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, performing
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 was established
to deliver non-prescription nutritional and dietary supplements that help with treating symptoms such as: chronic pain, joint pain, inflammation,
seizures, high blood pressure, memory loss, depression, weight management, nausea, aging and overall wellness. This may include products
such as CBD as a natural constituent of hemp oil, vitamins, minerals, herbs, botanicals, personal care products, homeopathies, functional
foods and other products. These products will be in various formulations and delivery forms including capsules, tablets, soft gels, chewables,
liquids, creams, sprays, powders, and whole herbs.
In
particular, ETST focused on researching and developing innovative hemp extracts and making them accessible worldwide. ETST began in this
industry with the objective of being a supplier of high quality hemp oil enriched with high-grade CBD. ETST’s primary goal has
been 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 9, 2019, the Company received notice that Strongbow Advisors, Inc. (“Strongbow”), and Robert Stevens (“Stevens”)
(Stevens and Strongbow, each or collectively, the “Receiver”) had been appointed by the Nevada District Court, as Receiver
for the Registrant in Case No. A-18-784952-C.
The
Board of Directors of the Company along with certain other creditors and a majority of the shareholders sought the appointment of the
Receiver after finding the Company in imminent danger of losing all of its assets by levy and garnishment to Cromogen Biotechnology Corporation
(“Cromogen”), following the issuance by an arbitration panel of an award (the “Award”) in the sum of $3,994,522.50
in favor of Cromogen and the subsequent judicial confirmation of that award, 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 was appealed and the Company was optimistic about its prospects on appeal because of blatant mathematical errors
present in the panel’s damage calculations along with its arbitrary and unsupportable basis for determining “lost profits”
when all of the evidence that Cromogen provided failed to show that Cromogen had ever been profitable. Further, the relevant precedent
case law suggested that “tort claims” would be outside of the purview of the agreement the Company had with Cromogen. Nevertheless,
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 and on January 9, 2019 Robert L. Stevens
and Strongbow Advisors, Inc. (“Stevens” and “Strongbow,” respectively )was/were appointed by the Nevada District
Court as Receiver.
As
part of the impact of the receivership, the Court issued a Writ of Injunction or “Blanket Stay” covering the Company and
its assets during the time that the Company is in receivership. As a result of the “Blanket Stay” the Company’s estate
is protected from creditors and interference with its administration is prevented while the Company’s financial issues are being
fully analyzed and resolved. As part of this process, creditors were notified and required to provide claims in writing under oath on
or before the deadline stated in the notice provided by the Receiver and any claimant that did not provide their claims in writing have
been barred from collecting 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 of Directors and by a majority of the Company’s shareholders.
Strongbow and Stevens were selected because of the representations Stevens made regarding his history and philosophy of 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 represented to the Company’s Board of Directors, management, certain secured creditors and major shareholders that
they 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 required to act in a manner that is independent and neutral in managing the Company’s operations
and in 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 had the discretion to deliver puts to GHS and GHS was 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 issued GHS a promissory note in the principal amount of $30,000 to offset
transaction costs (the “Note”).
On
November 8, 2019, the Receiver for 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 requested a show cause hearing whereby the Company was requesting the
Court grant 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 was to withdraw its motion for injunction over the Majorca common and preferred shares.
Under the terms of the Settlement Agreement, Majorca Group, Ltd. returned 18,000,000 common shares and 5,200,000 Series A Preferred Stock
held by Majorca for cancellation. The Receiver represented to management that he intended to reissue the Series A Preferred Stock to
Mr. Tabraue, the Company’s President, however in subsequent filings with the Commission he stated that the Series A Preferred Stock
class would be cancelled completely and, as discussed herein, with the recent discharge and removal of Stevens and Strongbow and their
replacement by the Nevada District Court with William Leonard, this issue remains unresolved at this time. The remaining 6,520,000 common
shares held by Majorca is subject to lockup agreement and thereafter, sales are made pursuant to a 10b5 plan on file with a broker dealer.
On
January 19, 2021, one of the Company’s largest shareholders served and filed a notice of motion and motion to intervene against
Robert L. Stevens and Strongbow Advisors, Inc. (individually or collectively referred to as “Receiver”) that was later joined
by additional shareholders representing approximately 33% of the issued and outstanding shares of the Company at that time. This motion
to intervene, at its heart, was based upon and resulted from, what the interveners saw as, a lack of transparency by the Receiver. What
was filed was initially based upon concerns over Mr. Stevens’ lack of transparency. However as the matter progressed in court,
additional concerns have arisen and on August 27, 2021, Stevens and Strongbow were discharged and removed and William Leonard was appointed
to replace them as Receiver, by the Nevada District Court.
The
matter arose after management had identified an attractive acquisition candidate for which a share exchange was being proposed that would
have resulted in it becoming a wholly owned subsidiary of the Company. The target company understandably did not wish to enter into a
transaction of this nature while the Company remained in receivership and needed to know what legacy issues were left to be addressed.
