire outstanding balance and all interest accrued thereon has been repaid in full. Full payment on this Note will be due and payable on or before November 28, 2019.

 

Convertible Note 2-GHS issued 4/2/19 for cash received $50,000, face amount $55,000 will accrue at a rate of 10% on a 360-day year. Maturity date is December 26, 2019.

 

Convertible Note 3-GHS issued 5/15/19 for cash received $50,000, face amount $55,000 will accrue at a rate of 10% on a 360-day year. Maturity date is February 15, 2020.

 

Convertible Note 4-GHS issued 6/07/19 for cash received $50,000, face amount $55,000 will accrue at a rate of 10% on a 360-day year. Maturity date is March 15, 2020.

 

Convertible Note 5 – GHS issued 6/09/19 for cash received $50,000, free amount $55,000 will accrue at a rate of 10% on a 360-day year. Maturity date is June 9, 2020.

 

At June 30, 2019, the Company had total liabilities of $833,430 of which $231,323 was held as a reserved for the settlement of its lawsuit with Cromogen (See Part II Other Information, Item 1. Legal Proceedings). Notwithstanding this reserve, the Company is optimistic, between its appeal of the judgment confirming the arbitration award and being in receivership, that the amount that it may ultimately be required to pay will be substantially less that the reserve contingency currently carried in its liabilities and/or that any payment that it may ultimately be required to pay may be structured by the receiver so as not to unduly burden or interfere with the Company’s business operations. Additionally, the Company’s legal expenses associated with the Cromogen matter decreased from $125,994 at June 30, 2018 to $49,022 at June 30, 2019 as there was less activity in the matter due to the Company being in receivership. The Company does not anticipate the costs of Cormogen litigation to remain at the levels they have been over the last two quarters because all that remains for the Company is the appeal. However, the anticipated decrease in legal costs associated with the Cromogen matter may be offset by the expenses of being in receivership where we will be responsible for the legal fees and costs incurred by the receiver; and in any event, regardless of the increase in one expense compared to the decrease in another, the Company believes that on balance, the net benefit to it that will result from the receivership will substantially outweigh the associated costs. The Company had no other long-term liabilities, commitments or contingencies. Other than anticipated increases in costs due to the expenses of being in receivership and the legal expenses associated therewith; together with the overall increase in expenses associated with a growing business and expanding operations, the Company does not anticipate a relative increase in any other expenses. The Company’s management is not aware of any other known trends, events or uncertainties which may affect the Company’s future liquidity except for a certain amount of uncertainty associated with being in receivership and to a certain extent, its dispute with Cromogen.

 

At June 30, 2019, the Company had a stockholders’ equity totaling $(480,461) compared to equity of $(48,971) for the period ending June 30, 2018.

 

RESULTS OF OPERATIONS

 

For the Three Months Ended June 30, 2019 versus June 30, 2018

 

The Company’s revenue for the three months ended June 30, 2019 was $227,635 compared to June 30, 2018 revenue totaling $166,891. The decrease in revenue is primarily due to the positive response on our V4 product line by new and existing customers which was launched October 2018.

 

The Company incurred operating expenses for the three months ended June 30, 2019 totaling $455,249, compared to $577,541 during the three months ended June 30, 2018.

 

Officer compensation for the three months ended June 30, 2019 was $49,788 in cash and $89,790 in stock based compensation compared to $57,442 in cash and $98,000 in stock based compensation during the three months ended June 30, 2018. The decrease in officer compensation is a result of primarily a result of the Company’s Chief Learning Officer (CLO) departure in June 2018.

 

The Company incurred marketing expenses of $20,623 during the three months ended June 30, 2019, compared to $29,267 during the three months ended June 30, 2018. The decrease in marketing expenses can be attributed to the Company no longer using magazine marketing.

 

The Company incurred general and administrative expenses of $207,122, during the three months ended June 30, 2019, compared to $171,435 during the three months ended June 30, 2018. The decrease in general and administrative expenses can be attributed to the services rendered by Strongbow.

 

The Company paid professional fees of $16,791, during the three months ended June 30, 2019, compared to $9,976 during the three months ended June 30, 2018. The decrease in professional fees is a result of Strongbow accrued reimbursement.

 

The Company incurred costs of legal proceedings of $49,022 during the three months ended June 30, 2019, compared to $125,994 during the three months ended June 30, 2018. The decrease in 2019 is a result of the [●]

 

The Company incurred research and development expenses of $22,113 during the three months ended June 30, 2019, compared to $65,245 during the three months ended June 30, 2018. The decrease in 2019 is associated with the Company moving the Hygee TM medical device out of R&D phase and discontinuing CBD patent applications, (See Part I Note 2 Carrying value, recoverability and impairment of long-lived assets).

 

The Company generated a net loss from continuing operations for the three ended June 30, 2019 and 2018 of approximately $506,697 and $519,323, respectively. As of June 30, 2019 and March 31, 2019, the Company had current assets of $310,666 and $393,518, respectively, which included the following as of June 30, 2019: cash and cash equivalents of approximately $34,828; inventory of $164,023; accounts receivable of $105,797 (net of $128,420 in allowances.) and prepaid expenses of $6,018; Compared to; and the following as of March 31, 2019 cash and cash equivalents of approximately $127,524; inventory of $161,309; accounts receivable of $70,934 (net of $111,301 in allowances); and prepaid expenses of $33,751.

 

Comparison of the fiscal years ended March 31, 2019 vs. March 31, 2018

 

The following tables set forth summarized cost of revenue information for the year ended March 31, 2019 and for the year ended March 31, 2018:

 

    For the Years Ended  
    March 31,  
    2019     2018  
             
Revenue   $ 770,635     $ 463,108  
Cost of revenues     475,622       270,222  
Gross Profit     295,013       192,886  

 

We had product sales of $770,635 and gross profit of $295,013, representing a gross margin of 38.2% in 2019 compared with product sales of $463,108 and gross profit of $192,886, representing a gross margin of 41.6% in 2018. The sales increase in 2019 compared with 2018 is primarily due to an increase in distribution, customer awareness and demand for our branded High Grade Full Spectrum Cannabinoids products, as we continued to expand and maintain our core customer base.

 

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OPERATING EXPENSE

 

A reconciliation from our net income (loss) to Adjusted EBITDA, a non-GAAP measure, for the years ended March 31, 2019 and 2018 are outlined in the table below:

 

    Fiscal Year Ended March 31, 2019 and March 31, 2018  
    2019     2018     $ Change     % Change  
Compensation - officers   $ 223,404     $ 260,936     $ (37,532 )     -16 %
Officer Compensation Stock   $ 424,055     $ 170,775     $ 253,280       59 %
Marketing   $ 242,719     $ 332,986     $ (90,267 )     -37 %
General and administrative   $ 514,467     $ 653,242     $ (138,775 )     -26 %
Donations   $ -     $ 35,500     $ (35,500 )     0  
Loss on disposal of assets   $ -     $ 60,792     $ (60,792 )     0  
Patent Impairment Expense   $ 34,334     $ -     $ 34,334       100 %
Professional fees   $ 172,127     $ 70,289     $ 101,838       59 %
Bad Debt Expense   $ 31,211       87,342     $ (56,131 )     -179 %
Cost of legal proceedings   $ 453,553     $ 79,447     $ 374,106       82 %
Research and development   $ 338,856       150,451     $ 188,405       55 %
Total operating expenses   $ 2,434,726     $ 1,901,760     $ 532,966       21 %
                                 
Loss from operations     (2,139,713 )     (1,708,874 )   $ 430,839       20 %
                                 
Other Income (Expenses)                                
Interest expense   $ (75,632 )   $ (4,773 )   $            
Interest income             3                  
Total other income (expenses)     (75,632 )     (4,765 )                
                                 
Net loss before income taxes     (2,215,345 )     (1,713,639 )                
                                 
Income taxes                                
                                 
Net loss   $ (2,215,345 )   $ (1,713,639 )                
                                 
Net loss per common share:                                
Loss per common share-Basic and Diluted   $ (0.04 )   $ (0.04 )                

 

For the year ended March 31, 2019, the Company had a net loss from continuing operations of approximately $2,215,345 compared to a loss from continuing operations of approximately $1,713,639 for the year ended March 31, 2018. This increase in net loss is due largely to the ongoing legal fees related to the Cromogen litigation and R&D expenses.

