UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K/A
Amendment No.1
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For
the fiscal year ended March 31, 2020
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission
File No.000 - 55000
EARTH SCIENCE TECH, INC.
(Exact
name of registrant as specified in its charter)
|
Nevada |
|
80-0961484 |
|
(State
or other jurisdiction of |
|
(I.R.S.
Employer |
|
incorporation
or organization) |
|
Identification
No.) |
8000
NW 31st Street, Unit 19
Doral,
FL 33122, USA
(Address
of principal executive offices, zip code)
(305) 615-2118
(Registrant’s
telephone number, including area code)
(Former
name, former address and former fiscal year,
if
changed since last report)
Securities
registered pursuant to Section 12(g) of the Act:
Common
Stock $.001 par value
(Title
of class)
Securities
registered pursuant to Section 12(b) of the Act:
|
Title
of each class |
|
Trading
Symbol(s) |
|
Name
of each exchange on which registered |
|
None |
|
None |
|
None |
Indicate
by check mark whether the issuer (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days.
Yes
[X] No [ ]
Indicate
by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was
required to submit and post such files).
Yes
[X] No [ ]
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange Act. (check
one):
| |
Large
accelerated filer |
[ ] |
|
Accelerated
filer |
[ ] |
| |
|
|
|
|
|
| |
Non-accelerated
filer |
[ ] |
(Do
not check if a smaller reporting company) |
Smaller
reporting company |
[X] |
| |
|
|
|
|
|
| |
Emerging
Growth Company |
[ ] |
|
|
|
Indicate
by check mark whether the registrant is a shell company (as defined
in Exchange Act Rule 12b-2 of the Exchange Act):
Yes
[ ] No [X]
APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate
by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes
[ ] No [ ]
APPLICABLE
ONLY TO CORPORATE ISSUERS
The
number of shares of Common Stock, $0.001 par value, outstanding
August 3, 2020 was 40,589,197.
TABLE
OF CONTENTS
EXPLANATORY NOTE
On March 4, 2020, the
Securities and Exchange Commission (the “SEC”) issued an order (as
modified on March 25, 2020, the “SEC Order”), providing conditional
relief to public companies that are unable to timely comply with
their filing obligations as a result of the outbreak of the novel
coronavirus (“COVID-19”). On June 28, 2020 Earth Science Tech,
Inc., (the “Company”) elected to rely on the conditional filing
relief provided under the SEC Order by filing a Current Report on
Form 8-K to obtain 45 additional days within which to file its
Annual Report on Form 10-K for the year end March 31, 2020 (the
“Form 10-K”). The filing of this Form 8-K effectively moved the due
date for the filing of Form 10-K to August 13, 2020.
We relied upon the SEC
Order because we were unable to file by June 29, 2020 due to the
ongoing impact of COVID-19 on our operations and our employees.
WHERE
YOU CAN FIND MORE INFORMATION
We
file annual, quarterly and current reports, proxy statements and
other information required by the Securities Exchange Act of 1934,
as amended (the “Exchange Act”), with the Securities and Exchange
Commission (the “SEC”). You may read and copy any document we file
with the SEC at the SEC’s public reference room located at 100 F
Street, N.E., Washington, D.C. 20549, U.S.A. Please call the SEC at
1-800-SEC-0330 for further information on the public reference
room. Our SEC filings are also available to the public from the
SEC’s internet site at http://www.sec.gov.
On
our Internet website, http://www.earthsciencetech.com, we post the
following recent filings as soon as reasonably practicable after
they are electronically filed with or furnished to the SEC: our
annual reports on Form 10-K, our quarterly reports on Form 10-Q,
our current reports on Form 8-K, and any amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of
the Exchange Act.
When
we use the terms “ETST”, “Company”, “we”, “our” and “us” we mean
Earth Science Tech, Inc., a Nevada corporation, and its
consolidated subsidiaries, taken as a whole, as well as any
predecessor entities, unless the context otherwise
indicates.
FORWARD
LOOKING STATEMENTS
This
Annual Report on Form 10-K, the other reports, statements, and
information that the Company has previously filed with or furnished
to, or that we may subsequently file with or furnish to, the SEC
and public announcements that we have previously made or may
subsequently make include, may include, or may incorporate by
reference certain statements that may be deemed to be
“forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995, as amended, and that are
intended to enjoy the protection of the safe harbor for
forward-looking statements provided by that Act. To the extent that
any statements made in this report contain information that is not
historical, these statements are essentially forward-looking.
Forward-looking statements can be identified by the use of words
such as “anticipate”, “estimate”, “plan”, “project”, “continuing”,
“ongoing”, “expect”, “believe”, “intend”, “may”, “will”, “should”,
“could”, and other words of similar meaning. These statements are
subject to risks and uncertainties that cannot be predicted or
quantified and, consequently, actual results may differ materially
from those expressed or implied by such forward-looking statements.
Such risks and uncertainties include, without limitation,
marketability of our products; legal and regulatory risks
associated with OTC Markets; our ability to raise additional
capital to finance our activities; the future trading of our common
stock; our ability to operate as a public company; our ability to
protect our proprietary information; general economic and business
conditions; the volatility of our operating results and financial
condition; our ability to attract or retain qualified senior
management personnel and research and development staff; and other
risks detailed from time to time in our filings with the SEC, or
otherwise.
Information
regarding market and industry statistics contained in this report
is included based on information available to us that we believe is
accurate. It is generally based on industry and other publications
that are not produced for purposes of securities offerings or
economic analysis. Forecasts and other forward-looking information
obtained from these sources are subject to the same qualifications
and the additional uncertainties accompanying any estimates of
future market size, revenue and market acceptance of products and
services. We do not undertake any obligation to publicly update any
forward-looking statements. As a result, investors should not place
undue reliance on these forward-looking statements.
PART I
ITEM 1. 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,
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.
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
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 in imminent danger of
insolvency as the outcome of the Cromogen Litigation remains
speculative.
As
part of the impact of the receivership, the Court issued a Writ of
Injunction and “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.
There
are a number of possible outcomes to the receivership, including
settlement and payment to creditors, reorganization, or
liquidation. The intent of the Receiver is to reorganize the
Company, pay or settle the Company’s debts and emerge from
receivership. If the Receiver is not successful in mitigating the
Company’s liabilities, the Company’s results could be materially
adversely impacted, and the Company may be forced to liquidate its
business.
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”).
On
November 8, 2019, the Company filed a motion for preliminary
injunction against Majorca Group Ltd. in the 8th Judicial District
in Clark County, Nevada on November 7, 2019. The filing requests a
show cause hearing whereby the Company will request the Court
grants it motion to cancel certain shares and class of stock and to
nullify certain amendments of the Articles of Incorporation.
Specifically, the Company is asking that Majorca Group Ltd. be
restricted from selling, transferring, converting, encumbering,
hypothecating, obtaining loans against or in any fashion or in any
way transferring their shares of common and preferred stock in the
Company. Additionally, the motion seeks a Freezing Injunction over
any broker, bank, any financial institution, attorney, or agent
holding shares of the Company as well as any proceeds from shares
of the Company.
On
January 27, 2020 Earth Science Tech, Inc., a Nevada corporation
(the “Company”) reached a confidential settlement with Majorca
Group, Ltd (“Majorca”). The Receiver withdrew its motion for
injunction over the Majorca common and preferred shares. The
Settlement Agreement provided that Majorca Group, Ltd. and all
relevant parties will, within 10 days of execution of the
settlement agreement, return 18,000,000 common shares and 5,200,000
Series A Preferred Stock held by Majorca for cancellation. The
Series A Preferred Stock class will be cancelled completely. The
remaining 6,520,000 common shares held by Majorca is subject to
lockup agreement and thereafter, sales will be made only pursuant
to a limited strict bleed-out agreement administered by a third
party.
[On
May 19, 2020, the Company filed documents with the Delaware
Secretary of State on May 19, 2020 to effect a holding company
reorganization (the “Delaware Reorg”), which will result in a newly
formed Delaware corporation, ETST Holdings, Inc., (“ETST
Delaware”), owning all the capital stock of Earth Science Tech,
Inc. ETST Delaware will initially be a direct, wholly owned
subsidiary of Earth Science Tech, Inc. Pursuant to the Delaware
Reorg, a newly formed entity (“Merger Sub”), a direct, wholly owned
subsidiary of ETST Delaware and an indirect, wholly owned
subsidiary of Earth Science Tech, Inc., will merge with and into
Earth Science Tech, Inc., with Earth Science Tech, Inc. surviving
as a direct, wholly owned subsidiary of ETST Delaware. Each share
of each class of Earth Science Tech, Inc. stock issued and
outstanding immediately prior to the ETST Delaware Merger will
automatically convert into an equivalent corresponding share of
ETST Delaware stock, having the same designations, rights, powers
and preferences and the qualifications, limitations and
restrictions as the corresponding share of Earth Science Tech, Inc.
stock being converted. Accordingly, upon consummation of the ETST
Delaware Merger, Earth Science Tech, Inc.’s current stockholders
will become stockholders of ETST Delaware. The stockholders of
Earth Science Tech, Inc. will not recognize gain or loss for U.S.
federal income tax purposes upon the conversion of their shares in
the ETST Delaware Merger.
The
ETST Delaware Merger was conducted pursuant to Section 251(g) of
the General Corporation Law of the State of Delaware, which
provides for the formation of a holding company without a vote of
the stockholders of the constituent corporations. Effective upon
the consummation of the ETST Delaware Merger, ETST Delaware will
adopt an amended and restated certificate of incorporation and
amended and restated bylaws that are identical to those of Earth
Science Tech, Inc. immediately prior to the consummation of the
ETST Delaware Merger, except for the change of the name of the
corporation as permitted by Section 251(g). Furthermore, the
conversion will occur automatically without an exchange of stock
certificates. Stock certificates previously representing shares of
a class of Earth Science Tech, Inc. stock will represent the same
number of shares of the corresponding class of ETST Delaware stock
after the ETST Delaware Merger. Following the consummation of the
ETST Delaware Merger shares of our Common Stock will continue to
trade on the under the symbol ETST on the OTC Markets.
BUSINESS
OVERVIEW
The
Company 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.
Earth
Science Foundation (“ESF”) is a favored entity of ETST, effectively
being a non-profit organization on February 11, 2019 and is
structured to accept grants and donations to conduct further
studies and help donate ETST’s effective CBD products to those in
need.
Current
Operations
CORPORATE
STRATEGY
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.
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.
CONSUMER
PRODUCTS
We
seek to take advantage of an emerging worldwide trend to
re-energize the production of hemp and to foster its many uses for
consumers. Historically cultivated for industrial and practical
purposes, hemp is used today for textiles, paper, auto parts,
biofuel, cosmetics, animal feed, nutritional supplements, and much
more. The market for hemp-based products is expected to increase
substantially over the next five years.
Hemp-based
CBD is one of at least 80 cannabinoids found in hemp, and is
non-psychoactive. Our U.S. based operations oversee our raw
material supply chain, raw material processing, product development
and manufacturing, and sales and marketing. We will continue to
scale-up our processing capability to accommodate new products in
our pipeline.
We
expect to realize revenue to fund our working capital needs through
the sale of finished products and raw materials to third parties.
However, in order to fund our drug 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
raise sufficient additional capital to fund our drug development
efforts, we may need to curtail or delay such activity.
Consumer
product extraction 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.
SUBSIDIARIES
The
Company’s’ subsidiaries include Earth Science Tech Inc., Nutrition
Empire LLC., Cannabis Therapeutics, Inc., Earth Science
Pharmaceutical Inc., and Earth Science Foundation, Inc. (all
intercompany balances and transactions have been eliminated on
consolidation.)
PRODUCT
REGULATION
We
are subject to local and federal laws in our operating
jurisdictions. We hold required licenses for product production and
distribution and monitor changes in laws, regulations, treaties and
agreements.
The
Agriculture Improvement Act of 2018 known as the “2018 Farm Bill”
is United States federal legislation signed into law on December
20, 2018 which provides much of the legal framework for the
hemp-based CBD product category. The 2018 Farm Bill permanently
removed “hemp” from the purview of the Controlled Substances Act,
and accordingly, the Drug Enforcement Administration (the “DEA”) no
longer has any claim to interfere with the interstate commerce of
hemp products. Some of the immediate impact from this legislation
includes the ability for farmers to access crop insurance and U.S.
Department of Agriculture programs for certification and
competitive grants. While the DEA is now officially not involved in
hemp regulation, the FDA retains its authority to regulate
ingestible and topical products, including those that contain hemp
and hemp extracts such as CBD.
A
range of federal regulations govern our product development,
manufacturing, distribution, sales and marketing, including the
Dietary Supplement Health and Education Act of 1994 (the “DSHEA”).
Under DSHEA, supplements are effectively regulated by the FDA for
Good Manufacturing Practices under 21 CFR Part 111. DSHEA defines a
“dietary supplement” as a product intended to supplement the diet
that contains one or more of the following: (a) a vitamin; (b) a
mineral; (c) an herb or other botanical; (d) an amino acid; (e) a
dietary substance for use by man to supplement the diet by
increasing the total dietary intake; or (f) a concentrate,
metabolite, constituent, extract, or combination of any ingredient
described in clause (a) through (e). Thus, the law permits a wide
range of dietary ingredients in dietary supplements, including CBD
which is an extract of a botanical ( Cannabis sativa L.
plant). CBD also falls under clause (e) as it is a dietary
substance for use by man to supplement the diet by increasing the
total dietary intake.
MARKETS
The
user market for CBD products and other nutraceuticals is generally
an individual who has a specific health issue where a health
advisor or distributor has provided or directed that user to our
product. The market for nutraceuticals is subject to many
influential factors, but the main issues affecting the market are
consumer spending and government regulation.
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.
RESEARCH
AND DEVELOPMENT
Research
and development costs are expensed as incurred. The Company’s
research and development expenses relate to its engineering
activities, which consist of the design and development of new
products for specific customers, as well as the design and
engineering of new or redesigned products for the industry in
general.
EMPLOYEES
As of
March 31, 2020, the Company has six (6) 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.
ITEM 1A. 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.”
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 March 31,
2020 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 2020 and beyond as it develops its
business model. The Company has stockholders’ deficiencies at March
31, 2020 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, 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
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.
Cromogen
prevailed in our appeal in the appeals process in No. 19-10118,
United States Court of Appeals for the Eleventh Circuit on April
14, 2020. The Receiver subsequently allowed Cromogen status as an
unsecured creditor in the estate. As of the date of this filing the
Company remains in danger of insolvency if a plan of reorganization
is not subsequently approved by the court that adequately resolves
the Cromogen unsecured debt or Cromogen agrees to a settlement.
Previous attempts to settle the amounts with Cromogen have been
fruitless.
As
part of the impact of the receivership, the Court issued a Writ of
Injunction and “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.
There
are a number of possible outcomes to the receivership, including
settlement and payment to creditors, reorganization, or
liquidation. The intent of the Receiver is to reorganize the
Company, pay or settle the Company’s debts and emerge from
receivership. If the Receiver is not successful in mitigating the
Company’s liabilities, the Company’s results could be materially
adversely impacted and the Company may be forced to liquidate its
business.
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.
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:
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Preventing
the distribution of marijuana to minors; |
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Preventing
revenue from the sale of marijuana from going to criminal
enterprises, gangs, and cartels; |
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Preventing
the diversion of marijuana from states where it is legal under
state law in some form to other states; |
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Preventing
state-authorized marijuana activity from being used as a cover or
pretext for the trafficking of other illegal drugs or other illegal
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Providing
the necessary resources and demonstrate the willingness to enforce
their laws, and, |
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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.
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.
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 cannibnoids 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.
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:
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develop
and introduce functional and attractive service
offerings; |
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attract
and maintain a large base of consumers; |
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increase
awareness of our brands and develop consumer loyalty; |
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establish
and maintain strategic relationships with distribution partners and
service providers; |
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respond
to competitive and technological developments; |
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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.
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:
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our
ability to deliver products in a timely manner in sufficient
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ability to recognize product trends; |
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loss of one or more significant customers; |
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introduction of successful new products by our
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media reports on the use or efficacy of nutritional supplements;
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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.
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:
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Our
ability to raise sufficient capital to take advantage of
opportunities and generate sufficient revenues to cover
expenses. |
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Our
ability to source strong opportunities with sufficient risk
adjusted returns. |
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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. |
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The
acceptance of the terms and conditions of our service. |
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The
amount and timing of operating and other costs and
expenses. |
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The
nature and extent of competition from other companies that may
reduce market share and create pressure on pricing and investment
return expectations. |
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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. |
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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. |
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Changes
in laws, regulations, accounting, taxation, and other requirements
affecting our operations and business. |
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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.
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.
We may be held responsible for certain taxes or assessments
relating to the activities of our independent representatives,
which could harm our financial condition and operating
results.
Our
independent representatives are subject to taxation and, in some
instances, legislation or governmental agencies impose an
obligation on us to collect taxes, such as value added taxes, and
to maintain appropriate tax records. In addition, we are subject to
the risk in some jurisdictions of being responsible for social
security and similar taxes with respect to our distributors. In the
event that local laws and regulations require us to treat our
independent contractors as employees, or if our reps are deemed by
local regulatory authorities to be our employees, rather than
independent contractors, we may be held responsible for social
security and related taxes in those jurisdictions, plus any related
assessments and penalties, which could harm our financial condition
and operating results.
A pandemic, epidemic or outbreak of an infectious disease, such as
COVID-19, may materially and adversely affect our business and
operations, and our ability to complete financial reports to enable
us to comply with our reporting obligation under the Exchange
Act.
The
occurrence of a pandemic, epidemic, or outbreak of an infectious
disease including the recent outbreak of respiratory illness caused
by a novel coronavirus (COVID-19), and efforts to contain the
spread of the such a pandemic, epidemic, or outbreak, which
includes social distancing, travel bans and quarantine, could
limited access to our facilities, management, support staff and
professional advisors. These, in turn, could impact our operations,
financial condition, development work and demand for our products
and services, and our overall ability to react timely to mitigate
the impact of such an event. These factors could substantially
hamper our efforts to provide our investors with timely information
and comply with our filing obligations with the Securities and
Exchange Commission.
Risks
Related to Our Securities
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 March 31, 2020, there were
38,144,182 shares issued and outstanding and as of August 3, 2020
there were 40,589,197 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.
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.
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.
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.
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.
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:
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variations in our quarterly operating results;
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loss of a key relationship or failure to complete significant
transactions;
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additions or departures of key personnel; and
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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
40,589,197 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.
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.
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.
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.
A pandemic, epidemic or outbreak of an infectious disease, such as
COVID-19, may materially and adversely affect our business and
operations, and our ability to complete financial reports to enable
us to comply with our reporting obligation under the Exchange
Act.
The
occurrence of a pandemic, epidemic, or outbreak of an infectious
disease including the recent outbreak of respiratory illness caused
by a novel coronavirus (COVID-19), and efforts to contain the
spread of the such a pandemic, epidemic, or outbreak, which
includes social distancing, travel bans and quarantine, could
limited access to our facilities, management, support staff and
professional advisors. These, in turn, could impact our operations,
financial condition, development work and demand for our products
and services, and our overall ability to react timely to mitigate
the impact of such an event. These factors could substantially
hamper our efforts to provide our investors with timely information
and comply with our filing obligations with the Securities and
Exchange Commission.
ITEM 1B. UNRESOLVED STAFF
COMMENTS
None.
ITEM 2. PROPERTY AND
EQUIPMENT
On
August 14, 2017, the Company executed a lease for a 1,981 square
foot office/warehouse space in Miami, FL to be used for corporate
offices and storage of inventory. The term of the lease began
September 1, 2017 and continues for 37 months ending September 30,
2020. The monthly rent will be $1,863.50 until September 30, 2018
with escalations to $1,925.44 and $1,989.21 per month on September
30, 2019 and 2020 respectively. We believe that our existing
facilities are suitable but we may require additional space to
accommodate our growing organization. We believe such space will be
available on commercially reasonable terms.
ITEM 3. LEGAL
PROCEEDINGS
On
January 11, 2019, the Company received notice that Strongbow
Advisors, Inc. 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.
Cromogen
prevailed in our appeal in the appeals process in No. 19-10118,
United States Court of Appeals for the Eleventh Circuit on April
14, 2020. The Receiver subsequently allowed Cromogen status as an
unsecured creditor in the estate. As of the date of this filing the
Company remains in danger of insolvency if a plan of reorganization
is not subsequently approved by the court that adequately resolves
the Cromogen unsecured debt or Cromogen agrees to a settlement.
Previous attempts to settle the amounts with Cromogen have been
fruitless.
As
part of the impact of the receivership, the Court issued a Writ of
Injunction and “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.
There
are a number of possible outcomes to the receivership, including
settlement and payment to creditors, reorganization, or
liquidation. The Receiver was tasked by the Court with bringing to
a final settlement all of the unfinished business of the Company.
Towards that end, the Receiver is allowed, 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 to pay and settle
the Company’s debts, while preserving the value of its assets for
the benefit of its shareholders. If the Receiver is not successful
in mitigating the Company’s liabilities, or otherwise, the
Company’s results could be materially adversely impacted and the
Company may be forced to liquidate its business.
On
November 7, 2019 the Receiver for Earth Science Tech, Inc., a
Nevada corporation (the “Company”) filed a motion for preliminary
injunction against Majorca Group Ltd. in the 8th Judicial District
in Clark County, Nevada. The filing requested a show cause hearing
whereby the Company will request the Court grants it motion to
cancel certain shares and class of stock and to nullify certain
amendments of the Articles of Incorporation. Specifically, the
Company asked that Majorca Group Ltd. be restricted from selling,
transferring, converting, encumbering, hypothecating, obtaining
loans against or in any fashion or in any way transferring their
shares of common and preferred stock in the Company. Additionally,
the motion sought a Freezing Injunction over any broker, bank, any
financial institution, attorney, or agent holding shares of the
Company as well as any proceeds from shares of the
Company.
On
January 27, 2020 Earth Science Tech, Inc., a Nevada corporation
(the “Company”) reached a confidential settlement with Majorca
Group, Ltd (“Majorca”). The Receiver withdrew its motion for
injunction over the Majorca common and preferred shares. The
Settlement Agreement provided that Majorca Group, Ltd. and all
relevant parties will, within 10 days of execution of the
settlement agreement, return 18,000,000 common shares and 5,200,000
Series A Preferred Stock held by Majorca for cancellation. The
Series A Preferred Stock class will be cancelled completely. The
remaining 6,520,000 common shares held by Majorca is subject to
lockup agreement and thereafter, sales will be made only pursuant
to a limited strict bleed-out agreement administered by a third
party.
On
May 19, 2020, the Company filed documents with the Delaware
Secretary of State on May 19, 2020 to effect a holding company
reorganization (the “Delaware Reorg”), which will result in a newly
formed Delaware corporation, ETST Holdings, Inc., (“ETST
Delaware”), owning all the capital stock of Earth Science Tech,
Inc. ETST Delaware will initially be a direct, wholly owned
subsidiary of Earth Science Tech, Inc. Pursuant to the Delaware
Reorg, a newly formed entity (“Merger Sub”), a direct, wholly owned
subsidiary of ETST Delaware and an indirect, wholly owned
subsidiary of Earth Science Tech, Inc., will merge with and into
Earth Science Tech, Inc., with Earth Science Tech, Inc. surviving
as a direct, wholly owned subsidiary of ETST Delaware. Each share
of each class of Earth Science Tech, Inc. stock issued and
outstanding immediately prior to the ETST Delaware Merger will
automatically convert into an equivalent corresponding share of
ETST Delaware stock, having the same designations, rights, powers
and preferences and the qualifications, limitations and
restrictions as the corresponding share of Earth Science Tech, Inc.
stock being converted. Accordingly, upon consummation of the ETST
Delaware Merger, Earth Science Tech, Inc.’s current stockholders
will become stockholders of ETST Delaware. The stockholders of
Earth Science Tech, Inc. will not recognize gain or loss for U.S.
federal income tax purposes upon the conversion of their shares in
the ETST Delaware Merger.
The
ETST Delaware Merger was conducted pursuant to Section 251(g) of
the General Corporation Law of the State of Delaware, which
provides for the formation of a holding company without a vote of
the stockholders of the constituent corporations. Effective upon
the consummation of the ETST Delaware Merger, ETST Delaware will
adopt an amended and restated certificate of incorporation and
amended and restated bylaws that are identical to those of Earth
Science Tech, Inc. immediately prior to the consummation of the
ETST Delaware Merger, except for the change of the name of the
corporation as permitted by Section 251(g). Furthermore, the
conversion will occur automatically without an exchange of stock
certificates. Stock certificates previously representing shares of
a class of Earth Science Tech, Inc. stock will represent the same
number of shares of the corresponding class of ETST Delaware stock
after the ETST Delaware Merger. Following the consummation of the
ETST Delaware Merger shares of our Common Stock will continue to
trade on the under the symbol ETST on the OTC
Markets .
ITEM 4. MINE SAFTEY
DISCLOSURE
Not
applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON
EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES.
Our
common stock is currently quoted on the OTCQB under the symbol
“ETST”. Our common stock has been quoted on the OTCQB since August
27, 2017, under the symbol “ETST”. Because we are quoted on the
OTCQB, our securities may be less liquid, receive less coverage by
security analysts and news media, and generate lower prices than
might otherwise be obtained if they were listed on a national
securities exchange.
The
following table sets forth the high and low bid quotations for our
common stock as reported on the OTCQB for the periods
indicated.
|
Fiscal 2019 |
|
Low |
|
|
High |
|
| First Quarter –
reported June 30, 2018 |
|
$ |
0.421 |
|
|
$ |
0.96 |
|
| Second Quarter – reported September
30, 2018 |
|
$ |
0.45 |
|
|
$ |
1.64 |
|
| Third Quarter – reported December
31, 2018 |
|
$ |
0.525 |
|
|
$ |
2.45 |
|
| Fourth Quarter – reported March 31,
2019 |
|
$ |
0.55 |
|
|
$ |
0.929 |
|
|
Fiscal 2020 |
|
Low |
|
|
High |
|
| First Quarter –
reported June 30, 2019 |
|
$ |
0.301 |
|
|
$ |
0.949 |
|
| Second Quarter – reported September
30, 2019 |
|
$ |
0.36 |
|
|
$ |
0.94 |
|
| Third Quarter – reported December
31, 2019 |
|
$ |
0.065 |
|
|
$ |
0.73 |
|
| Fourth Quarter – reported March 31,
2020 |
|
$ |
0.028 |
|
|
$ |
0.14 |
|
HOLDERS
As of
August 3, 20120, there are 146 record holders of 40,589,197 shares
of the Company’s common stock.
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.
UNREGISTERED
SALES OF SECURITIES
The
following shares sold and issued were shares of restricted Common
Stock made in reliance upon the exemptions from registration
provided by Section 4(2) of the Securities Act of 1933, and/or Rule
506 of Regulation D promulgated thereunder. The investors were
“accredited investors” and/or “sophisticated investors” pursuant to
Section 501(a) of the Securities Act, who provided the Company with
representations, warranties and information concerning their
qualifications as a “sophisticated investors” and/or “accredited
investors.” The Company provided and made available, to the
investors, full information regarding its business and operations.
There was no general solicitation in connection with the offers or
sales of the restricted securities. The investors acquired the
restricted common stock for their own accounts, for investment
purposes and not with a view to public resale or distribution
thereof within the meaning of the Securities Act. The restricted
shares so purchased cannot be sold unless pursuant to an effective
registration statement by the Company, or by exemptions from
registration requirements of Section 5 of the Securities Act—the
existence of any such exemptions are subject to legal review and
approval by the Company.
During
the twelve months ended March 31, 2020, the Company issued 480,500
shares of its common stock for $237,590.00, in transactions that
were exempt from registration under the Securities Act of 1933, as
amended pursuant to Section 4(2) and/or Rule 506 promulgate under
Regulation D. No gain or loss was recognized on the issuances. On
June 30, 2019 the Company issued 10,000 shares, 50,000 shares,
10,000 shares, 50,000 shares, and 3,000 shares to each of its 5
individual officers at $0.73 per share. On August 23, 2019 the
Company 87,500 shares, and 250,000 shares to 2 separate investors
at a price of $0.40 per share. On September 30, 2019 the Company
issued 10,000 shares, 50,000 shares, 10,000 shares, and 50,000
shares for each of its 4 individual officers at $0.44 per
share.
EQUITY
COMPENSATION PLAN INFORMATION
The
Company currently does not have an equity compensation plan in
place.
COMMON
STOCK
The
holders of our common stock are entitled to one vote per share on
all matters submitted to a vote of our stockholders. The holders of
the common stock have the sole right to vote, except as otherwise
provided by law, by our articles of incorporation, or in a
statement by our board of directors in a Preferred Stock
Designation.
In
addition, such holders are entitled to receive ratably such
dividends, if any, as may be declared from time to time by our
board of directors out of legally available funds, subject to the
payment of preferential dividends or other restrictions on
dividends contained in any Preferred Stock Designation, including,
without limitation, the Preferred Stock Designation establishing a
series of preferred stock described above. In the event of the
dissolution, liquidation or winding up of Earth Science Tech, Inc.,
the holders of our common stock are entitled to share ratably in
all assets remaining after payment of all our liabilities, subject
to the preferential distribution rights granted to the holders of
any series of our preferred stock in any Preferred Stock
Designation, including, without limitation, the Preferred Stock
Designation establishing a series of our preferred stock described
above.
The
holders of the common stock do not have cumulative voting rights or
preemptive rights to acquire or subscribe for additional, unissued
or treasury shares in accordance with the laws of the State of
Nevada. Accordingly, excluding any voting rights granted to any
series of our preferred stock, the holders of more than 50 percent
of the issued and outstanding shares of the common stock voting for
the election of directors can elect all of the directors if they
choose to do so, and in such event, the holders of the remaining
shares of the common stock voting for the election of the directors
will be unable to elect any person or persons to the board of
directors. All outstanding shares of the common stock are fully
paid and nonassessable.
The
laws of the State of Nevada provide that the affirmative vote of a
majority of the holders of the outstanding shares of our common
stock and any series of our preferred stock entitled to vote
thereon is required to authorize any amendment to our articles of
incorporation, any merger or consolidation of Earth Science Tech,
Inc. with any corporation, or any liquidation or disposition of any
substantial assets of Earth Science Tech, Inc.