 

General and administrative expenses represent bank charges, office expenses, rent and filing fees.

 

INTEREST EXPENSE

 

Interest expense increased to $75,632 in 2019 compared with $4,765 in 2018.

 

NON-GAAP FINANCIAL MEASURES

 

We use Adjusted EBITDA internally to evaluate our performance and make financial and operational decisions that are presented in a manner that adjusts from their equivalent GAAP measures or that supplement the information provided by our GAAP measures. Adjusted EBITDA is defined by us as EBITDA (net income (loss) plus depreciation expense, amortization expense, interest and income tax expense, minus income tax benefit), further adjusted to exclude certain non-cash expenses and other adjustments as set forth below. We use Adjusted EBITDA because we believe it more clearly highlight trends in our business that may not otherwise be apparent when relying solely on GAAP financial measures, since Adjusted EBITDA eliminates from our results specific financial items that have less bearing on our core operating performance.

 

We use Adjusted EBITDA in communicating certain aspects of our results and performance, including in this Annual Report, and believe that Adjusted EBITDA, when viewed in conjunction with our GAAP results and the accompanying reconciliation, can provide investors with greater transparency and a greater understanding of factors affecting our financial condition and results of operations than GAAP measures alone. In addition, we believe the presentation of Adjusted EBITDA is useful to investors in making period-to-period comparison of results because the adjustments to GAAP are not reflective of our core business performance.

 

Adjusted EBITDA is not presented in accordance with, or as an alternative to, GAAP financial measures and may be different from non-GAAP measures used by other companies. We encourage investors to review the GAAP financial measures included in this Annual Report, including our consolidated financial statements, to aid in their analysis and understanding of our performance and in making comparisons.

 

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CASH FLOW & ASSETS

 

A summary of our changes in cash flows & assets for the years ended March 31, 2019 and 2018 is provided below:

 

    March 31, 2019     March 31, 2018  
ASSETS                
Current Assets:                
Cash   $ 127,524     $ 72,038  
Accounts Receivable(net allowance of $128,420 and $111,301 respectively)   $ 70,934     $ 69,050  
Prepaid expenses and other current assets     33,751       6,033  
Inventory     161,309       134,784  
Total current assets     393,518       281,905  
                 
Property and equipment, net     11,362       18,490  
                 
Other Assets:                
Patent, net           38,740  
Deposits     6,191       6,191  
Total other assets     6,191       44,931  
Total Assets   $ 411,071     $ 345,326  
                 
LIABILITIES AND STOCKHOLDERS’S EQUITY                
                 
Current Liabilities:                
Accounts payable   $ 98,109     $ 80,439  
Accrued expenses   $ 85,440     $ 93,987  
Accrued settlement     231,323       231,323  
Notes payable - related parties     59,558       59,558  
Total current liabilities     617,730       465,307  
Total liabilities     617,730       465,307  
                 
Commitments and contingencies                
                 
Stockholders’ (Deficit) Equity:                
Convertible preferred stock with liquidation preference, par value of $0.001 pre share,10,000,000 shares authorized: 5,200,000 issued and outstanding     5,200       5,200  
Common stock, par value $0.001 per share, 75,000,000 shares authorized; 52,205,400 and 46,150,207 shares issued and outstanding as of March 31, 2019 and March 31, 2018 respectively     52,206       46,150  
Additional paid-in capital     27,449,487       25,326,876  
Accumulated deficit     (27,713,552 )     (25,498,207 )
Total stockholders’ (Deficit)Equity     (206,659 )     (119,981  
Total Liabilities and Stockholders’ (Deficit) Equity   $ 411,071     $ 345,326  

 

For the year ended March 31, 2019 the Company had a net loss from continuing operations of approximately $1,713,639 compared to a loss from continuing operations of approximately $1,146,354 for the year ended March 31, 2018. This increase in net loss is due to the ongoing legal fees related to the Cromogen litigation, further advancements in Research and development, and new filing expenses achieving fully reporting status.

 

Marketing expenses totaled $242,719 for the twelve months ended March 31, 2019, a decrease of $90.267 from $332,986 for the twelve months ended March 31, 2018. This decrease primarily related to the Company focusing on the development on the V4 line and advancements with the HygeeTM medical device.

 

Research and development costs were totaled $338,856 for the twelve months ended March 31, 2019, an increase of $188,405 from $150,451. This increase is due to further developments of the HygeeTM medical device, new product development and marketing that helped achieve successful V4 batch launch in December and CBD chocolates anticipated to launch mid 2019. We expect that R&D will continue to be consistent with the twelve months ended March 31, 2019 and will increase as well for the foreseeable future. Notwithstanding this increase in R&D Dr. Aube has been successful in receiving grants from the Canadian government for further research. Separate disclosure was not material pursuant to ASC 730, Research and Development.

 

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Total Revenues - For the years ended March 31, 2019 and 2018, the Company had total sales of $770,635 and $463,108, respectively. While our revenues increased, this was consistent with a corresponding increase in our cost of goods sold from $475,622 for the year ended March 31, 2019 to $270,222 for the year ended March 31, 2018 ; resulting in a Gross Profit of $295,019 as of March 31, 2019 compared to $192,886 for the previous year ending March 31, 2018.

 

Costs and Expenses - Costs of sales, include the costs of manufacturing, packaging, warehousing and shipping our products. As we develop and release addition products, we expect our costs of sales to increase.

 

General and administrative expenses decreased from $653,242 for the year ended March 31, 2018, to $514,467 for the year ended March 31, 2019. The decrease can be attributed primarily to the Company working more efficiently with the addition to Wendell Hecker, CFO and Gagan Hunter, COO.

 

Research and development costs were $338,856 for the twelve months ended March 31, 2019, an increase of $188,405 from $150,451 during the twelve months ended March 31, 2018. This increase is due to further developments on the HygeeTM medical device, new product development and marketing that helped achieve successful V4 batch launch in December and CBD chocolates anticipated to launch mid 2019.

 

Patent impairment expenses totaled $34,334 for the twelve months ended March 31, 2019, an increase of $34,334 from $0 for the twelve months ended March 31, 2018. This increase is due to the Company on relinquishing their current applications. Due to the cost associated for obtaining and maintaining patents as well as certain questions as to patents will ultimately be issued, the Company determined a better course of actions for its proprietary formulas to be kept as trade secrets.

 

The Company had $127,524 in Cash for the period ended March 31, 2019, compared with $72,038 for the same period ended March 31, 2018. This increase is primarily due to the increase in sales from the V4 launch.

 

The Company had $98,109 in Accounts Payable for the period ended March 31, 2019, compared with $80,439 for the same period ended March 31, 2018. This increase is primarily due to the remaining balance for the V4 inventory along with all the previous accrued legal fees that are in a monthly payment plan till fully paid.

 

The Company had $59,558 in Notes Payable and Accrued Interest for the period ended March 31, 2019. The Company had the same amount in Notes Payable and Accrued Interest for the period ended March 31, 2018.

 

The Company had a Stockholder’s Deficit of $206,659 for the period ended March 31, 2019, compared with $119,981 of Stockholder’s Equity for the same period ended March 31, 2018. This increase is primarily due to the Company obtaining more direct investors to pay for the V4 inventory and HygeeTM advancements.

 

We are a smaller reporting company, as defined by 17 CFR § 229.10(f)(1). We do not consider the impact of inflation and changing prices as having a material effect on our net sales and revenues and on income from our operations for the previous two years or from continuing operations going forward.

 

The Company achieved a gross margin percentage of 38.2% for the year ended March 31, 2019, a decrease of 3.3% from the gross margin percentage of 41.6% for the prior year ended March 31, 2018. The Company expects this gross margin percentage to increase marginally as it achieves greater economies of scale from higher volumes of sales and is consequently able to purchase inventory at lower prices.

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

Operating Activities - For the years ended March 31, 2019 and March 31, 2018, the Company used cash for operating activities of $1,643,024 and $1,066,249, respectively.

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

During the years ended March 31, 2019 and March 31, 2018, the Company had no cash flows from investing activities.

 

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CASH FLOWS FROM FINANCING ACTIVITIES

 

During the year ended March 31, 2019, the Company received $1,564,194 in cash proceeds from sales of restricted common stock. For the Year ended March 31, 2018, the Company received $965,992 in cash proceeds from the sales of restricted common stock.

 

FUTURE FINANCING

 

On February 28, 2019, the Company entered into an Equity Financing Agreement (the “GHS Equity Financing Agreement”) and Registration Rights Agreement (the “GHS Registration Rights Agreement”) with GHS Investments LLC, a Nevada limited liability company (“GHS”). Under the terms of the Equity Financing Agreement, GHS agreed to provide the Company with up to $5,000,000 upon effectiveness of a registration statement on Form S-1 (the “Registration Statement”) filed with the U.S. Securities and Exchange Commission (the “Commission”).

 

Following effectiveness of the Registration Statement, the Company shall have the discretion to deliver puts to GHS and GHS will be obligated to purchase shares of the Company’s common stock, par value $0.001 per share based on the investment amount specified in each put notice. Additionally, in accordance with the Equity Financing Agreement, the Company shall issue GHS a promissory note in the principal amount of $30,000 to offset transaction costs (the “Note”).

 

STOCK BASED COMPENSATION

 

The Company follows ASC 718 in accounting for its stock based compensation to employees. This standard states that compensation cost is measured at the grant date based on the fair value of the award and is recognized at the time granted.

 

The Company accounts for transactions in which services are received from non-employees in exchange for equity instruments based on the fair value of the equity instrument exchanged in accordance with ASC 505-50.

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Intangibles-Goodwill and Other, which simplifies the accounting for goodwill impairments by eliminating step 2 from the goodwill impairment test. Instead, if “the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.” The guidance is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this new standard will have on its Consolidated Financial Statements.

 

All other newly issued accounting pronouncements not yet effective have been deemed either immaterial or not applicable.

 

OFF- BALANCE SHEET ARRANGEMENTS

 

None.

 

Changes In and Disagreements with Accountants

 

None.

 

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BUSINESS

 

Corporate History

 

Earth Science Tech, Inc. (“ETST” or the “Company”) was incorporated under the laws of the State of Nevada on April 23, 2010 under the name Ultimate Novelty Sports Inc. The Company provided consulting services to the athletic facilities industry and offered a full range of consulting services, including start-up strategy development, membership pricing and management, operational analysis, marketing and public relations and staff training.

 

On May 6, 2010, the Company formed a wholly owned subsidiary, Ultimate Novelty Sports Inc., an Ontario, Canada Corporation (“UNSI Canada”). On October 30, 2013, pursuant to a sale of subsidiary agreement (the “Sale of Subsidiary Agreement”) the Company sold all of the capital stock of UNSI Canada to Optimal, Inc., a Nevada corporation.

 

On January 29, 2014, the Company entered into a consulting agreement with Pure Health, Inc. (“Pure”), a Puerto Rican corporation (the “Pure Consulting Agreement”). The purpose of the Pure Consulting Agreement was to retain Pure to consult the Company with regard to the development of health and wellness products as well as nutritional supplements, including idea generation, preforming and designing formulations for products to be used in the health and nutrition market.

 

On March 6, 2014, the Company changed its name from Ultimate Novelty Sports, Inc. to Earth Science Tech, Inc. (the “Name Change”).

 

On May 28, 2014 the Financial Industry Regulatory Authority (“FINRA”) approved the Name Change and a change of trading symbol from UNOV to ETST.

 

On June 6, 2014, the Company filed with the Secretary of State of the State of Nevada Articles of Amendment to the Articles of Incorporation and a Certificate of Designation creating a Preferred A class of stock with 10,000,000 preferred A shares (the “Preferred A Shares”) having a par value of $0.001 per share.

 

On March 6, 2015, the Company entered into a License and Distribution Agreement (the “I Vape License and Distribution Agreement”) with I Vape Vapor, Inc. a Minnesota corporation (“I Vape”). Pursuant to the I Vape License and Distribution Agreement the Company licensed to I Vape the rights to use the Company’s Ultra-High Grade CBD Rich Hemp Oil in I Vape’s E-Cigarettes within the U.S. As part of the I Vape License and Distribution Agreement, the Company formed Earth Science Tech Vapor One, Inc., a wholly owned Florida corporation subsidiary.

 

Today, ETST is a biotechnology company focused on unique nutraceuticals and bioceuticals designed to excel in industries such as health, wellness, nutrition, supplements, cosmetics and alternative medicine to improve the quality of life for consumers worldwide. ETST seeks to deliver non-prescription nutritional and dietary supplements that help with treating symptoms such as: chronic pain, joint pain, inflammation, seizures, high blood pressure, memory loss, depression, weight management, nausea, aging and overall wellness. This may include products such as CBD as a natural constituent of hemp oil, vitamins, minerals, herbs, botanicals, personal care products, homeopathies, functional foods and other products. These products will be in various formulations and delivery forms including capsules, tablets, soft gels, chewables, liquids, creams, sprays, powders, and whole herbs.

 

In particular, ETST is focused on researching and developing innovative hemp extracts and making them accessible worldwide. ETST plans to be a supplier of high quality hemp oil enriched with high-grade CBD. ETST’s primary goal is to advance different high quality hemp extracts with a broad profile of cannabinoids and additional natural molecules found in industrial hemp and to identify their distinct properties.

 

On January 11, 2019, the Company entered into an agreement with Aaron Decker, and Derrick West, individuals, pursuant to which the Company will transfer, set over and assign to Mr. Decker and Mr. West 95% of the issued and outstanding shares of common stock of Kannabidioid, Inc. This transfer of KBD and its business places Mr. Decker and Mr. West or their corporate nominee in full control of KBD for all purposes, subject to their undertaking aggressively and assiduously to pursue the growth of Kannabidioid, Inc.’s business and to maximize its customer base, product line, and profitability. ETST entered into this agreement because management determined that the opportunities for the growth of its other product lines will require that it deploy its resources on these other product lines such that it’s better to allow another management team to build the KBD business. In allowing another management team to build the KBD business, it is expected that ETST will not only continue to benefit from the sales, but it may also be in a position to benefit from its growth without the necessity of deploying additional resources to realize that growth.

 

On January 11, 2019, the Company received notice that Strongbow Advisors, Inc. (“Strongbow”), and Robert Stevens (“Stevens”, and together with Strongbow, the “Receiver”) had been appointed by the Nevada District Court, as Receiver for the Registrant in Case No. A-18-784952-C.

 

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The Company sought the appointment of the Receiver after it found itself in an imminent danger of insolvency following the issuance by an arbitration panel of an award (the “Award”) in the sum of $3,994,522.5 million in favor of Cromogen Biotechnology Corporation (“Cromogen”) in the matter entitled Cromogen Biotechnology Corporation vs. Earth Science Tech, Inc. (the “Cromogen Litigation”). The Nevada District Court found that the Company was in fact insolvent and ordered the appointment of the Receiver.

 

The Award consisted of a sum for breach of contract against the Company in the amount of $120,265.00, a sum for costs and fees against the Company in the amount of $111,057.00 and a sum for the claim of tortuous interference and conversion against the Company in the amount of $3,763,200.00. The District Court in Florida had confirmed the Award granted by the arbitration panel, denying however, the award of fees that the arbitration panel had granted Cromogen.

 

The Cromogen Litigation is now on appeal and the Company is optimistic about its prospects on appeal. Nevertheless, the outcome remains speculative and so notwithstanding its prospects for success on appeal, and faced with such a large judgment and the imminent danger of insolvency, the Company determined that it was in the best interest of its shareholders and creditors to seek protection under receivership and the appointment of a receiver. As of the date of this prospectus, the Company remains insolvent as the outcome of the Cromogen Litigation remains speculative.