PREFERRED
STOCK
The
Company initially Designated Ten Million (10,000,000) shares of
Class A Preferred Stock, $0.001 par value, on June 6, 2014 by
filing said designation with the Nevada Secretary of State (the
“Preferred Stock”). The holders of shares of Preferred Stock are
entitled to vote on all matters coming to a vote of the
shareholders of the Company as a class. The Preferred Stock has the
following rights and preferences (1) it ranks senior to all other
classes of stock that may be designated after it; (2) a vote of the
preferred shareholders is required prior to the increase of
authorized stock or the designation of a class or series of
preferred stock that would be senior to the Preferred Stock; (3)
holders are not entitled to dividends; (4) the holders are entitled
to anti-dilution rights such that additional shares shall be
granted to the extent necessary to allow the holders of the
Preferred stock to maintain their voting control; (5) the shares of
Preferred Stock are convertible into shares of the Company’s Common
Stock on a one for one basis; (6) the holders of the Preferred
Stock were entitled to ten (10) votes of common stock for each
share held. On July 3, 2017 the voting preferences were changed by
filing of an amendment to the Certificate of Designation with the
Nevada Secretary of State such that as a class, the holders of the
issued and outstanding shares of Preferred Stock are entitled to
vote have the number of votes equal to 52% of the total number of
common stock votes (including the common votes of the Class A
Preferred stock. In addition, the authorized Class A Preferred
Shares were decreased to Five Million Two Hundred Thousand
(5,200,000) (the number issued and outstanding.) On January 27,
2020 the Five Million Two Hundred Thousand (5,200,000) Class A
Preferred Shares were cancelled completely, the Company now has
zero (0) Class A Preferred Shares issued and
outstanding.
WARRANTS
The
Company does not currently have any warrants issued or
outstanding.
ISSUER
REPURCHASES OF EQUITY SECURITIES
We
did not repurchase any shares of our common stock during the fourth
quarter of the fiscal year covered by this Annual Report on Form
10-K.
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.
ITEM 6. SELECTED FINANCIAL
DATA
Not
applicable to a “smaller reporting company” as defined in Item
10(f)(1) of SEC Regulation S-K.
ITEM 7. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
following discussion of our financial condition and results of
operations for the years ended March 31, 2020 and March 31, 2019
should be read in conjunction with our consolidated financial
statements and the notes to those statements that are included
elsewhere in this Annual Report on Form 10-K. 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
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.
RESULTS
OF OPERATIONS
The
following tables set forth summarized cost of revenue information
for the year ended March 31, 2020 and for the year ended March 31,
2019:
| |
|
For the Years Ended |
|
| |
|
March
31, |
|
| |
|
2020 |
|
|
2019 |
|
| |
|
|
|
|
|
|
| Revenue |
|
$ |
526,139 |
|
|
$ |
770,635 |
|
| Cost of revenues |
|
|
307,665 |
|
|
|
475,622 |
|
| Gross Profit |
|
|
218,474 |
|
|
|
295,013 |
|
We
had product sales of $526,139 and gross profit of $218,474,
representing a gross margin of 42% in 2020 compared with product
sales of $770,635 and gross profit of $295,013, representing a
gross margin of 38% in 2019. The sales increase in 2020 compared
with 2019 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.
OPERATING
EXPENSE
A
reconciliation from our net income (loss) to Adjusted EBITDA, a
non-GAAP measure, for the years ended March 31, 2020 and 2019 are
outlined in the table below:
| |
|
Fiscal Year
Ended March 31, 2020 and March 31, 2019 |
|
| |
|
2020 |
|
|
2019 |
|
|
$
Change |
|
|
%
Change |
|
| Compensation -
officers |
|
$ |
194,019 |
|
|
$ |
223,404 |
|
|
$ |
(29,385 |
) |
|
|
-15 |
% |
| Officer Compensation Stock |
|
$ |
142,590 |
|
|
$ |
424,055 |
|
|
$ |
(281,465 |
) |
|
|
-197 |
% |
| Marketing |
|
$ |
47,071 |
|
|
$ |
242,719 |
|
|
$ |
(195,648 |
) |
|
|
-416 |
% |
| General and administrative |
|
$ |
551,480 |
|
|
$ |
514,467 |
|
|
$ |
37,019 |
|
|
|
7 |
% |
| Donations |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
— |
|
| Loss on disposal of assets |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
— |
|
| Patent Impairment Expense |
|
$ |
— |
|
|
$ |
34,334 |
|
|
$ |
(34,334 |
) |
|
|
-100 |
% |
| Professional fees |
|
$ |
30,991 |
|
|
$ |
172,127 |
|
|
$ |
(141,136 |
) |
|
|
-455 |
% |
| Bad Debt Expense |
|
$ |
— |
|
|
|
31,211 |
|
|
$ |
(31,211 |
) |
|
|
-100 |
% |
| Cost of legal proceedings |
|
$ |
84,777 |
|
|
$ |
453,553 |
|
|
$ |
(368,776 |
) |
|
|
-435 |
% |
| Research and development |
|
$ |
76,113 |
|
|
|
338,856 |
|
|
$ |
(262,743 |
) |
|
|
-345 |
% |
| Total operating expenses |
|
$ |
1,127,041 |
|
|
$ |
2,434,726 |
|
|
$ |
(1,307,685 |
) |
|
|
-116 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loss from
operations |
|
|
(908,567 |
) |
|
|
(2,139,713 |
) |
|
$ |
1,231,146 |
|
|
|
-136 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other Income
(Expenses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other Income |
|
$ |
26,351 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
| Interest expense |
|
$ |
(4,765 |
) |
|
$ |
(75,632 |
) |
|
|
|
|
|
|
|
|
| Interest Expense-Convertible Note
1-GHS |
|
$ |
(39,117 |
) |
|
$ |
— |
|
|
|
|
|
|
|
|
|
| Interest Expense-Convertible Note
2-GHS |
|
$ |
(79,330 |
) |
|
$ |
— |
|
|
|
|
|
|
|
|
|
| Interest Expense-Convertible Note
3-GHS |
|
$ |
(91,702 |
) |
|
$ |
— |
|
|
|
|
|
|
|
|
|
| Interest Expense-Convertible Note
4-GHS |
|
$ |
(91,326 |
) |
|
$ |
— |
|
|
|
|
|
|
|
|
|
| Interest Expense-Convertible Note
5-GHS |
|
$ |
(8,132 |
) |
|
$ |
— |
|
|
|
|
|
|
|
|
|
| Interest Expense-Promissory
Note-GHS |
|
$ |
(3,426 |
) |
|
$ |
— |
|
|
|
|
|
|
|
|
|
| Interest income |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
| Total other income (expenses) |
|
|
(291,386 |
) |
|
|
(75,632 |
) |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss before income taxes |
|
|
(1,199,953 |
) |
|
|
(2,215,345 |
) |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income taxes |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss |
|
$ |
(1,199,953 |
) |
|
$ |
(2,215,345 |
) |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loss per common share-Basic and
Diluted |
|
$ |
(0.03 |
) |
|
$ |
(0.04 |
) |
|
|
|
|
|
|
|
|
For
the year ended March 31, 2020, the Company had a net loss from
continuing operations of approximately $1,199,953 compared to a
loss from continuing operations of approximately $2,215,345 for the
year ended March 31, 2019. This decrease in net loss is due largely
to the Company being in receivership alleviating legal fees related
to the Cromogen litigation, and the restructuring the Company
significantly reducing both R&D and marketing
expenses.
General
and administrative expenses represent bank charges, office
expenses, rent and filing fees.
INTEREST
EXPENSE
Interest
expense decreased to $4,765 in 2020 compared with $75,632 in
2019.
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.
CASH
FLOW & ASSETS
A
summary of our changes in cash flows & assets for the years
ended March 31, 2020 and 2019 is provided below:
| |
|
March 31, 2020 |
|
|
March 31, 2019 |
|
|
ASSETS |
|
|
|
|
|
|
|
|
| Current
Assets: |
|
|
|
|
|
|
|
|
| Cash |
|
$ |
30,723 |
|
|
$ |
127,524 |
|
| Accounts Receivable (net allowance of
$101,404 and $128,420 respectively) |
|
$ |
38,933 |
|
|
$ |
70,934 |
|
| Prepaid expenses and other current
assets |
|
|
54 |
|
|
|
33,751 |
|
| Inventory |
|
|
63,348 |
|
|
|
161,309 |
|
| Total current assets |
|
|
133,058 |
|
|
|
393,518 |
|
| |
|
|
|
|
|
|
|
|
| Property and equipment, net |
|
|
4,133 |
|
|
|
11,362 |
|
| |
|
|
|
|
|
|
|
|
| Other Assets: |
|
|
|
|
|
|
|
|
| Patent, net |
|
|
— |
|
|
|
— |
|
| Rou Asset |
|
|
11,170 |
|
|
|
— |
|
| Deposits |
|
|
6,191 |
|
|
|
6,191 |
|
| Total other assets |
|
|
17,361 |
|
|
|
6,191 |
|
| Total Assets |
|
$ |
154,552 |
|
|
$ |
411,071 |
|
| |
|
|
|
|
|
|
|
|
| LIABILITIES AND STOCKHOLDERS’S
EQUITY |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Current
Liabilities: |
|
|
|
|
|
|
|
|
| Accounts payable |
|
$ |
82,228 |
|
|
$ |
98,109 |
|
| Accrued expenses |
|
$ |
154,552 |
|
|
$ |
85,440 |
|
| Accrued settlement |
|
$ |
231,323 |
|
|
$ |
231,323 |
|
| Interest Payable-Conv Notes-GHS |
|
|
9,648 |
|
|
|
— |
|
| Interest Payable-Promissory
Note-GHS |
|
|
3,630 |
|
|
|
— |
|
| Convertible Note 1-GHS |
|
|
76,927 |
|
|
|
113,300 |
|
| Convertible Note 2-GHS |
|
|
88,596 |
|
|
|
— |
|
| Convertible Note 3-GHS |
|
|
88,525 |
|
|
|
— |
|
| Convertible Note 4-GHS |
|
|
88,894 |
|
|
|
— |
|
| Convertible Note 5-GHS |
|
|
55,000 |
|
|
|
— |
|
| Promissory Note-GHS |
|
|
30,000 |
|
|
|
30,000 |
|
| Lease Liability-Current |
|
|
11,170 |
|
|
|
— |
|
| Notes payable - related parties |
|
|
59,558 |
|
|
|
59,558 |
|
| Total current liabilities |
|
|
980,051 |
|
|
|
617,730 |
|
| Total liabilities |
|
|
980,051 |
|
|
|
617,730 |
|
| |
|
|
|
|
|
|
|
|
| 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 |
|
| Common stock, par value $0.001 per share, 75,000,000 shares
authorized; 37,813,092 and 52,205,400 shares issued and outstanding
as of March 31, 2020 and March 31, 2019 respectively |
|
|
37,814 |
|
|
|
52,206 |
|
| Additional paid-in capital |
|
|
28,050,192 |
|
|
|
27,449,487 |
|
| Accumulated deficit |
|
|
(28,913,505 |
) |
|
|
(27,713,552 |
) |
| Total stockholders’
(Deficit)Equity |
|
|
(825,499 |
) |
|
|
(206,659 |
) |
| Total Liabilities
and Stockholders’ (Deficit) Equity |
|
$ |
154,552 |
|
|
$ |
411,071 |
|
For
the year ended March 31, 2020 the Company had a net loss from
continuing operations of approximately $1,199,953 compared to a
loss from continuing operations of approximately $2,215,345 for the
year ended March 31, 2019. This decrease in net loss is due to the
Company being under receivership suspending research and
development and marketing expenses while restructuring the Company
assets and operations while expanding sales of current products, as
well as dealing with Cromogen legal matters in a different
approach, greatly reducing legal expense.
Marketing
expenses totaled $47,071 for the twelve months ended March 31,
2020, a decrease of $195,648 from $424,055 for the twelve months
ended March 31, 2019. This decrease primarily related to the
Company reducing marketing costs and utilizing existing marketing
materials.
Research
and development costs were totaled $76,113 for the twelve months
ended March 31, 20120, a decrease of $262,743 from $338,856. The
decrease is associated with the Company moving the
HygeeTM 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 determined to suspend current R&D based on core needs
of the business of the Company and to preserve cash.
Officer
stock compensation totaled $142,590 for the twelve months ended
March 31, 2020, a decrease of $281,465 from $424,055. This is due
the Company not having a Chief Sales Officer during the twelve
months ending March 31, 2020 compared to 2019, Company share value
being lower during share compensation issuances, and officers not
being issued shares for quart ending December 31, 2019 and year end
March 31, 2020.
Professional
fees totaled $30,991 for the twelve months ended March 31, 2020, a
decrease of $141,136 from $172,127. The reduction in professional
fees was due to timing and general cost savings.
Legal
proceedings costs totaled $84,777 for the twelve months ended March
31, 2020, a decrease of $262,743 from $338,856. The decrease is a
result of the Company being in receivership with the additional
fees and legal expenses through Strongbow. The legal and
professional advisors for the Receivership Estate, and expenses
through general and administration.
Total
Revenues - For the years ended March 31, 2020 and 2019, the Company
had total sales of $526,139 and $770,635, respectively. While our
revenues decreased, this was consistent with a corresponding
decrease in our cost of goods sold from $304,665 for the year ended
March 31, 2020 to $475,662 for the year ended March 31, 2019;
resulting in a Gross Profit of $218,474 as of March 31, 2020
compared to $295,013 for the previous year ending March 31, 2019.
The decrease in revenue is primarily attributed to inventory
constraints as well as available supply of acceptable raw material
the Company requires.
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 increased from $514,467 for the year
ended March 31, 2019, to $551,480 for the year ended March 31,
2020. [This increase was due receivership fees and bank
fees.]
The
Company had $30,723 in Cash for the period ended March 31, 2020,
compared with $127,524 for the same period ended March 31, 2019.
This decrease is primarily due to inventory constraints as well as
available supply of acceptable raw material the Company
requires.
The
Company had $82,228 in Accounts Payable for the period ended March
31, 2020, compared with $98,109 for the same period ended March 31,
2019. This decrease is primarily due to the many of the remaining
balances being paid for while others 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, 2020. The Company had the same amount in
Notes Payable and Accrued Interest for the period ended March 31,
2019.
The
Company had a Stockholder’s Deficit of $825,499 for the period
ended March 31, 2020, compared with $206,659 of Stockholder’s
Equity for the same period ended March 31, 2019. This increase is
primarily due to the Company’s effective S-1 being
utilized.
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 42% for the year
ended March 31, 2020, a increase of 3% from the gross margin
percentage of 38% for the prior year ended March 31, 2019. 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, 2020 and March 31, 2019,
the Company used cash for operating activities of $518,620 and
$1,643,024, respectively. Management aggressively managed expenses
and reduced cash outflows based on reduced sales
velocity.
CASH
FLOWS FROM INVESTING ACTIVITIES
During
the years ended March 31, 2020 and March 31, 2019, the Company had
no cash flows from investing activities.
CASH
FLOWS FROM FINANCING ACTIVITIES
During
the year ended March 31, 2020, the Company received $421,819 in
cash from issuance of unregistered and registered commons stock and
issuance of convertible note. For the Year ended March 31, 2019,
the Company received $1,698,510 in cash proceeds from the sale of
common stock and convertible and promissory notes.
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”). 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”).
On
October 15, 2019 the Securities and Exchange Commission declared
the previously filed S-1 registration statement to be
effective.
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISK
Not
applicable to a “smaller reporting company” as defined in Item
10(f)(1) of Regulation S-K.
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
The
financial statements required by this item are set forth at the
pages indicated in Part IV, Item 15(a)(1) of this Annual
Report.
Notes
to Financials
For
Earth
Science Tech Corporation
For
the Fiscal Year Ending
March
31, 2020
Table
of Contents
Report of Independent Registered
Public Accounting Firm
To
the shareholders and the board of directors of Earth Science Tech
Corporation
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of Earth
Science Tech Corporation as of March 31, 2020 and 2019, the related
statements of operations, stockholders’ equity (deficit), and cash
flows for the years then ended, and the related notes (collectively
referred to as the “financial statements”). In our opinion, the
financial statements present fairly, in all material respects, the
financial position of the Company as of March 31, 2020 and 2019,
and the results of its operations and its cash flows for the years
then ended, in conformity with accounting principles generally
accepted in the United States.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audit. We are a public
accounting firm registered with the Public Company Accounting
Oversight Board (United States) (“PCAOB”) and are required to be
independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We
conducted our audit in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or
fraud.