 

As part of the impact of the receivership, the Court issued a Writ of Injunction or “Blanket Stay” covering the Company and its assets during the time that the Company is in receivership. As a result of the “Blanket Stay” the Company’s estate is protected from creditors and interference with its administration is prevented while the Company’s financial issues are being fully analyzed and resolved. As part of this process, creditors have been notified and were required to provide claims in writing under oath on or before the deadline stated in the notice provided by the Receiver or those claims will be barred under NRS §78.675. The Blanket Stay will remain in place unless otherwise waived by the Receiver, or it is vacated by the Court or alternatively, lifted by the Court, upon a “motion to lift stay” duly made and approved by the Nevada District Court.

 

The appointment of the Receiver was approved unanimously by the Board and by a majority of the Company’s shareholders. Strongbow and Stevens were selected because of their reputation in helping (i) companies restructure and (ii) to execute on their business plans, albeit under a debt and capital structure that allows them to succeed. Stevens and Strongbow assist companies by helping them raise the capital needed not only to pay debts, but build and grow their businesses. The Receiver, however, is an agent of the court, and will be independent and neutral in managing the Company’s operations and trying to preserve the Company’s value for the creditors and shareholders.

 

The Receiver has broad powers under N.R.S. 78.630, including the power to reorganize the Registrant or liquidate it and it is not necessary for the Court to state that he has the power to reorganize the corporation or that he has the power to liquidate it. Those powers are granted by statute when he is appointed as a Receiver. As of the date of this prospectus the Receiver has determined that there is a viable underlying business; and he plans to effect a reorganization of it and its operations. In “reorganizing” the Company, the Receiver plans to restructure its debt. In considering whether to reorganize, the Receiver first determined that there was not a reason to liquidate and wind up its affairs. Having determined that the Company was not a candidate for liquidation, the Receiver determined that, given the current operations and the potential for increasing revenues with the addition of capital, that the Company will likely be in a position to pay its expenses as they come due when the Company’s debt is restructured. As of the date hereof, no definitive plan has been developed that addresses precisely how the debt will be restructured; and because of the amount at issue in the Cromogen Litigation (See Legal Proceedings on Page 53, the Receiver will not put a plan of reorganization together until after that matter is resolved on appeal. While the Cromogen Litigation remains ongoing, the Receiver plans to use the proceeds from this offering for working capital to increase the Company’s sales, to meet its current expenses (excluding debt incurred prior to the Receiver’s appointment, which is stayed with in receivership, pending the plan of reorganization), including the costs of receivership and for the ongoing costs of the Cromogen Litigation. If the Receiver is successful in increasing the Company’s sales and operations, of which there can be no assurances, he believes that the Company will be able to meet its expenses as they come due out of operations, including the costs of receivership and the payments associated with the Company’s restructured debt; and that there will be sufficient funds to support continued growth of the Company’s sales and operations. If successful, this reorganizational approach will allow the Receiver to structure larger payments to claimants than would otherwise be possible. The Receiver intends to continue with the Company’s business plan but with a greater focus on producing additional revenue from the existing Company products as well as new versions of its existing products that may be developed. Thus, once the Cromogen Litigation is resolved, the Receiver will prepare the plan of reorganization and seek to have it ratified by way of motion before the Court. Along with the filing of the motion to ratify the plan of reorganization, the Receiver will provide direct notice to each of the affected parties as well as by filing a Current Report with the Commission on Form 8-K. The Receiver does NOT require the approval of any of the claimants or the Company stakeholders before preparing the plan of reorganization or making the motion for its to ratification.. Any party objecting to its treatment under the plan of reorganization, or to the plan itself, may only do so by making a separate motion so objecting and this is its only recourse. Unlike motion practice in litigation where there is a plaintiff and defendant; and where one party makes a motion while the other responds by way of filing and serving a reply objecting to the motion, along with a memorandum in support of the their position, in the case of the Receiver’s motion to ratify the plan of reorganization, an objecting party to the plan may only object by way of making a separate motion objecting with the Court. However, the Receiver has the ability and authority under N.R.S. 78.630 to deny a claim, accept a claim or accept a claim in part and deny a claim in part as part of its duties acting as receiver; and further, underlying this power and authority is the requirement that the Receiver, as a receiver in equity, take into consideration, the fairness and reasonableness that his reorganization plan has on all of the claimants and stakeholders. As such, an objecting party moving to challenge the plan of reorganization has a substantial burden to overcome because the Court will give great deference to a Receiver; and it is extremely unlikely that the Court would not ratify the reorganization plan. In fact, the Receiver has never had such a challenge by an objecting party accepted by a court in any of the over 30 matters where he has served as receiver. Once the plan of reorganization has been ratified by the Court, it becomes executable and after six months, becomes non-appealable (See Nevada Rules of Civil Procedure Rule 60(c)(1)). Following ratification of the plan of reorganization and its implementation, the Receiver will move the Court to be dismissed, the Court will grant the Receiver’s motion for dismissal as receiver and the Company will be returned to prior management, who will continue operating and managing the Company under its business plan, initially, as it may have been modified and improved by the Receiver. However, once the Receiver has been dismissed by the Court and control is ceded back to the prior management, the Receiver is no longer in control and management is free to manage the Company as it sees fit.

 

This case is particularly complex because of the matters at issue in the Cromogen Litigation; and as such, it is not possible to predict, even approximately or with any degree of certainty, how long it will take to complete the Cromogen Litigation; and since the plan of reorganization is on hold pending the outcome, the plan of reorganization is on hold as a result; although once started, the plan itself will only take a few weeks to complete. Additionally it is not possible to determine, once the plan of reorganization is developed, how long it will take to have it ratified. Initially it depends on the Court and its availability to schedule a hearing; however then, if there are objections in the form of motions, it will take additional time as the Court needs to schedule hearing(s) for them and the Receiver needs to respond to those motion(s). If a claimant’s motion objecting is successful, the court will generally instruct a receiver to develop a new plan of reorganization that takes into account, those issues raised by the complaining/moving party with which the Court may agree. In theory, this could continue indefinitely until there were no longer complaining parties and the Court finally ratifies the Receiver’s plan of reorganization, as modified. However, in practice, courts give substantial deference to receivers, since they do not have the expertise or experience necessary to develop reorganization plans and they see this as the purview of the receiver. Once ratified, there is a six month period that the Court’s decision is appealable; and although an appeal requires the posting of a bond and the basis for appeal in these matters is extremely limited, there is still the possibility that a claimant or stakeholder could bring an appeal challenging the ratification of the plan of reorganization, notwithstanding the obstacles to bringing an appeal. As a result of these issues, it is impossible to predict how long the Company will be in receivership or what the ultimate cost of receivership will be.

 

Reorganizations are fluid, constantly changing processes and every situation is different. As long as there is a viable underlying business, the Receiver has sufficient powers to be able to reorganize it and restructure debt in virtually any way necessary so that the Company will be able to pay its debts as they come due when it emerges from receivership. The potential number of structural changes, and types of consideration and structures for the payment to creditors are too numerous to list and are limited only by the Receiver’s creativity. Adding to this complexity, is the fact that the Receiver is also allowed to classify creditors and other constituents according to classes that it creates based on criteria the it establishes; and it may treat those different classes differently. As a receiver in equity, Mr. Stevens is also allowed to consider the fundamental fairness to all of the stakeholders and analyzing the facts of each stakeholder and what they have at risk compared with other stakeholders as he puts the plan of reorganization in place. In addition to considering issues of fairness and reasonableness, some of the tools available to a receiver in a reorganization are: canceling shares of stock where little or no consideration was paid or where allowing those shares to remain outstanding would be unfair to the other shareholders, classifying creditors into various classes, using receiver’s certificates as super priority debt instruments, promissory notes, including convertible notes, stock of various classes, including newly created classes, pledging a portion of a company’s revenue, structured payments to be made over time, granting security interests, etc.; and these tools are all available as a means to restructure the Company’s debt and to pay creditors and service providers. During the time that the Company is in receivership, the Receiver is required to make periodic status reports to the Court providing such information as the Court requires, as requested by the Court. When the plan of reorganization is finally established and ratified, the Company will be returned to the control of its prior management and the Company will continue as reorganized, as though it had never been in receivership (except with restructured debt and ideally, with any improvements in operations that the Receiver may have put in place . The stakeholders that are directly affected by the reorganization will be notified by the Receiver as to how their claims will be treated under the plan of reorganization; and the claimants and other stakeholders will also receive notice of actions taken in connection with the reorganization through the filing of a Current Report on Form 8-K. These items will also be disclosed in the Registrant’s Periodic Reports filed with the Commission of Forms 10-K and 10Q, as required. If the Receiver is not successful in reorganizing the Company, the Company may be forced to liquidate its business and this may result in a loss of the entire investment for the investors in this offering.

 

On February 28, 2019, the Company entered into an Equity Financing Agreement (the “GHS Equity Financing Agreement”) and Registration Rights Agreement (the “GHS Registration Rights Agreement”) with GHS Investments LLC, a Nevada limited liability company (“GHS”). Under the terms of the Equity Financing Agreement, GHS agreed to provide the Company with up to $5,000,000 upon effectiveness of a registration statement on Form S-1 (the “Registration Statement”) filed with the U.S. Securities and Exchange Commission (the “Commission”).

 

Following effectiveness of the Registration Statement, the Company shall have the discretion to deliver puts to GHS and GHS will be obligated to purchase shares of the Company’s common stock, par value $0.001 per share based on the investment amount specified in each put notice. Additionally, in accordance with the Equity Financing Agreement, the Company shall issue GHS a promissory note in the principal amount of $30,000 to offset transaction costs (the “Note”).

 

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Business Overview

 

Earth Science Tech, Inc. (“ETST”) offers high-grade full spectrum cannabinoid oil on the market. There are positive results in studies on breast cancer and immune cells through the University of Central Oklahoma, in addition to studies through DV Biologics that prove the Company’s CBD oil formulation lowers cortisol and functions as a neuro-protectant, with positive result case studies through key health organizations. ETST formulates, markets and distributes the CBD oil used for its studies to the public, offering the most effective quality of CBD on the market.

 

The Company’s’ subsidiaries include Nutrition Empire Inc., Cannabis Therapeutics, Inc. and Earth Science Pharmaceutical Inc. Earth Science Foundation, Inc. is a non-profit favored entity of the Company focused on developing its role as a world leader in the CBD space, expanding its work in the pharmaceutical and medical device sectors:

 

Earth Science Pharmaceutical (“ESP”) is a wholly-owned subsidiary of Earth Science Tech, committed to the development of low cost, non-invasive diagnostic tools, medical devices, testing processes and vaccines for sexually transmitted infections and/or diseases. ESP’s CEO and chief science officer, Dr. Michel Aubé, is leading the Company’s research and development efforts. The Company’s first medical device, Hygee™, is a home kit designed for the detection of STIs, such as chlamydia, from a self-obtained gynecological specimen. ESP is working to develop and bring to market medical devices and vaccines that meet the specific needs of women.

 

Cannabis Therapeutics (“CTI”) is a wholly-owned subsidiary of Earth Science Tech, Inc. poised to take a leadership role in the development of new, leading-edge cannabinoid-based pharmaceutical and nutraceutical products. CTI is invested in research and development to explore and harness the medicinal power of cannabidiol. The Company holds three provisional application patents for a CBD product that is focused on developing treatments for breast and ovarian cancers, as well as two generic CBD based pharmaceutical drugs.

 

Earth Science Foundation (“ESF”) is a favored entity of Earth Science Tech, Inc. ESF is in the process of becoming a non-profit organization to accept grants and donations to conduct further studies and help donate Earth Science Tech’s effective CBD products to those in need.

 

On January 29, 2014, the Company entered into a consulting agreement with Pure Health, Inc. (“Pure”), a Puerto Rican corporation (the “Pure Consulting Agreement”). The purpose of the Pure Consulting Agreement was to retain Pure to consult the Company with regard to the development of health and wellness products as well as nutritional supplements, including idea generation, preforming and designing formulations for products to be used in the health and nutrition market.

 

On March 24, 2014, the Company entered into a Founders Agreement (the “Founders Agreement”) with Majorca Group, Ltd., a Marshall Islands Corporation (“Majorca”). Pursuant to the Founders Agreement, for a consideration of 25,000,000 restricted shares of Common Stock, Majorca was to provide certain services to the Company, including: (i) securing an agreement with an established company in the nutritional and health care industry for product development including idea generation, preforming and designing formulations for products to be used in the health and nutrition market; (ii) arranging for the development and formulation of two new products for the Company using FDA approved labs to produce the products; (iii) developing, implementing and launching a Nutritional, Formulation and Dietary Supplement ecommerce platform; (iv) securing an agreement with an established hemp based Biotechnology Company that has developed proprietary cultivation and processing ability allowing for the accessibility & democratization of cannabinoid extracts for the neutraceutical market; (v) developing, implementing and launching an online portal and mobile app dealing with cannabis and hemp. Further, creating scale-able API that has a database of cannabis and cannabis related products, businesses, and opportunities; and (vi) securing an agreement with a leading supplier in the business of producing or otherwise procuring, distributing and/or selling electronic cigarette products.

 

On August 22, 2016, the Company entered into an asset purchase agreement (the “BEO Purchase Agreement”) to acquire substantially all of BEO ITS, Inc., a Canadian corporation (“BEO”), for 225,000 shares of Common Stock of the Company and $9,225.00 in cash.

 

On January 27, 2017, the Company entered into a joint venture agreement (the “Nutrition Specialties Joint Venture”) with Nutrition Specialties, LLC (“Nutrition Specialties”). The purpose of the Nutrition Specialties Joint Venture was to market sports supplement products produced by Nutrition Specialties incorporating cannabidiol (CBD) supplied by the Company and marketed by the Company’s sales personnel. Nutrition Specialties was to purchase the CBD for the sports supplements products from the Company.

 

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On January 24, 2017, the Company entered into a joint venture agreement (the “Kamavore Joint Venture”) with Kamavore, a Canadian corporation (“Kamavore”). The purpose of the Kamavore Joint Venture was to produce and market chocolate products incorporating CBD supplied by the Company. Karmavore was to purchase the CBD for the chocolate products from the Company. Both the Company and Kamavore were to market the CBD chocolate products.

 

On June 8, 2017, the Company formed KannaBidioid, Inc. (“KBD”), a wholly owned subsidiary. The purpose of KBD was to enter into the recreational vape/smoke space. Through KBD, the Company formulated, produced and sold Kanna-infused cannabidiol (CBD) based e-liquids and gummy edibles. On January 11, 2019, the Company entered into an agreement with Aaron Decker, and Derrick West, individuals, pursuant to which the Company has transferred, set over and assigned to Mr. Decker and Mr. West 95% of the issued and outstanding shares of common stock of Kannabidioid, Inc.

 

On July 1, 2017, the Company entered into an exclusive distribution agreement (the “Bionatus Distribution Agreement”) with Laboratoire Bionatus Pharmacognosique (“Bionatus”) to be the exclusive distributor in the U.S. for a new line of products to be developed jointly by Bionatus and the Company (the “New Products”). Pursuant to the Bionatus Distribution Agreement the Company will be the exclusive supplier of the hemp oil for the New Products.

 

On August 9, 2018 the Company entered into a participation agreement (the “FMG Participation Agreement”) with Fortune Media Group (the “FMG”) for the production and broadcasting of a television and social media infomercial, promoting the Company’s products. Pursuant to the FMG Participation Agreement, for a fee of $24,900, FMG was to produce and distribute two promotional videos for the Company; the first is for a 60 second direct TV commercial or infomercial and the second is for a 15 second video to be used for social media. FMG will promote the Company through its integrated social media outlets and consumer engagement strategies.