Our
audit included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audit also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audit provides a reasonable basis
for our opinion.
Substantial
Doubt about the Company’s Ability to Continue as a Going
Concern
The
accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note
3 to the financial statements, the Company has suffered recurring
losses from operations and has a significant accumulated deficit.
In addition, the Company continues to experience negative cash
flows from operations. These factors raise substantial doubt about
the Company’s ability to continue as a going concern. Management’s
plans in regard to these matters are also described in Note 3. The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
|
/S/
BF Borgers CPA PC |
|
|
BF
Borgers CPA PC |
|
|
|
|
|
We
have served as the Company’s auditor since 2017 |
|
|
Lakewood,
CO |
|
|
August
[ ],2020 |
|
EARTH
SCIENCE TECH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE
SHEETS
| |
|
March 31 2020 |
|
|
March 31, 2019 |
|
|
ASSETS |
|
|
|
|
|
|
|
|
| Current
Assets: |
|
|
|
|
|
|
|
|
| Cash |
|
$ |
30,723 |
|
|
$ |
127,524 |
|
| Accounts Receivable(net allowance of
$101,404 and $ 128,420 respectively) |
|
$ |
38,933 |
|
|
$ |
70,934 |
|
| Prepaid expenses and other current
assets |
|
|
54 |
|
|
|
33,751 |
|
| Inventory |
|
|
63,348 |
|
|
|
161,309 |
|
| Total current
assets |
|
|
133,058 |
|
|
|
393,518 |
|
| |
|
|
|
|
|
|
|
|
| Property and
equipment, net |
|
|
4,133 |
|
|
|
11,362 |
|
| |
|
|
|
|
|
|
|
|
| Other Assets: |
|
|
|
|
|
|
|
|
| Patent, net |
|
|
— |
|
|
|
— |
|
| Rou Asset |
|
|
11,170 |
|
|
|
— |
|
| Deposits |
|
|
6,191 |
|
|
|
6,191 |
|
| Total other
assets |
|
|
17,361 |
|
|
|
6,191 |
|
| Total
Assets |
|
$ |
154,552 |
|
|
$ |
411,071 |
|
| |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’S EQUITY |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Current
Liabilities: |
|
|
|
|
|
|
|
|
| Accounts payable |
|
$ |
82,228 |
|
|
$ |
98,109 |
|
| Accrued expenses |
|
$ |
154,552 |
|
|
$ |
85,440 |
|
| Accrued settlement |
|
|
231,323 |
|
|
|
231,323 |
|
| Interest Payable-Conv Notes-GHS |
|
|
9,648 |
|
|
|
— |
|
| Interest Payable-Promissory
Note-GHS |
|
|
3,630 |
|
|
|
— |
|
| Convertible Note 1-GHS |
|
|
76,927 |
|
|
|
113,300 |
|
| Convertible Note 2-GHS |
|
|
88,596 |
|
|
|
— |
|
| Convertible Note 3-GHS |
|
|
88,525 |
|
|
|
— |
|
| Convertible Note 4-GHS |
|
|
88,894 |
|
|
|
— |
|
| Convertible Note 5-GHS |
|
|
55,000 |
|
|
|
— |
|
| Promissory Note-GHS |
|
|
30,000 |
|
|
|
30,000 |
|
| Lease Liability-Current |
|
|
11,170 |
|
|
|
— |
|
| Notes payable -
related parties |
|
|
59,558 |
|
|
|
59,558 |
|
| Total current
liabilities |
|
|
980,051 |
|
|
|
617,730 |
|
| Total
liabilities |
|
|
980,051 |
|
|
|
617,730 |
|
| |
|
|
|
|
|
|
|
|
| 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 |
|
| Common stock, par value $0.001 per share, 75,000,000 shares
authorized; 37,813,092 and 52,205,400 shares issued and outstanding
as of March 31, 2020 and March 31, 2019 respectively |
|
|
37,814 |
|
|
|
52,206 |
|
| Additional paid-in capital |
|
|
28,050,192 |
|
|
|
27,449,487 |
|
| Accumulated
deficit |
|
|
(28,913,505 |
) |
|
|
(27,713,552 |
) |
| Total
stockholders’ (Deficit)Equity |
|
|
(825,499 |
) |
|
|
(206,659 |
) |
| Total
Liabilities and Stockholders’ (Deficit) Equity |
|
$ |
154,552 |
|
|
$ |
411,071 |
|
EARTH
SCIENCE TECH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
OPERATIONS
| |
|
For the Years Ended March 31, |
|
| |
|
2020 |
|
|
2019 |
|
| Revenue |
|
$ |
526,139 |
|
|
$ |
770,635 |
|
| Cost of revenues |
|
|
307,665 |
|
|
|
475,622 |
|
| Gross
Profit |
|
|
218,474 |
|
|
|
295,013 |
|
| |
|
|
|
|
|
|
|
|
| Operating
Expenses: |
|
|
|
|
|
|
|
|
| Compensation - officers |
|
|
194,019 |
|
|
|
223,404 |
|
| Officer Compensation Stock |
|
|
142,590 |
|
|
|
424,055 |
|
| Marketing |
|
|
47,071 |
|
|
|
242,719 |
|
| General and administrative |
|
|
551,480 |
|
|
|
514,467 |
|
| Donations |
|
|
— |
|
|
|
— |
|
| Loss on disposal of assets |
|
|
— |
|
|
|
— |
|
| Patent Impairment Expenses |
|
|
— |
|
|
|
34,334 |
|
| Professional fees |
|
|
30,991 |
|
|
|
172,127 |
|
| Bad Debt Expense |
|
|
— |
|
|
|
31,211 |
|
| Cost of legal proceedings |
|
|
84,777 |
|
|
|
453,553 |
|
| Research and
development |
|
|
76,113 |
|
|
|
338,856 |
|
| Total operating
expenses |
|
|
1,127,041 |
|
|
|
2,434,726 |
|
| |
|
|
|
|
|
|
|
|
| Loss
from operations |
|
|
(908,567 |
) |
|
|
(2,139,713 |
) |
| |
|
|
|
|
|
|
|
|
| Other Income
(Expenses) |
|
|
|
|
|
|
|
|
| Interest Income/(expense) |
|
|
21,586 |
|
|
|
(75,632 |
) |
| Interest Expense-Convertible Note
1-GHS |
|
|
(39,117 |
) |
|
|
— |
|
| Interest Expense-Convertible Note
2-GHS |
|
|
(79,330 |
) |
|
|
— |
|
| Interest Expense-Convertible Note
3-GHS |
|
|
(91,702 |
) |
|
|
— |
|
| Interest Expense-Convertible Note
4-GHS |
|
|
(91,326 |
) |
|
|
— |
|
| Interest Expense-Convertible Note
5-GHS |
|
|
(8,071 |
) |
|
|
— |
|
| Interest Expense-Promissory
Note-GHS |
|
|
(3,426 |
) |
|
|
— |
|
| Interest
income |
|
|
— |
|
|
|
— |
|
| Total other
income (expenses) |
|
|
(291,386 |
) |
|
|
(75,632 |
) |
| |
|
|
|
|
|
|
|
|
| Net loss before income taxes |
|
|
(1,199,953 |
) |
|
|
(2,215,345 |
) |
| |
|
|
|
|
|
|
|
|
| Income
taxes |
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| Net
loss |
|
$ |
(1,199,953 |
) |
|
$ |
(2,215,345 |
) |
| |
|
|
|
|
|
|
|
|
| Net loss per common share: |
|
|
|
|
|
|
|
|
| Loss per common
share-Basic and Diluted |
|
$ |
(0.03 |
) |
|
$ |
(0.04 |
) |
EARTH
SCIENCE TECH. INC, AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS’ (DEFICIT) EQUITY
FOR
THE YEARS ENDED MARCH 31, 20120 AND 2019
| |
|
Common Stock |
|
|
Preferred Stock |
|
|
Additional Paid-in |
|
|
Accu-mulated |
|
|
|
|
|
Description |
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Total |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance March 31, 2018 |
|
|
46,150,207 |
|
|
|
46,150 |
|
|
|
5,200,000 |
|
|
|
5,200 |
|
|
|
25,326,876 |
|
|
|
(25,498,207 |
) |
|
|
(119,981 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common
stock issued for cash |
|
|
5,180,093 |
|
|
|
5,180 |
|
|
|
|
|
|
|
|
|
|
|
1,559,014 |
|
|
|
|
|
|
|
1,564,194 |
|
| Common
stock issued for services |
|
|
75,000 |
|
|
|
75 |
|
|
|
|
|
|
|
|
|
|
|
57,345 |
|
|
|
|
|
|
|
57,420 |
|
| Common
stock issued for officer compensation |
|
|
494,500 |
|
|
|
495 |
|
|
|
|
|
|
|
|
|
|
|
423,559 |
|
|
|
|
|
|
|
424,054 |
|
| Common
stock issued for employee compensation |
|
|
30,600 |
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
24,052 |
|
|
|
|
|
|
|
24,083 |
|
| Common
stock returned to company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
| Common
stock duplicated to be cancelled |
|
|
275,000 |
|
|
|
275 |
|
|
|
|
|
|
|
|
|
|
|
(275 |
) |
|
|
|
|
|
|
- |
|
| BCF
Intrinsic value on Convertible Note-GHS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,916 |
|
|
|
|
|
|
|
58,916 |
|
| Net Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,215,345 |
) |
|
|
(2,215,345 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance March 31, 2019 |
|
|
52,205,400 |
|
|
$ |
52,206 |
|
|
$ |
5,200,000 |
|
|
$ |
5,200 |
|
|
$ |
27,449,487 |
|
|
$ |
(27,713,552 |
) |
|
|
(206,659 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common
stock issued for cash |
|
|
2,926,699 |
|
|
|
2,927 |
|
|
|
|
|
|
|
|
|
|
|
218,892 |
|
|
|
|
|
|
|
221,819 |
|
| Common
stock issued for services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common
stock issued for officer compensation |
|
|
243,000 |
|
|
|
243 |
|
|
|
|
|
|
|
|
|
|
|
142,347 |
|
|
|
|
|
|
|
142,590 |
|
| Common
stock issued for employee compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Adjustment to 8/18/19 conversion rate on 237,993
shares issued to GHS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(59,498 |
) |
|
|
|
|
|
|
- |
|
| Common
Stock cancellation-Majorca 1/24/20 |
|
|
(18,000,000 |
) |
|
|
(18,000 |
) |
|
|
|
|
|
|
|
|
|
|
18,000 |
|
|
|
|
|
|
|
|
|
| Preferred
Stock cancellation-Majorca 1/24/20 |
|
|
|
|
|
|
|
|
|
|
(5,200,000 |
) |
|
|
(5,200 |
) |
|
|
5,200 |
|
|
|
|
|
|
|
(5,200 |
) |
| Common
stock issued for Conversion on Note |
|
|
437,993 |
|
|
|
438 |
|
|
|
|
|
|
|
|
|
|
|
133,258 |
|
|
|
|
|
|
|
133,696 |
|
| BCF
Intrinsic value on Convertible Note-GHS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142,506 |
|
|
|
|
|
|
|
142,506 |
|
| Net Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,078,478 |
) |
|
|
(1,078,478 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance March 31, 2020 |
|
|
37,813,092 |
|
|
$ |
37,814 |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
28,050,192 |
|
|
$ |
(28,792,030 |
) |
|
|
(704,024 |
) |
EARTH
SCIENCE TECH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH
FLOWS
| |
|
For the Years ended March 31 |
|
| |
|
2020 |
|
|
2019 |
|
| Cash Flow From
Operating Activities: |
|
|
|
|
|
|
|
|
| Net loss |
|
|
(1,999,953 |
) |
|
|
(2,215,345 |
) |
| Adjustments to
reconcile net loss to net cash from operating activities: |
|
|
|
|
|
|
|
|
| Stock-based compensation |
|
|
142,590 |
|
|
|
448,137 |
|
| Stock issued for services |
|
|
— |
|
|
|
57,420 |
|
| Depreciation and amortization |
|
|
7,229 |
|
|
|
11,533 |
|
| Changes in
operating assets and liabilities: |
|
|
|
|
|
|
|
|
| Increase/Decrease in deposits |
|
|
|
|
|
|
|
|
| Increase/Decrease in prepaid expenses
and other current assets |
|
|
82,401 |
|
|
|
96,634 |
|
| Decrease/Increase in inventory |
|
|
97,961 |
|
|
|
(26,525 |
) |
| Increase in other assets |
|
|
|
|
|
|
|
|
| Increase in accrued settlement |
|
|
|
|
|
|
|
|
| Increase in
accounts payable |
|
|
351,152 |
|
|
|
(14,878 |
) |
| Net
Cash Used in Operating Activities |
|
|
(518,620 |
) |
|
|
(1,643,024 |
) |
| |
|
|
|
|
|
|
|
|
| Investing
Activities: |
|
|
|
|
|
|
|
|
| Purchases of property and
equipment |
|
|
|
|
|
|
|
|
| Patent
expenditures |
|
|
— |
|
|
|
— |
|
| Net
Cash Used in Investing Activities |
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
| Financing
Activities: |
|
|
|
|
|
|
|
|
| Proceeds from issuance of common
stock |
|
|
221,819 |
|
|
|
1,564,194 |
|
| Proceeds from notes payable- related
party |
|
|
— |
|
|
|
— |
|
| Proceeds from Convertible Note
1-GHS |
|
|
200,000 |
|
|
|
104,316 |
|
| Proceeds from Promissory Note-
GHS |
|
|
— |
|
|
|
30,000 |
|
| Repayment of
advances from related party |
|
|
— |
|
|
|
— |
|
| Net
Cash Provided by Financing Activities |
|
|
421,819 |
|
|
|
1,698,510 |
|
| |
|
|
|
|
|
|
|
|
| Net Increase in
Cash |
|
|
(96,801 |
) |
|
|
55,486 |
|
| |
|
|
|
|
|
|
|
|
| Cash -
Beginning of year |
|
|
127,524 |
|
|
|
72,038 |
|
| Cash -
End of year |
|
|
30,723 |
|
|
|
127,524 |
|
Note 1 — Organization and Nature of
Operations
Earth
Science Tech, Inc. (“ETST” or the “Company”) was incorporated under
the laws of the State of Nevada on April 23, 2010. ETST is a unique
biotechnology company focused on cutting edge nutraceuticals and
Bioceuticals designed to excel in industries such as health,
wellness, nutrition, supplement, cosmetic and alternative medicine
to improve illnesses and the quality of life for consumers
worldwide. The Company sells its products through its retail store
located in Coral Gables Florida and through the internet. ETST is
currently focused on delivering 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 and aging. ETST products
include vitamins, minerals, herbs, botanicals, personal care
products, homeopathies, functional foods, and other products. These
products are marketed in various formulations and delivery forms
including capsules, tablets, soft gels, chewables, liquids, creams,
sprays, powders, and whole herbs. During 2015, ETST entered into a
license and distribution agreement to provide its Cannabidiol oil
to retailers in the vaping industry.
Note
2 — Summary of Significant Accounting Policies
Basis of presentation
The
Company’s accounting policies used in the presentation of the
accompanying consolidated financial statements conform to
accounting principles generally accepted in the United States of
America (“US GAAP”) and have been consistently applied.
Principles of consolidation
The
accompanying consolidated financial statements include all of the
accounts of the Company and its wholly-owned subsidiaries. The
subsidiaries include Earth Science Tech Inc, Nutrition Empire Co.