 

On October 12, 2018 Canna Inno Laboratories Inc. a Canadian corporation (“Canna Inno”) and a wholly owned subsidiary of the Company, entered into an agreement for the clinical study of the protocols to be used in the processing of samples collected using Canna Inno’s MSN-2 collection device, which is used in testing and diagnosing of chlamydia and gonorrhea (the “Clinical Trials Agreement”).

 

On December 16, 2018, the Company entered into a manufacturing agreement (the “Dermagate Manufacturing Agreement”) with Dermagate, Inc. to manufacture, assemble, and supply 5,000 units of the company’s MSN-2 medical device, Hygee, for purchase by the Company, on an exclusive basis. The Hygee device itself, is a modified panty liner worn by women to allow for the self-collection of a gynecological specimen. Currently the device allows human cells to be collected and tested for two types of infections, chlamydia and gonorrhea. It provides women with the ability to be self-collect specimens in a non-clinical setting, send them to a laboratory that will process the specimens and notify them if they test positive for either sexually transmitted disease so that they can seek treatment. This technology allows the Company to provide diagnostic services to high-risk women and girls who are not inclined to visit traditional medical settings. The kit can be ordered on-line for home screening.

 

Nutraceutical Products

 

The Company is engaged in the development, marketing, production, and sales of CBD products for personal health, some of which may utilize patent-pending formulations. The Company offers the highest purity and quality high-grade full spectrum cannabinoid oil on the market. There are positive results in studies on breast cancer and immune cells through the University of Central Oklahoma, in addition to studies through DV Biologics that prove the Company’s CBD oil formulation lowers cortisol and functions as a neuro-protectant, with positive result case studies through key health organizations. ETST formulates, markets and distributes the CBD oil used for its studies to the public, offering the most effective quality of CBD on the market.

 

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Extraction Method and Quality

 

We believe our high-grade CBD-rich hemp oil contains the high quality natural CBD because it’s formulated using a wide array of cutting-edge technologies, including super critical extraction process (CO 2), isolation, and micron filtration. Super critical extraction is a gentle approach and the key method in the extraction of our CBD. The method exploits the fact that CO 2 at low temperature and under high pressure becomes liquid and thereby draws the cannabinoids and terpenes from the plant material. Using state-of-the-art equipment, carbon dioxide (CO 2) is compressed to upwards of 10,000 psi. At these extremes CO 2 becomes ‘super critical’ where it retains the properties of both a liquid and a gas at the same time. The cold temperature does not damage any heat-sensitive nutrients like vitamins or enzymes. When the super critical fluid is added to the nutrient-rich hemp it releases the phytonutrients. The CO 2 is then free and recycled, leaving a concentrated and pure extract that we believe is more easily digested. These low temperatures thru the extraction process preserve a broad spectrum of valuable and beneficial molecules that are often lost using other extraction methods. This gentle method permits the production of a purer form of CBD-rich hemp oil while conserving other valuable and beneficial molecules that are originally contained in the hemp plant. We believe that there are over 400 phytonutrients that exist in hemp plants.

 

Our CBD-rich hemp oil does not contain any synthetic cannabinoids and is not an isolate. It contains everything that is naturally occurring in the original industrial hemp plant. With our high quality CBD-rich hemp oil you benefit from the natural interaction of phytonutrients in their balanced wide-ranging form that may offer the most benefit for overall wellness. Our commercialized CBD based product line, High Grade Full Spectrum Cannabinoids, offers 7 distinct cannabinoids maximizing all the therapeutic benefits the industrial hemp plant has to offer.

 

Other competitors and companies may use certain methods for extracting hemp including toxic solvents and/or high heat which we believe are unsustainable, dangerous and don’t extract the full balance of nutrients from the industrial hemp plant. One of the most popular processes used to extract hemp oils is alcohol extraction, due to its simplicity and low costs. This may lead to a product that still contains trace amounts of alcohol, as it can be difficult to separate out after extraction. The alcohol extraction used by other companies and our competitors requires the hemp and alcohol mixture to be boiled for long periods of time, potentially damaging sensitive nutrients and important components of the oil. Most companies that claim to be full spectrum only contain 2-5 cannabinoids compared to the 7 we offer in our commercialized batches.

 

Our CBD-rich hemp oil is sourced from the high quality industrial hemp plants grown by generational family farmers. In order to produce consistent and nutritious CBD-rich oils, these hemp plants are grown domestically currently in Oregon and Kentucky.

 

We lab test our hemp oil multiple times during the manufacturing process, from seed to shelf. This includes being tested for cannabinoid panel content, terpenoids, pesticides, residual solvents, mycotoxins, and micros.

 

Retail of Nutraceutical Products

 

The Company will sell our dietary supplements through our website at www.earthsciencetech.com, in retail stores, clinics, and pharmacies.

 

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On July 18, 2014, Earth Science Tech, Inc. entered into a Lease Agreement with LG Coral Gables, LLC for the lease of a retail establishment located in Coral Gables, Florida for a term of 5 years at a monthly rent of $3,442 with a security deposit of $17,211. The lease includes charges for common area maintenance expenses, and taxes of $1,059.

 

Nutrition Empire derived its revenue through both Retail and Direct Online via their website www.nutritionempire.com. Nutrition Empire was managed by leading veterans in the nutritional and dietary supplement arena. Nutrition Empire had a web portal in order to offer a full online inventory of leading supplement names at competitive prices as well as our CBD products. Nutrition Empire was closed 2017 and Nutrition empire since has been dormant.

 

Strategic Focus

 

Our missions are to educate the public on the many and varied nutritional and health benefits of CBD-rich hemp oil, to optimize purity in formulation, and to find new product delivery systems. Our corporate strategy in developing our operations is as follows:

 

To design and produce CBD enhanced nutraceutical products for sale to the general public. We intend to create high-grade CBD-rich hemp oil and other CBD containing products unique to the current market in the nutraceuticals industry. We believe that our formulations will set us apart from competing products for promoting health. We have formulated and produced our initial CBD products, intended for, subject to performance, treating various symptoms of diseases and ailments or for overall health. The Company plans to expand manufacturing and marketing of these CBD products with expansion of products over the next five years.

 

To offer a wide selection of health and nutrition products through online, clinics, pharmacies, and in-store retail. Through our wholly owned subsidiary, we plan to continue expanding retail sales of nutritional supplements through online, clinics, pharmacies, and in-store sales. Our product selection includes many high-quality supplement brands, and includes our proprietary CBD-rich hemp oil.

 

Competition

 

The nutraceutical industry is subject to significant competition and pricing pressures. We may experience significant competitive pricing pressures as well as competitive products. Several significant competitors may offer products with prices that may match or are lower than ours. We believe that the products we offer are generally competitive with those offered by other supplement and nutraceutical companies; however, we believe that our products are unique and will set themselves apart from competing products. It is possible that one or more of our competitors could develop a significant research advantage over us that allows them to provide superior products or pricing, which could put us at a competitive disadvantage. Continued pricing pressure or improvements in research and shifts in customer preferences away from natural supplements could adversely impact our customer base or pricing structure and have a material and adverse effect on our business, financial condition, results of operations and cash flows.

 

Government Approvals and Regulations

 

The formulation, manufacturing, processing, labeling, packaging, advertising and distribution of our products are subject to regulation by several federal agencies, including the Food and Drug Administration (“FDA”), the Federal Trade Commission (“FTC”), the Consumer Product Safety Commission, the U.S. Department of Agriculture (“USDA”) and the Environmental Protection Agency (“EPA”). These activities are also regulated by various agencies of the states and localities in which our products are sold. The FDA regulates the processing, formulation, safety, manufacture, packaging, labeling and distribution of dietary supplements (including vitamins, minerals, and herbs) and cosmetics, whereas the FTC has jurisdiction to regulate the advertising of these products.