Ltd., Earth Science Vapor, and Earth Science Pharmaceutical Inc.
and Kannabidioid Inc.
We
operate through wholly-owned subsidiaries which provide products,
marketing and distribution. As of December 2014, Nutrition Empire,
Inc. was opened as a brick and mortar retail store that provides
health, wellness, sports nutrition and dietary supplement products
at competitive prices. In March 2015, the Company created Earth
Science Tech Vapor One, Inc., a license and distribution company
allowing us entry in the maturing marketplace of the vaping
industry. In 8/22/2016 Earth Science Pharmaceuticals, Inc. was
formed to acquire Beo Its, Inc. Our licensing relationship gives us
the market mobility, allowing us to capture the emerging market
offering our Cannabidiol oil to our retail partners as demand
emerges.
All
intercompany balances and transactions have been eliminated on
consolidation.
Use of estimates and assumptions
The
preparation of the condensed consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods.
The
Company’s significant estimates and assumptions include the fair
value of financial instruments; the accrual of the legal
settlement, the carrying value recoverability and impairment, if
any, of long-lived assets, including the estimated useful lives of
fixed assets; the valuation allowance of deferred tax assets; stock
based compensation, the valuation of the inventory reserves and the
assumption that the Company will continue as a going concern. Those
significant accounting estimates or assumptions bear the risk of
change due to the fact that there are uncertainties attached to
those estimates or assumptions, and certain estimates or
assumptions are difficult to measure or value.
Management
bases its estimates on historical experience and on various
assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources.
Management
regularly reviews its estimates utilizing currently available
information, changes in facts and circumstances, historical
experience and reasonable assumptions. After such reviews, and if
deemed appropriate, those estimates are adjusted accordingly.
Actual results could differ from those estimates.
Carrying value, recoverability and impairment of long-lived
assets
The
Company follows Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC’) 360 to evaluate its
long-lived assets. The Company’s long-lived assets, which include
property and equipment and three patent applications are reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be
recoverable.
The
Company assesses the recoverability of its long-lived assets by
comparing the projected undiscounted net cash flows associated with
the related long-lived asset or group of long-lived assets over
their remaining estimated useful lives against their respective
carrying amounts. Impairment, if any, is based on the excess of the
carrying amount over the fair value of those assets. Fair value is
generally determined using the asset’s expected future discounted
cash flows or market value, if readily determinable. If long-lived
assets are determined to be recoverable, but the newly determined
remaining estimated useful lives are shorter than originally
estimated, the net book values of the long-lived assets are
depreciated over the newly determined remaining estimated useful
lives.
The
Company considers the following to be some examples of important
indicators that may trigger an impairment review: (i) significant
under-performance or losses of assets relative to expected
historical or projected future operating results; (ii) significant
changes in the manner or use of assets or in the Company’s overall
strategy with respect to the manner or use of the acquired assets
or changes in the Company’s overall business strategy; (iii)
significant negative industry or economic trends; (iv) increased
competitive pressures; (v) a significant decline in the Company’s
stock price for a sustained period of time; and (vi) regulatory
changes. The Company evaluates assets for potential impairment
indicators at least annually and more frequently upon the
occurrence of such events. Impairment of changes, if any, are
included in operating expenses.
On
June 4, 2019 the Company let its patents be abandoned based upon
the advice of IP counsel. IP counsel indicated that only one patent
application had a reasonable chance of being granted and based upon
this advice the Company determined that it would discontinue this
approach of using the patent process to protect product
formulations in general and rather, revert to proprietary formulae
and trade secrets to protect its intellectual property (unless it
was clear from the beginning of the process that the formula was
patentable. As a result on Jun 4, 2019, the company wrote down or
otherwise impaired approximately $27,000 in legal fees that had
previously been attributed to its Patents and took a corresponding
write-off to “impairment expense.”
Cash and cash equivalents
The
Company considers all highly liquid investments with a maturity of
three months or less to be cash and cash equivalents.
Related parties
The
Company follows ASC 850 for the identification of related parties
and disclosure of related party transactions.
Pursuant
to this ASC related parties include a) affiliates of the Company;
b) entities for which investments in their equity securities would
be required, absent the election of the fair value option under the
Fair Value Option Subsection of Section 825-10-15, to be accounted
for by the equity method by the investing entity; c) trusts for the
benefit of employees, such as pension and profit-sharing trusts
that are managed by or under the trusteeship of management; d)
principal owners of the Company; e) management of the Company; f)
other parties with which the Company may deal if one party controls
or can significantly influence the management or operating policies
of the other to an extent that one of the transacting parties might
be prevented from fully pursuing its own separate interests; and g)
other parties that can significantly influence the management or
operating policies of the transacting parties or that have an
ownership interest in one of the transacting parties and can
significantly influence the other to an extent that one or more of
the transacting parties might be prevented from fully pursuing its
own separate interests.
Commitments and contingencies
The
Company follows ASC 450 to account for contingencies. Certain
conditions may exist as of the date the consolidated financial
statements are issued, which may result in a loss to the Company
but which will only be resolved when one or more future events
occur or fail to occur. This may result in contingent liabilities
that are required to be accrued or disclosed in the financial
statements. The Company assesses such contingent liabilities, and
such assessment inherently involves an exercise of judgment. In
assessing loss contingencies related to legal proceedings that are
pending against the Company or unasserted claims that may result in
such proceedings, the Company evaluates the perceived merits of any
legal proceedings or unasserted claims as well as the perceived
merits of the amount of relief sought or expected to be sought
therein.
If
the assessment of a contingency indicates that it is probable that
a material loss has been incurred and the amount of the liability
can be estimated, then the estimated liability would be accrued in
the Company’s consolidated financial statements. If the assessment
indicates that a potential material loss contingency is not
probable but is reasonably possible, or is probable but cannot be
estimated, then the nature of the contingent liability, and an
estimate of the range of possible losses, if determinable and
material, would be disclosed.
Loss
contingencies considered remote are generally not disclosed unless
they involve guarantees, in which case the guarantees would be
disclosed. Management does not believe, based upon information
available at this time, that these matters will have a material
adverse effect on the Company’s consolidated financial position,
results of operations or cash flows. However, there is no assurance
that such matters will not materially and adversely affect the
Company’s business, financial position, and results of operations
or cash flows.
Revenue recognition
The
Company follows and implemented ASC 606, Revenue from Contracts
with Customers for revenue recognition. Although the new revenue
standard is expected to have an immaterial effect, if any, on our
ongoing net income, we did implement changes to our processes
related to revenue recognition and the control activities within
them. These included the development of new policies based on the
five-step model provided in the new revenue standard, ongoing
contract review requirements, and gathering of information provided
for disclosures.
The
Company recognizes revenue from product sales or services rendered
when control of the promised goods are transferred to our clients
in an amount that reflects the consideration to which we expect to
be entitled in exchange for those goods and services. To achieve
this core principle, we apply the following five steps: identify
the contract with the client, identify the performance obligations
in the contract, determine the transaction price, allocate the
transaction price to performance obligations in the contract and
recognize revenues when or as the Company satisfies a performance
obligation.
The
Company recognizes its retail store revenue at point of sale, net
of sales tax.
Inventories
Inventories
consist of various types of nutraceuticals and bioceuticals at the
Company’s main facility. Inventories are stated at the lower of
cost or market using the first in, first out (FIFO) method. A
reserve is established if necessary to reduce excess or obsolete
inventories to their net realizable value.
Cost of Sales
Components
of costs of sales include product costs, shipping costs to
customers and any inventory adjustments.
Shipping and Handling Costs
The
Company includes shipping and handling fees billed to customers as
revenues and shipping and handling costs for shipments to customers
as cost of revenues.
Research and development
Research
and development costs are expensed as incurred. The Company’s
research and development expenses relate to its engineering
activities, which consist of the design and development of new
products for specific customers, as well as the design and
engineering of new or redesigned products for the industry in
general.
Income taxes
The
Company follows ASC 740 in accounting for income taxes. Deferred
tax assets and liabilities are determined based on the estimated
future tax effects of net operating loss carry forwards and
temporary differences between the tax bases of assets and
liabilities and their respective financial reporting amounts
measured at the current enacted tax rates. The Company records a
valuation allowance for its deferred tax assets when management
concludes that it is not more likely than not those assets will be
recognized.
The
Company recognizes a tax benefit from an uncertain tax position
only if it is more likely than not that the tax position will be
sustained on examination by taxing authorities, based on the
technical merits of the position. The tax benefits recognized in
the consolidated financial statements from such a position are
measured based on the largest benefit that has a greater than 50%
likelihood of being realized upon ultimate settlement. As of March
31, 2020 the Company has not recorded any unrecognized tax
benefits.
Interest
and penalties related to liabilities for uncertain tax positions
will be charged to interest and operating expenses, respectively.
The Company has net operating loss carry forwards (NOL) for income
tax purposes of approximately $6,150,613. This loss is allowed to
be offset against future income until the year 2039 when the NOL’s
will expire. The tax benefits relating to all timing differences
have been fully reserved for in the valuation allowance account due
to the substantial losses incurred through March 31, 2020. The
change in the valuation allowance for the years ended March 31,
2020 and 2019 was an increase of $0 and $0,
respectively.
Internal
Revenue Code Section 382 (“Section 382”) imposes limitations on the
availability of a company’s net operating losses after certain
ownership changes occur. The Section 382 limitation is based upon
certain conclusions pertaining to the dates of ownership changes
and the value of the Company on the dates of the ownership changes.
It was determined that an ownership change occurred in October 2013
and March 2014. The amount of the Company’s net operating losses
incurred prior to the ownership changes are limited based on the
value of the Company on the date of the ownership change.
Management has not determined the amount of net operating losses
generated prior to the ownership change available to offset taxable
income subsequent to the ownership change.
Net loss per common share
The
Company follows ASC 260 to account for earnings per share. Basic
earnings per common share calculations are determined by dividing
net results from operations by the weighted average number of
shares of common stock outstanding during the year. Diluted loss
per common share calculations are determined by dividing net
results from operations by the weighted average number of common
shares and dilutive common share equivalents outstanding. During
periods when common stock equivalents, if any, are anti-dilutive
they are not considered in the computation.
As of
March 31 2020 the Company has no warrants that are anti-dilutive
and not included in the calculation of diluted loss per
share.
Cash flows reporting
The
Company follows ASC 230 to report cash flows. This standard
classifies cash receipts and payments according to whether they
stem from operating, investing, or financing activities and
provides definitions of each category, and uses the indirect or
reconciliation method (“Indirect method”) as defined by this
standard to report net cash flow from operating activities by
adjusting net income to reconcile it to net cash flow from
operating activities by removing the effects of (a) all deferrals
of past operating cash receipts and payments and all accruals of
expected future operating cash receipts and payments and (b) all
items that are included in net income that do not affect operating
cash receipts and payments. The Company reports separately
information about investing and financing activities not resulting
in cash receipts or payments in the period pursuant this
standard.
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 over the service period, which is usually
the vesting period. The Company values stock based compensation at
the market price of the Company’s common stock as of the date in
which the obligation for payment of service is incurred.
The
Company accounts for transactions in which service 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.
Property and equipment
Property
and equipment is recorded at cost net of accumulated depreciation.
Depreciation is computed using the straight-line method based upon
the estimated useful lives of the respective assets as
follows:
|
Leasehold
improvements |
Shorter
of useful life or term of lease |
|
|
|
|
Signage |
5
years |
|
|
|
|
Furniture
and equipment |
5
years |
|
|
|
|
Computer
equipment |
5
years |
The
cost of repairs and maintenance is expensed as incurred; major
replacements and improvements are capitalized. When assets are
retired or disposed of, the cost and accumulated depreciation are
removed from accounts and any resulting gains or losses are
included in operations.
Recently issued accounting pronouncements
In
August 2016, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update (“ASU”) No. 2016-15,
Classification of Certain Cash Receipts and Cash Payments.
The new standard will change the classification of certain cash
payments and receipts within the cash flow statement. Specifically,
payments for debt prepayment or debt extinguishment costs,
including third-party costs, premiums paid, and other fees paid to
lenders that are directly related to the debt prepayment or debt
extinguishment, excluding accrued interest, will now be classified
as financing activities. Previously, these payments were classified
as operating expenses. The guidance is effective for fiscal years
beginning after December 15, 2018, and interim periods within
fiscal years beginning after December 15, 2019, with early adoption
permitted, and will be applied retrospectively. The Company does
not expect that the adoption of this new standard will have a
material impact on its consolidated financial
statements.
In
February 2016, the FASB issued Accounting Standards Update No.
2016-02, Leases. This ASU requires lessees to recognize most
leases on their balance sheets related to the rights and
obligations created by those leases. The ASU also requires
additional qualitative and quantitative disclosures related to the
nature, timing and uncertainty of cash flows arising from leases.
The guidance is effective for fiscal years beginning after December
15, 2018, and interim periods within those fiscal years. Early
adoption is permitted. The Company is currently evaluating the
impact the adoption of this new standard will have on its
consolidated financial statements.
In
March 2016, the FASB issued Accounting Standards Update No.
2016-09, Compensation – Stock Compensation. The new standard
modified several aspects of the accounting and reporting for
employee share- based payments and related tax accounting impacts,
including the presentation in the statements of operations and cash
flows of certain tax benefits or deficiencies and employee tax
withholdings, as well as the accounting for award forfeitures over
the vesting period. The new standard was effective for the Company
on April 1, 2017. The Company does not believe that the adoption of
this new standard will have a material effect on its consolidated
financial statements.
In
May 2014, the FASB issued Accounting Standards Update No. 2014-09,
Revenue from Contracts with Customers. This guidance will supersede
Topic 605, Revenue Recognition, in addition to other
industry-specific guidance, once effective. The new standard
requires a company to recognize revenue in a manner that depicts
the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the company expects
to be entitled in exchange for those goods and services. In August
2015, the FASB issued ASU 2015-14, Revenue from Contracts with
Customers: Deferral of the Effective Date, as a revision to ASU
2014-09, which revised the effective date to fiscal years, and
interim periods within those years, beginning after December 15,
2017. Early adoption is permitted but not prior to periods
beginning after December 15, 2016 (i.e., the original adoption date
per ASU 2014-09). In March 2016, the FASB issued ASU 2016-08,
Revenue from Contracts with Customers: Principal versus Agent
Considerations, which clarifies certain aspects of the principal-
versus-agent guidance, including how an entity should identify the
unit of accounting for the principal versus agent evaluation and
how it should apply the control principle to certain types of
arrangements, such as service transactions. The amendments also
reframe the indicators to focus on evidence that an entity is
acting as a principal rather than as an agent. In April 2016, the
FASB issued ASU 2016-10, Revenue from Contracts with Customers:
Identifying Performance Obligations and Licensing, which clarifies
how an entity should evaluate the nature of its promise in granting
a license of intellectual property, which will determine whether it
recognizes revenue over time or at a point in time. The amendments
also clarify when a promised good or service is separately
identifiable (i.e., distinct within the context of the contract)
and allow entities to disregard items that are immaterial in the
context of a contract. The Company continues to assess the impact
this new standard may have on its ongoing financial reporting. The
Company has identified its revenue streams both by contract and
product type and is assessing each for potential impacts. For the
revenue streams assessed, the Company does not anticipate a
material impact in the timing or amount of revenue
recognized.
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.
Intangible Assets
In
October 2014, the Company acquired a patent that is being amortized
over its useful life of fifteen years in accordance with ASC 350,
“Intangibles - Goodwill and Other”. The Company purchased the
patent through a cash payment of $25,000. Additionally, the Company
capitalized patent fees of $26,528. The Company’s balance of
intangible assets on the condensed consolidated balance sheet net
of accumulated amortizations $0 and $34.334 as of March 31, 2020
and March 31, 2019, respectively. Amortization expense related to
the intangible assets was $4,406.00 and $4,406.00, respectively for
the years ended March 31, 2019 and 2018, respectively.
Reclassification
Certain
amounts from the prior period have been reclassified to conform to
the current period presentation.
Note
3 — Going Concern
The
accompanying condensed consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. At March 31, 2020, the Company had negative working
capital, an accumulated deficit of $28,913,505 and was in
negotiations to extend the maturity date on notes payable that are
in default. These factors raise substantial doubt about the
Company’s ability to continue as a going concern.
While
the Company is attempting to generate sufficient revenues, the
Company’s cash position may not be sufficient to pay its
obligations and support the Company’s daily operations. Management
intends to raise additional funds by way of a public or private
offering. Management believes that the actions presently being
taken to further implement its business plan and generate
sufficient revenues may provide the opportunity for the Company to
continue as a going concern. While the Company believes in the
viability of its strategy to generate sufficient revenues and in
its ability to raise additional funds, there can be no assurances
to that effect. The ability of the Company to continue as a going
concern is dependent upon the Company’s ability to further
implement its business plan and generate sufficient
revenues.
The
condensed consolidated financial statements do not include any
adjustments that might be necessary if the Company is unable to
continue as a going concern.
Note
4 - Related Party Balances and Transactions
Kannabidioid,
Inc. is currently in development stage and has had no related party
revenue from Earth Science Tech, Inc. for the three months ended
March 31, 2020.
On
January 11, 2019, Robert Stevens was appointed by the Nevada
District Court as Receiver for the Company in Case No.
A-18-784952-C. As approved by the Nevada District Court, Strongbow
Advisors, Inc., an entity controlled by Robert Stevens
(“Strongbow”), is compensated at a rate of $400 per hour for his
services as the Company’s Receiver. During the twelve months ended
March 31, 2020, $319,256.84 has been paid to Strongbow as
compensation for Mr. Stevens’ services as the Company’s
Receiver.
Note
5 – Stockholders’ Equity
During
the years ended March 31, 2020 and 2019, the Company issued
3,164,692 and 5,180,903 common shares for cash of $335,117.44 and
$1,564,194 respectively.
During
the years ended March 31, 2020 and 2019, the Company issued 0 and
75,000 common shares for services at a fair value of $0.00 and
$57,420 respectively.
During
the years ended March 31, 2020 and 2019, the Company issued 240,000
and 494,500 common shares with a fair value of $142,590 and
$424,054, respectively to officers as compensation.
On
June 30, 2019 the Company issued to five executive officers at a
price of $0.73 per share an aggregate of 123,000 restricted shares
of the Company’s Common Stock for an aggregate consideration of
$89,790.
On
August 19, 2019 the Company issued 237,993 shares of Common Stock
at a price of $0.50 per share in conversion of the Convertible Note
1-GHS for the principal debt amount of $113,300.00 and interest of
$5,696.47 totaling $118,996.47 pursuant to the exemption provided
by 3(a)9 of the Securities Act of 1933, as amended. Like the other
notes purchased by GHS, the notes were originally issued as “not in
a public offering” under the exemption provided by Section 4(2) of
the Securities Act of 1933, as amended.
On
August 30, 2019 the Company issued to two separate investors at a
price of $0.40 per share an aggregate of 237,500 restricted shares
of the Company’s Common Stock for an aggregate consideration of
$95,000.
On
September 30, 2019 the Company issued to four executive officers at
a price of $0.44 per share an aggregate of 120,000 restricted
shares of the Company’s Common Stock for an aggregate consideration
of $52,800.
On
October 16, 2019 the Company issued to GHS Investments LLC through
its S-1 at a price of $0.08 per share an aggregate of 177,663 free
trading shares of the Company’s Common Stock for an aggregate
consideration of $14,213.04.
On
October 23, 2019 the Company issued to GHS Investments LLC through
its S-1 at a price of $0.228 per share an aggregate of 80,060 free
trading shares of the Company’s Common Stock for an aggregate
consideration of $18,253.60 .
On
December 18, 2019 the Company issued to GHS Investments LLC through
its S-1 at a price of $0.05272 per share an aggregate of 189,648
free trading shares of the Company’s Common Stock for an aggregate
consideration of $9,998.20.
On
January 7, 2020 the Company issued to GHS Investments LLC through
its S-1 at a price of $0.048 per share an aggregate of 239,671 free
trading shares of the Company’s Common Stock for an aggregate
consideration of $11,504.20.
On
January 21, 2020 the Company issued to GHS Investments LLC through
its S-1 at a price of $0.05608 per share an aggregate of 242,369
free trading shares of the Company’s Common Stock for an aggregate
consideration of $13,592.00.
On
February 6, 2020 the Company issued to GHS Investments LLC through
its S-1 at a price of $0.072 per share an aggregate of 165,962 free
trading shares of the Company’s Common Stock for an aggregate
consideration of $11,949.20.
On
February 21, 2020 the Company issued to GHS Investments LLC through
its S-1 at a price of $0.05552 per share an aggregate of 430,800
free trading shares of the Company’s Common Stock for an aggregate
consideration of $23,918.00.
On
March 13, 2020 the Company issued to GHS Investments LLC through
its S-1 at a price of $0.02008 per share an aggregate of 717,232
free trading shares of the Company’s Common Stock for an aggregate
consideration of $14,402.00.
On
March 27, 2020 the Company issued to GHS Investments LLC through
its S-1 at a price of $0.02016 per share an aggregate of 445,794
free trading shares of the Company’s Common Stock for an aggregate
consideration of $8,987.20.
Note
6 - Commitments and Contingencies
Legal Proceedings
On
January 11, 2019, the Company received notice that Strongbow
Advisors, Inc. 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.
Cromogen
prevailed in our appeal in the appeals process in No. 19-10118,
United States Court of Appeals for the Eleventh Circuit on April
14, 2020. The Receiver subsequently allowed Cromogen status as an
unsecured creditor in the estate. As of the date of this filing the
Company remains in danger of insolvency if a plan of reorganization
is not subsequently approved by the court that adequately resolves
the Cromogen unsecured debt or Cromogen agrees to a settlement.
Previous attempts to settle the amounts with Cromogen have been
fruitless.
As
part of the impact of the receivership, the Court issued a Writ of
Injunction and “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.
There
are a number of possible outcomes to the receivership, including
settlement and payment to creditors, reorganization, or
liquidation. The Receiver was tasked by the Court with bringing to
a final settlement all of the unfinished business of the Company.
Towards that end, the Receiver is allowed, 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 to pay and settle
the Company’s debts, while preserving the value of its assets for
the benefit of its shareholders. If the Receiver is not successful
in mitigating the Company’s liabilities, or otherwise, the
Company’s results could be materially adversely impacted and the
Company may be forced to liquidate its business.
On
November 7, 2019 the Receiver for Earth Science Tech, Inc., a
Nevada corporation (the “Company”) filed a motion for preliminary
injunction against Majorca Group Ltd. in the 8th Judicial District
in Clark County, Nevada. The filing requests a show cause hearing
whereby the Company will request the Court grants it motion to
cancel certain shares and class of stock and to nullify certain
amendments of the Articles of Incorporation. Specifically, the
Company is asking that Majorca Group Ltd. be restricted from
selling, transferring, converting, encumbering, hypothecating,
obtaining loans against or in any fashion or in any way
transferring their shares of common and preferred stock in the
Company. Additionally the motion seeks a Freezing Injunction over
any broker, bank, any financial institution, attorney, or agent
holding shares of the Company as well as any proceeds from shares
of the Company.
On
January 27, 2020 Earth Science Tech, Inc., a Nevada corporation
(the “Company”) reached a confidential settlement with Majorca
Group, Ltd (“Majorca”). The Receiver will withdraw its motion for
injunction over the Majorca common and preferred shares. The
Settlement Agreement provides that Majorca Group, Ltd. and all
relevant parties will, within 10 days of execution of the
settlement agreement, return 18,000,000 common shares and 5,200,000
Series A Preferred Stock held by Majorca for cancellation. The
Series A Preferred Stock class will be cancelled completely. The
remaining 6,520,000 common shares held by Majorca is subject to
lockup agreement and thereafter, sales will be made only pursuant
to a limited strict bleed-out agreement administered by a third
party.
Employment Agreement
The
Company is a party to an employment agreement with its chief
operations officer since October 9, 2016. The terms of the
agreement require the Company to pay its chief operations officer a
monthly salary of $6,000 and 50,000 fully vested shares of the
Company’s common stock at the end of each quarter. This agreement
is cancelable by either party giving thirty days’
notice.
Lease Agreements
On
August 14, 2017, the Company entered into an office lease covering
its new Doral, Florida headquarters, with landlord Doral Flex. The
Lease term is for 37 months commencing on September 1, 2017 and
ending on September 30, 2020. The monthly rent, including sales tax
is $1,990, $2,056 and $2,124 for the years ending 9/30/2018,
9/30/2019 and 9/30/2020, respectively. A deposit of $6,191 was
tendered to secure the lease. Rent expense for the year ended March
31, 2020 and 2019 were $27,801 and $27,022.17
respectively.
Note
7 - Balance Sheet and Income Statement Footnotes
Accounts
receivable represent normal trade obligations from customers that
are subject to normal trade collection terms, without discounts or
rebates. If collection is expected in one year or less they are
classified as current assets. If not, they are presented as
non-current assets. Notwithstanding, these collections, the Company
periodically evaluates the collectability of accounts receivable
and considers the need to establish an allowance for doubtful debts
based upon historical collection experience and specifically
identifiable information about its customers. As of March 31, 2020,
and 2019, the Company had allowances of $101,404 and $128,420
respectively. The Company used an allowance of 40% of receivables
over 90 days to charge bad debt expense.
Prepaid
expenses and other current assets for year ended March 31, 2020
were $54 which are significantly lower than March 31, 2019 of
$33,751 due to released deposits and advance work to be performed
requiring deposits.
Accounts
payable are obligations to pay for goods and services that have
been acquired in the ordinary course of business from suppliers.
Accounts payable are classified as current liabilities if payment
is due within one year or less (or in the normal operating cycle of
the business if longer). If not, they are presented as non-current
liabilities
Accrued
expenses of $154,552 as of March 31, 2020 represent $126,000 of
accrued payroll for former Company Officer, Michele Aube and
$28,552 of accrued interest on related Notes Payable.
Marketing
expenses were $47,071 and $242,719 for March 31, 2020 and 2019
respectively.
General
and administrative expenses were $551,480 and $514,467 for March
31, 2020 and 2019 respectively. For the period March 31, 2020, the
majority comprises of Receiver admin fees of $301,347, accounting
and audit fees of $57,792, employee compensation of $46,118. The
remainder of $146,223 was for rent and other expenses.
Professional
fees were $30,991 and $172,127 for years ended March 31, 2020 and
2019, respectively. The bulk of these expenses were paid to
transfer agent for issuance of stock for $3,292, Strongbow Advisors
for $15,160, $539 to DLA Piper, and OTC Markets for $12,000 for the
year ended March 31, 2020.
Research
and development were $76,113 and $338,856 for years ending March
31, 2020 and 2019. These expenses were for further development of
the medical device.
Note
8-Subsequent Events
On
May 18, 2020, Michel Aube resigned from both CEO and Chief Science
Officer (CSO) positions in Earth Science Tech and all positions
within its three wholly owned subsidiaries including; Canno Ino
Laboratories, Inc., Earth Science Pharmaceuticals, Inc., and
Cannabis Therapeutics, Inc.
On My
18, 2020, Nickolas S. Tabraue was appointed as CEO of Earth Science
Tech, Inc., retaining his roles as President, Director, and
Chairman.
On
May 18, 2020, Earth Science Tech, Inc. filed documents with the
Delaware Secretary of State to effect a holding company
reorganization (the “Delaware Reorg”), which will result in a newly
formed Delaware corporation, ETST Holdings, Inc., (“ETST
Delaware”), owning all the capital stock of Earth Science Tech,
Inc. ETST Delaware will initially be a direct, wholly owned
subsidiary of Earth Science Tech, Inc. Pursuant to the Delaware
Reorg, a newly formed entity (“Merger Sub”), a direct, wholly owned
subsidiary of ETST Delaware and an indirect, wholly owned
subsidiary of Earth Science Tech, Inc., will merge with and into
Earth Science Tech, Inc., with Earth Science Tech, Inc. surviving
as a direct, wholly owned subsidiary of ETST Delaware. Each share
of each class of Earth Science Tech, Inc. stock issued and
outstanding immediately prior to the ETST Delaware Merger will
automatically convert into an equivalent corresponding share of
ETST Delaware stock, having the same designations, rights, powers
and preferences and the qualifications, limitations and
restrictions as the corresponding share of Earth Science Tech, Inc.
stock being converted. Accordingly, upon consummation of the ETST
Delaware Merger, Earth Science Tech, Inc.’s current stockholders
will become stockholders of ETST Delaware. The stockholders of
Earth Science Tech, Inc. will not recognize gain or loss for U.S.
federal income tax purposes upon the conversion of their shares in
the ETST Delaware Merger.
The
ETST Delaware Merger was conducted pursuant to Section 251(g) of
the General Corporation Law of the State of Delaware, which
provides for the formation of a holding company without a vote of
the stockholders of the constituent corporations. Effective upon
the consummation of the ETST Delaware Merger, ETST Delaware will
adopt an amended and restated certificate of incorporation and
amended and restated bylaws that are identical to those of Earth
Science Tech, Inc. immediately prior to the consummation of the
ETST Delaware Merger, except for the change of the name of the
corporation as permitted by Section 251(g). Furthermore, the
conversion will occur automatically without an exchange of stock
certificates. Stock certificates previously representing shares of
a class of Earth Science Tech, Inc. stock will represent the same
number of shares of the corresponding class of ETST Delaware stock
after the ETST Delaware Merger. Following the consummation of the
ETST Delaware Merger shares of our Common Stock will continue to
trade on the under the symbol ETST on the OTC Markets.
ITEM 9A. CONTORLS AND
PROCEDURES
EVALUATION
OF DISCLOSURE CONTROLS & PROCEDURES
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting. Internal control over
financial reporting is defined in Rule 13a-15(f) or 15d-15(f)
promulgated under the Securities Exchange Act of 1934 as a process
designed by, or under the supervision of, the Company’s principal
executive and financial officer and effected by the Company’s board
of directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles and
includes those policies and procedures that:
●
Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of
the assets of the Company;
●
Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that
receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the
Company; and
●
Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
Company’s assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Projections of
any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
The
Company’s management assessed the effectiveness of the Company’s
internal control over financial reporting as of March 31, 2020. In
making this assessment, the Company’s management used the criteria
set forth by the Committee of Sponsoring Organizations of the
Treadway Commission 1992 (“COSO”) in Internal Control-Integrated
Framework. The COSO framework is based upon five integrated
components of control: control environment, risk assessment,
control activities, information and communications and ongoing
monitoring.
Based
on an evaluation under the supervision and with the participation
of the Company’s management, the Company’s principal executive
officer and principal financial officer has concluded that the
Company’s internal control over financial reporting as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act were not
effective as of March 31, 2019 (the “Evaluation Date”), to ensure
that information required to be disclosed by the Company in reports
that it files or submits under the Exchange Act is (i) recorded,
processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission rules and forms
and (ii) accumulated and communicated to the Company’s management,
including its principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding
required disclosure. Each of the following is deemed a material
weakness in our internal control over financial
reporting:
●
Limited or no segregation of duties and lack of multiple levels of
supervision and review.