 

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The Dietary Supplement Health and Education Act of 1994 (“DSHEA”) defines “dietary supplements” as vitamins, minerals, herbs, other botanicals, amino acids and other dietary substances for human use to supplement the diet, as well as concentrates, metabolites, constituents, extracts or combinations of such dietary ingredients. New dietary ingredients (those not marketed in the U.S. prior to October 15, 1994) must be the subject of a notification submitted to the FDA unless the ingredient has been “present in the food supply as an article used for food” without being “chemically altered.” The notification must be submitted to the FDA at least 75 days before the initial marketing of the new dietary ingredient. The FDA has issued guidance regarding the content of a new dietary ingredient notification. Should the FDA choose to enforce the guidance, it could have a negative effect on the innovation and continued marketing of dietary supplements; the FDA may not accept any particular evidence of safety for any new dietary ingredient, preventing the marketing of those dietary ingredients.

 

DSHEA permits “statements of nutritional support” to be included in labeling for dietary supplements without premarket FDA approval, however, such statements must be submitted within 30 days of marketing and must bear a label disclosure that “This statement has not been evaluated by the Food and Drug Administration. This product is not intended to diagnose, treat, cure, or prevent any disease.” Statements of nutritional support may describe how a particular dietary ingredient affects the structure, function or general well-being of the body, or the mechanism of action by which a dietary ingredient may affect body structure, function or well-being, but may not expressly or implicitly represent that a dietary supplement will diagnose, cure, mitigate, treat, or prevent a disease. A company using such statements must possess scientific evidence substantiating that the statement is truthful and not misleading. Any statements determined to be outside of these guidelines or unsubstantiated would be prevented from being used.

 

DSHEA also provides that so-called “third-party literature,” a peer-reviewed scientific publication linking a particular dietary ingredient with health benefits, may be used “in connection with the sale of a dietary supplement to consumers” without the literature being subject to regulation as labeling. Third-party literature must not be false or misleading; the literature may not “promote” a particular manufacturer or brand of dietary supplement; and a balanced view of the available scientific information on the subject matter must be presented. Any dissemination of non-compliant literature could subject our product to regulatory action as an illegal drug.

 

The FDA’s Good Manufacturing Practices (“GMP”) regulations require dietary supplements to be prepared, packaged and held in compliance with strict rules, and require quality control provisions similar to those in the GMP regulations for drugs. The FDA could in the future choose to inspect one of our facilities for compliance with these regulations, and could cause non-compliant products made or held in the facility to be subject to FDA enforcement actions.

 

The FDA has broad authority to enforce the provisions of the FDCA and their regulation of foods, dietary supplements and cosmetics may increase or become more restrictive in the future. Additional legislation could be passed which would impose substantial new regulatory requirements for dietary supplements, potentially raising our costs and hindering our business.

 

Our advertising is subject to regulation by the Federal Trade Commission, or FTC, under the Federal Trade Commission Act. In recent years the FTC has initiated numerous investigations of dietary supplement and weight loss products and companies. Additionally, some states also permit advertising and labeling laws to be enforced by private attorney generals, who may seek relief for consumers, seek class action certifications, seek class wide damages and product recalls of products sold by us. Any of these types of adverse actions against us by governmental authorities or private litigants could have a material adverse effect on our business, financial condition and results of operations.

 

In addition to FDA and FTC regulations, our products may face further regulation under the Single Convention on Narcotic Drugs 1961, which governs international trade and domestic control of narcotic substances including cannabis extracts. Countries may interpret and implement their treaty obligations in a way that creates a legal obstacle to our obtaining marketing approval for our products in those countries. These countries may not be willing or able to amend or otherwise modify their laws and regulations to permit our products to be marketed, or achieving such amendments to the laws and regulations may take a prolonged period of time. In the case of countries with similar obstacles, we would be unable to market our product candidates in countries in the near future or perhaps at all if the laws and regulations in those countries do not change.

 

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Controlled Substance Regulation

 

At some point our products may be developed and be subject to U.S. controlled substance laws and regulations and failure to comply with these laws and regulations, or the cost of compliance with these laws and regulations, may adversely affect the results of our business operations, both during clinical development and post approval, and our financial condition.

 

Certain products we may develop could contain controlled substances as defined in the federal Controlled Substances Act of 1970, or CSA. Controlled substances that are pharmaceutical products are subject to a high degree of regulation under the CSA, which establishes, among other things, certain registration, manufacturing quotas, security, recordkeeping, reporting, import, export and other requirements administered by the DEA. The DEA classifies controlled substances into five schedules: Schedule I, II, III, IV or V substances. Schedule I substances by definition have a high potential for abuse, no currently “accepted medical use” in the United States, lack accepted safety for use under medical supervision, and may not be prescribed, marketed or sold in the United States. Pharmaceutical products approved for use in the United States may be listed as Schedule II, III, IV or V, with Schedule II substances considered to present the highest potential for abuse or dependence and Schedule V substances the lowest relative risk of abuse among such substances. Schedule I and II drugs are subject to the strictest controls under the CSA, including manufacturing and procurement quotas, security requirements and criteria for importation. In addition, dispensing of Schedule II drugs is further restricted. For example, they may not be refilled without a new prescription. We do not intend to produce “controlled substances” at this time, due to regulatory complications.

 

Legal Proceedings

 

On January 11, 2019, the Company received notice that Strongbow Advisors, Inc., and Robert Stevens had been appointed by the Nevada District Court, as Receiver for the Registrant in Case No. A-18-784952-C.

 

The company sought the appointment of the Receiver after it found itself in an imminent danger of insolvency following the issuance by an arbitration panel of an award in the sum of $3,994,522.5 million in favor of Cromogen Biotechnology Corporation in the matter entitled Cromogen Biotechnology Corporation vs. Earth Science Tech, Inc. The Nevada District Court found that the Company was in fact insolvent and ordered the appointment of the Receiver.

 

The Award consisted a sum for breach of contract against the Company in the amount of $120,265, a sum for costs and fees against the Company in the amount of $111,057 and a sum for the claim of tortuous interference and conversion against the Company in the amount of $3,763,200. The District Court in Florida had confirmed the Award granted by the arbitration panel, denying however, the award of fees that the arbitration panel had granted Cromogen.

 

The Cromogen Litigation is now on appeal and the Company is optimistic about its prospects on appeal. Nevertheless, the outcome remains speculative and so notwithstanding its prospects for success on appeal, and faced with such a large judgment and the imminent danger of insolvency, the Company determined that it was in the best interest of its shareholders and creditors to seek protection under receivership and the appointment of a receiver. As of the date of this prospectus, the Company remains insolvent as the outcome of the Cromogen Litigation remains speculative.

 

As part of the impact of the receivership, the Court issued a Writ of Injunction or “Blanket Stay” covering the Company and its assets during the time that the Company is in receivership. As a result of the “Blanket Stay” the Company’s estate is protected from creditors and interference with its administration is prevented while the Company’s financial issues are being fully analyzed and resolved. As part of this process, creditors will be notified and required to provide claims in writing under oath on or before the deadline stated in the notice provided by the Receiver or those claims will be barred under NRS §78.675. The Blanket Stay will remain in place unless otherwise waived by the Receiver, or it is vacated by the Court or alternatively, lifted by the Court, upon a “motion to lift stay” duly made and approved by the Nevada District Court.

 

The appointment of the Receiver was approved unanimously by the Board and by a majority of the Company’s shareholders. Strongbow and Stevens were selected because of their reputation in helping (i) companies restructure and (ii) to execute on their business plans, albeit under a debt and capital structure that allows them to succeed. Stevens and Strongbow assist companies by helping them raise the capital needed not only to pay debts, but build and grow their businesses. The Receiver, however, is an agent of the court, and will be independent and neutral in managing the Company’s operations and trying to preserve the Company’s value for the creditors and shareholders.