● No
independent directors.
●
Ineffective controls over financial reporting.
●
Lack of controls over authorization related party
transactions.
Management
believes that the material weaknesses set forth in the four items
above did not have an effect on our financial results. However,
management believes that the lack of a functioning audit committee
results in ineffective oversight in the establishment and
monitoring of required internal controls and procedures, which
could result in a material misstatement in our financial statements
in future periods.
Management’s
Remediation Initiatives
In an
effort to remediate the identified material weaknesses and other
deficiencies and enhance our internal controls, we plan to initiate
the following series of measures once we have the financial
resources to do so:
We
expect to create a position to segregate duties consistent with
control objectives and will increase our personnel resources and
technical accounting expertise within the accounting function when
funds are available to us. And, we plan to appoint one or more
outside directors to an audit committee resulting in a fully
functioning audit committee, which will undertake the oversight in
the establishment and monitoring of required internal controls and
procedures, such as reviewing and approving estimates and
assumptions made by management when funds are available to
us.
Management
believes that the appointment of outside directors to a fully
functioning audit committee, would remedy the lack of a functioning
audit committee.
Changes
in Internal Control Over Financial Reporting
There
were no changes in our internal controls over financial reporting
that occurred during the period covered by this report, which were
identified in connection with management’s evaluation required by
paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act,
that have materially affected, or are reasonably likely to
materially affect, our internal control over financial
reporting.
This
Annual Report does not include an attestation report of the
Company’s registered independent public accounting firm regarding
internal control over financial reporting. Management’s report was
not subject to attestation by the Company’s independent registered
public accounting firm pursuant to rules of the SEC that permit the
Company to provide only management’s report in this Annual
Report.
ITEM 9B. OTHER
INFORMATION
None
PART III
ITEM 10. DIRECTORS, EXECUTIVE
OFFICERS, AND CORPORATE GOVERNANCE
The
Company does not, at present, have any employees other than the
current officers and directors. We have not entered into any
employment agreements, as we currently do not have any employees
other than the current officers and directors.
Directors
and Executive Officers
|
Name |
|
Principal
Occupation |
|
Age |
|
Director
or
Officer Since |
|
Nickolas
S. Tabraue |
|
President,
Secretary Director, Chairman of the Board |
|
|
32 |
|
|
|
2015 |
|
|
Steve
Warm |
|
Director
and Chief Legal Counsel |
|
|
77 |
|
|
|
2017 |
|
|
Gagan
Hunter |
|
Chief
Operating Officer and Director |
|
|
61 |
|
|
|
2018 |
|
|
Wendell
Hecker |
|
Chief
Financial Officer |
|
|
64 |
|
|
|
2018 |
|
|
Sergio
Castillo |
|
Chief
Marketing Officer |
|
|
36 |
|
|
|
2017 |
|
|
Robert
Stevens |
|
Court
Appointed Receiver |
|
|
54 |
|
|
|
2019 |
|
There
are no other persons nominated or chosen to become directors or
executive officers, nor do we have any employees other than above
mentioned officers and directors.
Our
directors hold office until the next annual meeting of shareholders
and the election and qualification of their successors. Directors
receive no compensation for serving on the board of directors other
than the reimbursement of reasonable expenses incurred in attending
meetings. Officers are appointed by the board of directors and
serve at the discretion of the board.
Officer
and Director Background:
Nickolas S. Tabraue -CEO, President, Director, &
Chairman
Mr.
Tabraue is an industry veteran having 13 years of professional
experience in the nutraceutical, dietary supplement field, as well
as retail corporate management. Mr. Tabraue is well versed in his
knowledge of supplements, retail management, and customer service.
His experience began at The Vitamin Shoppe in 2006 where he started
in sales, product placement and customer service leading to his
position as a manager of four different locations in 2012. One of
these stores was the Company’s highest volume and another included
the restructuring of a non-performing high volume store, achieving
high operating levels in operations, service, inventory compliance,
and sales. In 2012 he left The Vitamin Shoppe to manage Nutrition
Empire, Inc. and was brought on with Earth Science Tech, Inc. when
it acquired Nutrition Empire in 2015. In evaluating Mr. Tabraue’s
specific experience, qualifications, attributes and skills in
connection with his appointment to our board, we took into account
his experience in the nutraceutical, dietary supplement field, as
well as retail corporate management and customer
service.
Robert Stevens – Appointed Receiver
Mr.
Stevens has more than 30 years of experience in the securities and
finance industries. Mr. Stevens is president of Somerset Capital
Ltd (“Somerset”) which he founded in 2001 and he serves as
president and managing director. Somerset is a private capital firm
that employs industry-specific skillsets to make strategic
investments in distressed and turnaround situations as well as
merger and direct investments in private and pre-public companies.
Mr. Stevens is also president of Strongbow Advisors, Inc., which
provides turnaround and receiver advisory as well as consulting
services. Mr. Stevens also serves as a court – appointed receiver.
Mr. Stevens was also Managing Director of Technology Partners, a
private equity and M&A firm from 2006 to 2013. Mr. Stevens is
currently an independent director for from Social Enterprises
(OTCQB: GRMM) where he serves as chair of the audit committee, and
has also served on the board of AppTech Corp (OTC: APCX) from July
2016 to March of 2017.
Steve Warm, Esq. – Director & Chief Legal
Counsel
Mr.
Warm was born in New York City and grew up in Northern New Jersey.
He is a graduate of Dickinson University (Teaneck, N.J.) and
Rutgers University Law School (Newark, N.J.). Mr. Warm finished law
school at the age of 21 and sat for the New Jersey Bar only a few
weeks after his 22nd birthday. (He is believed to be the
youngest person to have been admitted to practice in New Jersey
once a law school degree became a prerequisite). After practicing
in Ramsey, New Jersey, Burlington, New Jersey., Willingboro, New
Jersey and Medford, New Jersey, Mr. Warm became a member of the
Florida Bar, practicing exclusively in Boca Raton for 25 years. In
1986, he joined his three sons in Gainesville, Florida, where he
presently maintains his primary office, although he still has and
uses facilities in Boca for specific clients. Mr. Warm has
experience in diverse areas of the law over a lengthy span of
years. He has done tax work, corporate representation,
entrepreneurial support, litigation, and family law, contractual
issues of all kinds, personal injury matters, estate
planning/probate and many other things. Mr. Warm has successfully
represented any number of companies, large and small, domestic and
foreign, public and private. He was instrumental in obtaining the
seminal Federal Court ruling which paved the way for the expansion
of national banks. In evaluating Mr. Warm’s specific experience,
qualifications, attributes and skills in connection with his
appointment to our board, we took into account his experience in
various areas of the law and successful representation of
companies, large and small, domestic and foreign, public and
private.
Wendell Hecker – CFO
Mr.
Hecker earned a Bachelor of Science in Accounting from New York
University. Having spent more than 30 years at large corporations
in New York and Florida, he brings to Earth Science Tech, extensive
accounting experience. Prior to joining Earth Science Mr. Hecker
was the Controller for Ampco Electric, Inc. where he was in charge
of all accounting operations. Before joining Ampco in 2014 he was
self-employed as an accountant serving a variety of clients and
meeting their accounting needs and prior to starting his own
accounting practice from 2007 through 2010 he served as the
controller of Seaview Research Inc., Hecker will ensure that the
Company’s accounting follows best practices, keeps up-to-date, and
increases transparency with investors as sales continue to
increase.
Sergio Castillo – Chief Marketing Officer (CMO)
Mr.
Castillo joined the Company as its Chief Marketing Officer in
January 2017. He moved to Miami when he was only 16, is a current
marketing consultant for few firms including Cloud Accounting, La
Familia Media, Fresh Press Miami, Goodlife Miami, as well as Abdon
Entertainment. He started his first company in 2008 called
“Goodlife Miami, LLC”. In 2010, his second company was started
named Fresh Press, LLC. His third company, which he still owns and
operates, was founded in 2012, called La Familia Media, LLC. As the
time passed, he has learned what is necessary to run the marketing
plans for many successful companies, and he is taking his expertise
into the field of industrial based hemp and hemp products. At each
of his companies and currently with Earth Science, Mr. Castillo
handles graphics, web design, and marketing. As the CMO of Earth
Science Tech, Inc he is in a position to bring his experience to
the new and fast moving industry that is developing around hemp and
hemp products.
Gagan Hunter – Director & COO
Mr.
Hunter a graduate from Oaksterdam University, America’s first
primer cannabis college, University of Pittsburgh, and post
graduate studies at the Temple University, Gagan Hunter is a
holistic health specialist, cannabis & cannabinoid (CBD)
educator. Mr. Hunter has 20 years of natural products industry
experience in sales, marketing, and management, and 20 years
teaching nutrition. Prior to joining Earth Science Mr. Hunter
worked for Mother Earth’s County, representing over 250
manufacturers of natural products and supplements to retailers such
as Whole Foods, Earth Fare and Sprouts, throughout North and South
Carolina Georgia and Tennessee. He was responsible for product
placement, product training, consumer education, demonstrations and
merchandising. He was also responsible for staff training,
purchasing, customer service, budgets, sales reporting, conducting
sales meetings, setting sales goals, tracking store inventories and
financial management throughout his 16 years at Mother Earth’s
Bounty. His skills obtained through his 20 years in the industry
are staff training, purchasing, customer service, inventory
control, and financial management. In evaluating Mr. Hunter’s
specific experience, qualifications, attributes and skills in
connection with his appointment to our board, we took into account
his experience in product placement, product training, consumer
education, demonstrations and merchandising.
Committees
of The Board of Directors
The
Company is managed under the direction of its board of
directors.
The
Company does not have an executive committee, at this
time.
The
Company does not have an audit committee at this time.
Officer’s
and Director’s Involvement in Legal Proceedings
No
executive Officer or Director of the Company has been convicted in
any criminal proceeding (excluding traffic violations) or is the
subject of a criminal proceeding that is currently pending. No
executive Officer or Director of the Company is the subject of any
pending legal proceedings. No Executive Officer or Director of the
Company is involved in any bankruptcy petition by or against any
business in which they are a general partner or executive officer
at this time or within two years of any involvement as a general
partner, executive officer, or Director of any business.
Special
Note – Former Officer and Director
Dr. Michel Aube – Former CEO & Chief Science Officer
(CSO)
Dr.
Aubé has wide-ranging expertise in the life sciences. As a
microbiologist he furthered his graduate studies at Laval
University, earning a Master’s degree in Cell Biology and Molecular
Physiology as well as a PhD in Physiology-Endocrinology. Prior to
joining Earth Science from 2008-2010 he served as a Post-doc
Researcher in Immunology at the University of Montreal where he was
responsible for the development of a therapeutic vaccine to treat
AIDS based on ex-vivo maturation of dndritic cells from patients.
Thereafter, in 2010, he was a post-doc researcher conducting
fundamental research to understand the role of the genes implicated
in the maturation of T cells, and in 2012 his research was focused
on understanding the mechanism of action of a new drug that
improves the graft versus host disease in patients that received
hematopoietic stem cell transplants. Following his post-doc
research at the University of Montreal in 2013 he founded BOE, ITS
with the objective of developing the company’s MSN-2 medical device
for the treatment of Sexually Transmitted Infections. In addition,
he created and taught three postdoctoral courses in Immunology. His
scientific research in Sexually Transmitted Infections (STIs),
Cancer and Stem Cell biology has been published in several
prestigious medical journals. Dr. Aubé has received a number of
Awards for Excellence from the Network for environmental health
research and childhood diseases. On May 18, 2020, Michel Aube
resigned from both CEO and Chief Science Officer (CSO) positions in
Earth Science Tech and all positions within its three wholly owned
subsidiaries including; Canno Ino Laboratories, Inc., Earth Science
Pharmaceuticals, Inc., and Cannabis Therapeutics, Inc.
ITEM 11. EXECUTIVE
COMPENSATION
The
following table sets forth the compensation paid to officers and
board members during the fiscal years ended March 31, 2020 and
2019. The table sets forth this information for Earth Science Tech,
Inc. including salary, bonus, and certain other compensation to the
Board members and named executive officers for the past two fiscal
years.
|
Name and Principal Position |
|
Year |
|
|
Salary
($)
|
|
|
Bonus
($) |
|
|
Stock
Awards
($)
|
|
|
Non-Equity
Incentive
Plan
Compensation
($) |
|
|
All Other
Compensation
($) |
|
|
Total
($)
|
|
| Nickolas S. Tabraue, |
|
2020 |
|
|
|
84,000 |
|
|
|
— |
|
|
|
56,500 |
(1) |
|
|
— |
|
|
|
— |
|
|
|
140,500 |
|
| President, Secretary &
Director |
|
2019 |
|
|
|
104,000 |
|
|
|
— |
|
|
|
172,000 |
( ) |
|
|
— |
|
|
|
— |
|
|
|
276,00.00 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Dr. Michel Aube, |
|
2020 |
|
|
|
3,000 |
|
|
|
— |
|
|
|
56,500 |
(2) |
|
|
— |
|
|
|
— |
|
|
|
59,500 |
|
| Chief Executive Officer |
|
2019 |
|
|
|
48,0000 |
|
|
|
— |
|
|
|
172,0000 |
( ) |
|
|
— |
|
|
|
— |
|
|
|
220,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Wendell Hecker |
|
2020 |
|
|
|
28,300 |
|
|
|
— |
|
|
|
11,500 |
(3) |
|
|
— |
|
|
|
— |
|
|
|
39,800 |
|
| Chief Financial Officer |
|
2019 |
|
|
|
30,500 |
|
|
|
— |
|
|
|
34,400 |
( ) |
|
|
— |
|
|
|
— |
|
|
|
64,900 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gagan Hunter |
|
2020 |
|
|
|
72,000 |
|
|
|
— |
|
|
|
11,500 |
(4) |
|
|
— |
|
|
|
— |
|
|
|
83,500 |
|
| Chief Operating Officer |
|
2019 |
|
|
|
69,923 |
|
|
|
— |
|
|
|
34,400 |
( ) |
|
|
— |
|
|
|
— |
|
|
|
104,323 |
|
|
(1) |
During
the fiscal year ended March 31, 2020, as compensation for services
rendered, was issued: (i) 50,000 shares of common stock, at a price
of $0.73 per share; (ii) 50,000 shares of common stock, at a price
of $0.44 per share. |
|
(2) |
During
the fiscal year ended March 31, 2020, as compensation for services
rendered, was issued: (i) 50,000 shares of common stock, at a price
of $0.73 per share; (ii) 50,000 shares of common stock, at a price
of $0.44 per share. |
|
(3) |
During
the fiscal year ended March 31, 2020, as compensation for services
rendered, was issued: (i) 10,000 shares of common stock, at a price
of $0.73 per share; (ii) 10,000 shares of common stock, at a price
of $0.44 per share. |
|
(4) |
During
the fiscal year ended March 31, 2020, as compensation for services
rendered, was issued: (i) 10,000 shares of common stock, at a price
of $0.73 per share; (ii) 10,000 shares of common stock, at a price
of $0.44 per share. |
EMPLOYMENT
AGREEMENTS
Nickolas
S. Tabraue started in 2015 at a base salary of $5,000 per month and
50,000 shares granted per quarter. This was changed to $6,000 per
month in the first quarter of 2016 and then to $7,000 in the fourth
quarter of 2016 and finally to $4,000 every two weeks in the second
quarter of 2017. On March 19, 2018 the Company entered into an
Employment Agreement with Mr. Tabraue (the “Tabraue Employment
Agreement”) for a term of 1 year, renewable upon mutual agreement
of both parties for an additional 1 year term. The Tabraue
Employment Agreement provides that Mr. Tabraue receive a $8,666.00
monthly salary and 50,000 shares each fiscal quarter. The Tabraue
Employment Agreement may be terminated with or without cause,
pursuant to the terms therein.
Wendell
Hecker and the Company entered into an employment agreement on
February 1, 2018 (the “Hecker Employment Agreement”). The Hecker
Employment Agreement provides that Mr. Hecker is to receive a
salary of $2,500 per month and 10,000 shares of restricted common
stock per quarter. The term of the Hecker Employment Agreement is 1
year, renewable upon mutual agreement of both parties for an
additional 1 year term. The Hecker Employment Agreement may be
terminated with or without cause, pursuant to the terms
therein.
Sergio
Castillo and the Company entered into an employment agreement on
January 24, 2017 (the “Castillo Employment Agreement”). The
Castillo Employment Agreement provides that Mr. Hecker is to
receive a salary of $750 per month. The term of the Hecker
Employment Agreement is 6 months, renewable upon mutual agreement
of both parties for an additional 6 month term. The Castillo
Employment Agreement is still in effect. The Castillo Employment
Agreement may be terminated with or without cause, pursuant to the
terms therein.
Gagan
Hunter and the Company entered into an employment agreement on
March 20, 2018 (the “Hunter Employment Agreement”). The Hunter
Employment Agreement provides that Mr. Hunter received a $4,500 per
month salary which was subsequently increased to $6,000 per month
in the second quarter of 2018. Additionally, he receives 10,000
shares of restricted common stock per quarter. The term of the
Hunter Employment Agreement is 1 year, renewable upon mutual
agreement of both parties for an additional 1 year term. The Hunter
Employment Agreement may be terminated with or without cause,
pursuant to the terms therein.
Dr.
Michel Aube started in August 2016 at a base salary of $6,000 per
month and 50,000 shares of restricted common stock granted per
quarter.
The
compensation that is listed in the table above does not necessarily
correspond directly to the officers’ employment agreements for a
number of reasons. For example, Dr. Aube’s compensation does not
show a full $72,000 in 2017 because payment didn’t actually begin
until part way through the year. In other cases such as Gabriel
Aviles, he was not an officer until later, after joining the
Company so there may have been compensation re received in his
position as a sales person that had been paid to him. In other
cases there may be increases in salary that have not been formally
reflected by amending employment agreements, rather the board of
directors or the President, in the case of officers who report
directly to the President, may have increased salaries during the
year due to outstanding performance and increased work load. The
table above reflects what these officers and directors have
actually received for their service as officers and directors
during the applicable time period and both the Company and the
officers and directors have agreed to the amount of compensation
paid.
There
are no other employment agreements between the Company and its
executive officers or directors. Our executive officers and
directors have the responsibility of determining the timing of
remuneration programs for key personnel based upon such factors as
positive cash flow, shares sales, product sales, estimated cash
expenditures, accounts receivable, accounts payable, notes payable,
and cash balances. At this time, management cannot accurately
estimate when sufficient revenues will occur to implement this
compensation, or the exact amount of compensation.
POTENTIAL
PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL
SEC
regulations state that we must disclose information regarding
agreements, plans or arrangements that provide for payments or
benefits to our executive officers in connection with any
termination of employment or change in control of the Company. Such
payments are set forth above in the section entitled “Employment
Agreements.”
None
of our executive officers or directors received, nor do we have any
arrangements to pay out, any bonus, stock awards, option awards,
non-equity incentive plan compensation, or non-qualified deferred
compensation.
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR END
None.
OPTION/SAR
GRANTS IN THE LAST FISCAL YEAR
None.
CONSULTING
AGREEMENTS WITH OFFICERS AND DIRECTORS
None.
DIRECTOR
COMPENSATION
We
have no standard arrangement to compensate directors for their
services in their capacity as directors. Directors are not paid for
meetings attended. However, we intend to review and consider future
proposals regarding board compensation. All travel and lodging
expenses associated with corporate matters are reimbursed by us, if
and when incurred.
Mr.
Steven Warm was issued 10,000 shares on February 27, 2017 upon
joining the Board of Directors. Mr. Warm did not receive nor is
anticipated to receive any further compensation as a Director since
February 27, 2017.
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
The
Company’s officers and directors are indemnified as provided by the
Nevada Revised Statutes and the bylaws.
Under
the Nevada Revised Statutes, director immunity from liability to a
company or its shareholders for monetary liabilities applies
automatically unless it is specifically limited by a company’s
Articles of Incorporation. The Company’s Articles of Incorporation
do not specifically limit the directors’ immunity. Excepted from
that immunity are: (a) The director’s or officer’s act or failure
to act constituted a breach of his or her fiduciary duties as a
director or officer; and (b) The breach of those duties involved
intentional misconduct, fraud or a knowing violation of
law.
The
Company’s bylaws provide that it will advance to any person who was
or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason
of the fact that he is or was a director or officer of the Company,
or is or was serving at the request of Earth Science Tech as a
director or executive officer of another company, partnership,
joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly following request
therefore, all expenses incurred by any director or officer in
connection with such proceeding upon receipt of an undertaking by
or on behalf of such person to repay said amounts if it should be
determined ultimately that such person is not entitled to be
indemnified under the bylaws or otherwise.
There
are no annuity, pension or retirement benefits proposed to be paid
to officers, directors or employees of the corporation in the event
of retirement at normal retirement date pursuant to any presently
existing plan provided or contributed to by Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
As of
March 31, 2020, we had outstanding 38,144,182 shares of common
stock. Each share of common stock is currently entitled to one vote
on all matters put to a vote of our stockholders. The following
table sets forth the number of common shares, and percentage of
outstanding common shares, beneficially owned as of the date hereof
by:
|
● |
each
person known by us to be the beneficial owner of more than five
percent of our outstanding common stock; |
|
● |
each
of our current directors; |
|
● |
each
our current executive officers and any other persons identified as
a “named executive” in the Summary Compensation Table above;
and |
|
● |
all
our current executive officers and directors as a
group. |
Beneficial
ownership is determined in accordance with the rules of the SEC and
includes general voting power and/or investment power with respect
to securities. Shares of common stock issuable upon exercise of
options or warrants that are currently exercisable or exercisable
within 60 days of the record date, and shares of common stock
issuable upon conversion of other securities currently convertible
or convertible within 60 days, are deemed outstanding for computing
the beneficial ownership percentage of the person holding such
securities but are not deemed outstanding for computing the
beneficial ownership percentage of any other person. Under the
applicable SEC rules, each person’s beneficial ownership is
calculated by dividing the total number of shares with respect to
which they possess beneficial ownership by the total number of
outstanding shares. In any case where an individual has beneficial
ownership over securities that are not outstanding but are issuable
upon the exercise of options or warrants or similar rights within
the next 60 days, that same number of shares is added to the
denominator in the calculation described above. Because the
calculation of each person’s beneficial ownership set forth in the
“Percentage Beneficially Owned” column of the table may include
shares that are not presently outstanding, the sum total of the
percentages set forth in such column may exceed 100%. Unless
otherwise indicated, the address of each of the following persons
is 8000 NW 31sth Street, Unit 19, Doral, FL 33122, USA, and, based
upon information available or furnished to us, each such person has
sole voting and investment power with respect to the shares set
forth opposite his, her or its name.
|
Beneficial Owner(1) |
|
Common Stock |
|
|
Series A Preferred Stock |
|
|
Number
of Shares
Beneficially
Owned(2)
|
|
|
Percent(3) |
|
| 5% Stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Majorca Group, Ltd.(6) |
|
|
6,520,000 |
|
|
|
|
|
|
|
6,520,000 |
|
|
|
17.09 |
% |
| Great Lakes Holdings Group,
Inc.(7) |
|
|
6,700,000 |
|
|
|
|
|
|
|
6,700,000 |
|
|
|
17.56 |
% |
| Named Executive
Officers and Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Michel Aube – Former Chief Executive
Officer and Chief Science Officer(4) |
|
|
618,500 |
|
|
|
|
|
|
|
618,500 |
|
|
|
1.62 |
% |
| Nickolas S. Tabraue – President,
Secretary and Director (former Chief Operating Officer) |
|
|
1,000,000 |
|
|
|
|
|
|
|
1,000,000 |
|
|
|
2.62 |
% |
| Steven Warm, Chief Counsel and
Director |
|
|
14,500 |
|
|
|
|
|
|
|
14,500 |
|
|
|
0.04 |
% |
| Wendell Hecker, Chief Financial
Officer |
|
|
70,000 |
|
|
|
|
|
|
|
70,000 |
|
|
|
0.18 |
% |
| Sergio Castillo, Chief Marketing
Officer |
|
|
0 |
|
|
|
|
|
|
|
0 |
|
|
|
0 |
|
| David Barbash, Chief Sales
Officer |
|
|
7,000 |
|
|
|
|
|
|
|
7,000 |
|
|
|
0.02 |
% |
| Gagan Hunter,
Chief Operating Officer |
|
|
70,000 |
|
|
|
|
|
|
|
70,000 |
|
|
|
0.18 |
% |
| All executive
officers and directors as a group (7 persons) |
|
|
|
|
|
|
|
|
|
|
1,780,000 |
|
|
|
4.67 |
% |
|
(1) |
Except
as otherwise indicated, the persons named in this table have sole
voting and investment power with respect to all shares of common
stock shown as beneficially owned by them, subject to community
property laws where applicable and to the information contained in
the footnotes to this table. |
|
(2) |
Under
SEC rules, a person is deemed to be the beneficial owner of shares
that can be acquired by such person within 60 days upon the
exercise of options or the settlement of other equity
awards. |
|
|
|
|
(3) |
Calculated
on the basis of 38,144,182 shares of common stock outstanding as of
March 31, 2020, plus any additional shares of common stock that a
stockholder has the right to acquire within 60 days after March 31,
2020. Further, the positions listed are as of the date of this
Registration Statement. |
|
|
|
|
(4) |
Under
his agreement with the Company, Dr. Michel Aube received additional
shares as compensation for his services and in connection with the
acquisition of his company, BOE Its, Inc. |
|
|
|
|
(5) |
Nickolas
S. Tabraue was Chief Operating Officer from October 2015-March 2018
in addition to the other positions he held the positions listed are
current as of the date of this Registration Statement. He receives
50,000 shares per quarter as part of his compensation package and
as such as of March 31, 2020 he held 1,000,000 or 2.62% of
38,144,182 shares outstanding. |
|
|
|
|
(6) |
Majorca
is owned 100% by John Morgan who is also its director and
CEO. |
|
|
|
|
(7) |
Great
Lakes is owned and controlled by Dr. Issa El-Cheikh. |
Rule
13d-3 under the Securities Exchange Act of 1934 governs the
determination of beneficial ownership of securities. That rule
provides that a beneficial owner of a security includes any person
who directly or indirectly has or shares voting power and/or
investment power with respect to such security. Rule 13d-3 also
provides that a beneficial owner of a security includes any person
who has the right to acquire beneficial ownership of such security
within sixty days, including through the exercise of any option,
warrant or conversion of a security. Any securities not outstanding
which are subject to such options, warrants or conversion
privileges are deemed to be outstanding for the purpose of
computing the percentage of outstanding securities of the class
owned by such person. Those securities are not deemed to be
outstanding for the purpose of computing the percentage of the
class owned by any other person.
There
were no grants of stock options since inception to March 31, 2020.
We do not have any long-term incentive plans that provide
compensation intended to serve as incentive for
performance.
The
Board of Directors of the Company has not adopted a stock option
plan. The company has no plans to adopt it but may choose to do so
in the future. If such a plan is adopted, this may be administered
by the board or a committee appointed by the board (the
“Committee”). The committee would have the power to modify, extend
or renew outstanding options and to authorize the grant of new
options in substitution therefore, provided that any such action
may not impair any rights under any option previously granted. The
Company may develop an incentive based stock option plan for its
officers and directors and may reserve up to 10% of its outstanding
shares of common stock for that purpose.
ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
During
2014, a former stockholder provided funds to the Company evidenced
by 8% uncollateralized notes payable due September 30, 2014. As of
March 31, 2020, and March 31, 2018, the Company had $59,558 and
$59,558, respectively of these notes payable which are in default.
The Company is in current negotiations to extend the maturity of
these notes for an additional 2 years. Interest expense for the
years ended March 31, 2020 and 2019, were $ 0.00 and $ 0.00,
respectively.
EQUITY
ISSUANCES TO OFFICERS AND DIRECTORS
The
President, Director, & Chairman of Earth Science Tech, Inc.,
Nickolas S. Tabraue, received 100,000 shares of the Company’s
common stock during the year ended March 31, 2020.
The
former CEO & Chief Sales Officer, (CSO) of Earth Science Tech,
Inc., Dr. Michel Aube, received 100,000 shares of the Company’s
common stock during the year ended March 31, 2020.
The
Director & COO of Earth Science Tech, Inc., Gagan Hunter,
received 20,000 shares of the Company’s common stock during the
year ended March 31, 2020.
The
CFO of Earth Science Tech, Inc., Wendell Hecker, received 20,000
shares of the Company’s common stock during the year ended March
31, 2020.
Item
14. Principal Accounting Fees and Services.
During
the fiscal year ended March 31, 2020 we incurred approximately
$56,592 in audit and audit related fees to our principal
independent accountants for professional services rendered in
connection with the audit of financial statements for the fiscal
year ended March 31, 2020. We did not incur any other fees or tax
related services fees during that time period.
During
the fiscal year ended March 31, 2019 we incurred approximately
$77,396 in fees for professional services rendered in connection
with the audit of financial statements for the fiscal year ended
March 31, 2019, and no other fees for professional services
rendered by our principal independent accountants or related to tax
services, for a total of $77,396.
BF
Borgers is the Company’s principal auditing accountant firm. The
Company’s Board of Directors has considered whether the provisions
of audit services are compatible with maintaining BF Borgers’s
independence. The engagement of our independent registered public
accounting firm was approved by our Board of Directors prior to the
start of the audit of our consolidated financial statements for the
year ended March 31, 2020.
The
following table represents aggregate fees billed to the Company for
the years ended March 31, 2020 and 2019.
|
Services |
|
2020 |
|
|
2019 |
|
| Audit fees |
|
$ |
56,592 |
|
|
$ |
67,000 |
|
| Audit related fees |
|
$ |
|
|
|
$ |
10,396 |
|
| Tax fees |
|
$ |
|
|
|
$ |
|
|
| All other fees |
|
$ |
|
|
|
$ |
|
|
| Total fees |
|
$ |
59,592 |
|
|
$ |
77,396 |
|
PART IV
ITEM 15. EXHIBITS
The
following exhibits are incorporated into this Form 10-K Annual
Report:
ITEM 16. FORM 10-K/A
SUMMARY
None.
SIGNATURES
Pursuant
to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
|
|
RECEIVER
FOR EARTH SCIENCE TECH, INC.
CASE
NO. A-18-784952-C
STRONGBOW
ADVISORS, INC.
|
|
|
|
|
Dated:
August 18, 2020 |
By: |
/s/
Robert Stevens |
|
|
|
Robert
Stevens |
|
|
Its: |
Receiver |
|
|
EARTH
SCIENCE TECH, INC. |
|
|
|
|
Dated:
August 18, 2020 |
By: |
/s/
Nickolas S. Tabraue |
|
|
|
Nickolas
S. Tabraue, under the supervision and direction of Robert Stevens
and Strongbow Advisors, Inc., receiver for Earth Science Tech, Inc.
Case No. A-18-784952-C |
|
|
Its: |
CEO
President, Director, & Chairman |
Earth Science Tech (QB) (USOTC:ETST)
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