 

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The Receiver has broad powers under N.R.S. 78.630, including the power to reorganize the Registrant or liquidate it and it is not necessary for the Court to state that he has the power to reorganize the corporation or that he has the power to liquidate it. Those powers are granted by statute when he is appointed as a Receiver. As of the date of this prospectus the Receiver has determined that there is a viable underlying business; and he plans to effect a reorganization of it and its operations. In “reorganizing” the Company, the Receiver plans to restructure its debt. In considering whether to reorganize, the Receiver first determined that there was not a reason to liquidate and wind up its affairs. Having determined that the Company was not a candidate for liquidation, the Receiver determined that, given the current operations and the potential for increasing revenues with the addition of capital, that the Company will likely be in a position to pay its expenses as they come due when the Company’s debt is restructured. As of the date hereof, no definitive plan has been developed that addresses precisely how the debt will be restructured; and because of the amount at issue in the Cromogen Litigation (See Legal Proceedings on Page 53, the Receiver will not put a plan of reorganization together until after that matter is resolved on appeal. While the Cromogen Litigation remains ongoing, the Receiver plans to use the proceeds from this offering for working capital to increase the Company’s sales, to meet its current expenses (excluding debt incurred prior to the Receiver’s appointment, which is stayed with in receivership, pending the plan of reorganization), including the costs of receivership and for the ongoing costs of the Cromogen Litigation. If the Receiver is successful in increasing the Company’s sales and operations, of which there can be no assurances, he believes that the Company will be able to meet its expenses as they come due out of operations, including the costs of receivership and the payments associated with the Company’s restructured debt; and that there will be sufficient funds to support continued growth of the Company’s sales and operations. If successful, this reorganizational approach will allow the Receiver to structure larger payments to claimants than would otherwise be possible. The Receiver intends to continue with the Company’s business plan but with a greater focus on producing additional revenue from the existing Company products as well as new versions of its existing products that may be developed. Thus, once the Cromogen Litigation is resolved, the Receiver will prepare the plan of reorganization and seek to have it ratified by way of motion before the Court. Along with the filing of the motion to ratify the plan of reorganization, the Receiver will provide direct notice to each of the affected parties as well as by filing a Current Report with the Commission on Form 8-K. The Receiver does NOT require the approval of any of the claimants or the Company stakeholders before preparing the plan of reorganization or making the motion for its to ratification.. Any party objecting to its treatment under the plan of reorganization, or to the plan itself, may only do so by making a separate motion so objecting and this is its only recourse. Unlike motion practice in litigation where there is a plaintiff and defendant; and where one party makes a motion while the other responds by way of filing and serving a reply objecting to the motion, along with a memorandum in support of the their position, in the case of the Receiver’s motion to ratify the plan of reorganization, an objecting party to the plan may only object by way of making a separate motion objecting with the Court. However, the Receiver has the ability and authority under N.R.S. 78.630 to deny a claim, accept a claim or accept a claim in part and deny a claim in part as part of its duties acting as receiver; and further, underlying this power and authority is the requirement that the Receiver, as a receiver in equity, take into consideration, the fairness and reasonableness that his reorganization plan has on all of the claimants and stakeholders. As such, an objecting party moving to challenge the plan of reorganization has a substantial burden to overcome because the Court will give great deference to a Receiver; and it is extremely unlikely that the Court would not ratify the reorganization plan. In fact, the Receiver has never had such a challenge by an objecting party accepted by a court in any of the over 30 matters where he has served as receiver. Once the plan of reorganization has been ratified by the Court, it becomes executable and after six months, becomes non-appealable (See Nevada Rules of Civil Procedure Rule 60(c)(1)). Following ratification of the plan of reorganization and its implementation, the Receiver will move the Court to be dismissed, the Court will grant the Receiver’s motion for dismissal as receiver and the Company will be returned to prior management, who will continue operating and managing the Company under its business plan, initially, as it may have been modified and improved by the Receiver. However, once the Receiver has been dismissed by the Court and control is ceded back to the prior management, the Receiver is no longer in control and management is free to manage the Company as it sees fit.

 

This case is particularly complex because of the matters at issue in the Cromogen Litigation; and as such, it is not possible to predict, even approximately or with any degree of certainty, how long it will take to complete the Cromogen Litigation; and since the plan of reorganization is on hold pending the outcome, the plan of reorganization is on hold as a result; although once started, the plan itself will only take a few weeks to complete. Additionally it is not possible to determine, once the plan of reorganization is developed, how long it will take to have it ratified. Initially it depends on the Court and its availability to schedule a hearing; however then, if there are objections in the form of motions, it will take additional time as the Court needs to schedule hearing(s) for them and the Receiver needs to respond to those motion(s). If a claimant’s motion objecting is successful, the court will generally instruct a receiver to develop a new plan of reorganization that takes into account, those issues raised by the complaining/moving party with which the Court may agree. In theory, this could continue indefinitely until there were no longer complaining parties and the Court finally ratifies the Receiver’s plan of reorganization, as modified. However, in practice, courts give substantial deference to receivers, since they do not have the expertise or experience necessary to develop reorganization plans and they see this as the purview of the receiver. Once ratified, there is a six month period that the Court’s decision is appealable; and although an appeal requires the posting of a bond and the basis for appeal in these matters is extremely limited, there is still the possibility that a claimant or stakeholder could bring an appeal challenging the ratification of the plan of reorganization, notwithstanding the obstacles to bringing an appeal. As a result of these issues, it is impossible to predict how long the Company will be in receivership or what the ultimate cost of receivership will be.

 

Reorganizations are fluid, constantly changing processes and every situation is different. As long as there is a viable underlying business, the Receiver has sufficient powers to be able to reorganize it and restructure debt in virtually any way necessary so that the Company will be able to pay its debts as they come due when it emerges from receivership. The potential number of structural changes, and types of consideration and structures for the payment to creditors are too numerous to list and are limited only by the Receiver’s creativity. Adding to this complexity, is the fact that the Receiver is also allowed to classify creditors and other constituents according to classes that it creates based on criteria the it establishes; and it may treat those different classes differently. As a receiver in equity, Mr. Stevens is also allowed to consider the fundamental fairness to all of the stakeholders and analyzing the facts of each stakeholder and what they have at risk compared with other stakeholders as he puts the plan of reorganization in place. In addition to considering issues of fairness and reasonableness, some of the tools available to a receiver in a reorganization are: canceling shares of stock where little or no consideration was paid or where allowing those shares to remain outstanding would be unfair to the other shareholders, classifying creditors into various classes, using receiver’s certificates as super priority debt instruments, promissory notes, including convertible notes, stock of various classes, including newly created classes, pledging a portion of a company’s revenue, structured payments to be made over time, granting security interests, etc.; and these tools are all available as a means to restructure the Company’s debt and to pay creditors and service providers. During the time that the Company is in receivership, the Receiver is required to make periodic status reports to the Court providing such information as the Court requires, as requested by the Court. When the plan of reorganization is finally established and ratified, the Company will be returned to the control of its prior management and the Company will continue as reorganized, as though it had never been in receivership (except with restructured debt and ideally, with any improvements in operations that the Receiver may have put in place . The stakeholders that are directly affected by the reorganization will be notified by the Receiver as to how their claims will be treated under the plan of reorganization; and the claimants and other stakeholders will also receive notice of actions taken in connection with the reorganization through the filing of a Current Report on Form 8-K. These items will also be disclosed in the Registrant’s Periodic Reports filed with the Commission of Forms 10-K and 10Q, as required. If the Receiver is not successful in reorganizing the Company, the Company may be forced to liquidate its business and this may result in a loss of the entire investment for the investors in this offering.

 

Subsidiaries

 

The Company’s’ subsidiaries include Nutrition Empire, Inc., Cannabis Therapeutics, Inc., Earth Science Pharmaceutical Inc. and Earth Science Foundation, Inc., a non-profit favored entity of the Company. All intercompany balances and transactions have been eliminated on consolidation.

 

Employees

 

As of September 27, 2019, the Company had seven (7) employees. None of our employees are represented by a union or covered by a collective bargaining agreement. We have not experienced any work stoppages and we consider our relationship with our employees to be good.

 

Website

 

Our corporate website address is https://earthsciencetech.com.

 

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DIRECTORS, EXECUTIVE OFFICERS, AND KEY EMPLOYEES

 

Set forth below are the present directors and executive officers of the Company. Except as set forth below, there are no other persons who have been nominated or chosen to become directors, nor are there any other persons who have been chosen to become executive officers. Other than as set forth below, there are no arrangements or understandings between any of the directors, officers and other persons pursuant to which such person was selected as a director or an officer.

 

Name   Principal Occupation