In order to proceed and delineate a path out of receivership for the acquisition target to consider a transaction with the Company, it
was first necessary to know what the outstanding administrative and other liabilities were, and then to develop a plan to address them,
whether it be by raising capital to pay them off, issuing shares in exchange or by mutual agreement with the creditors’ to reduce
the amount that they were due or a combination of all three. After continually requesting this information without success, the Company’s
President engaged counsel personally to help him. This was marginally successful and in November of 2020, the Receiver provided invoices
through February, 2020. However, this left nine months of potentially billable time that remained unaccounted for in any definitive way.
What was requested were the amounts that were included in the Company’s books and records (that portion of the liabilities attributable
to the administration of the receivership estate) through the last quarterly filing and the period of time since that filing to the current
date. Management, understanding that it would be necessary to address all potential liabilities in order to be able to begin negotiating
terms of a stock based acquisition also recognized that the same was true in order to emerge from receivership. It was clear that the
Company could not hope to exit receivership unless and until these potential liabilities were addressed and that it was an absolute necessity
to have this information in order to structure a transaction with an acquisition target.
The
Company has executed a joint letter of intent with three entities involved in the durable medical equipment, retail sales and compounding
pharmacy businesses with the objective of negotiating the final terms of a transaction that will result in the Company’s acquisition
of these entities.
BUSINESS
BACKGROUND AND OVERVIEW
Prior
to and while the Company was initially in receivership it has held the position as offering some of the highest-grade full spectrum cannabinoid
oil on the market. There are positive results in studies on breast cancer and immune cells conducted 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 results in case studies through key health organizations. ETST was successful in the CBD market
as it formulated, marketed and distributed the CBD oil used for its studies to the public, offering what it believed to be the most effective
quality CBD on the market.
When
the Company entered into receivership, it was with the understanding that management would be allowed to continue with its operations
as they had been conducted (operations that had led to continually increasing sales prior to receivership), however what transpired in
practice was different and led to a divergence between what management believed was in the best interests of the Company and its shareholders
and what the Receiver was willing to allow.
The
Receiver entered into a financing agreement with GHS Investments, LLC that involved the filing of a Registration Statement on Form S-1
for the Company. Management understood that the Receiver was filing the S-1 so that it could increase its sales / earnings so that it
would be in a position to pay any claims and costs of the receivership out of a larger base of earnings rather than simply using proceeds
from the S-1 to cover the administrative costs of receivership. The filing of this S-1 meant that the Company was in a “quiet period”
from the time of filing until the U.S. Securities & Exchange Commission (“SEC” or “Commission”) declared
it “effective.” During the quiet period the Company needed to be extremely careful in any of its press releases to keep strictly
to facts in order to avoid potential claims by the SEC that the Company was “conditioning the market.” Initially, the Receiver
was unwilling to allow management to raise the additional funds needed while the Company remained in the quiet period. However the quiet
period itself, also made it very difficult for the Company to raise the capital needed, particularly given the length of time it took
for the S-1 to be declared effective. This was capital that was needed to not only meet its litigation costs for the Cromogen matter
but also to cover the added expenses of receivership, which were substantial. This, in turn, left less and less capital available for
advertising, sales personnel and new inventory; and as a result, sales began a steady decline. The Form S-1 was filed in March of 2019
and after 6 months it was still not effective so the Receiver asked the attorney that had originally worked with the Company to take
over and it was declared effective approximately 6 weeks later. However by that time, the Company’s sales were also declining because
there were not funds available to pay for additional inventory and by this time both the price of the Company’s common stock and
its trading volume had also diminished significantly. This compounded the issue because of the way that the financing was structured,
the financing agreement had the amount of funds available in tranches based upon the recent price and volume levels and as a result of
both declining through the quiet period and the length of the quiet period, the Company didn’t have the amounts available to it
in tranches that it would have had when the S-1 was first filed. Nevertheless, even with a modest amount available from the first tranche,
management presented the Receiver with a “use of funds” that involved spending on advertising, marketing, developing wider
brand recognition and much needed inventory. It was designed to, and management believed would, not only help increase sales but also
be well received in the market, which in turn, would have increased the funds available to the Company under subsequent tranches of financing.
The Receiver was not willing to allow management to execute on its planned use of funds, instead giving instructions to sell more of
certain items that were still in inventory, and refusing to order other items.
The
Company was in need of additional financing however and without knowing what the total administrative liabilities were, management recognized
that it would be unable to move forward, either out of receivership or in pursuing an acquisition or both. Further without a clear plan
to exit receivership, investors were too apprehensive to consider investing in the Company. However, assuming that financing was not
an issue facing the Company, after emerging from receivership, the process of rebuilding its CBD sales would be a time consuming process
that would require the additional capital to cover overhead costs while Sales were rebuilt. This prompted management to begin looking
for alternatives to build shareholder value at a rate that avoids lengthy periods of losses while rebuilding critical mass in its CBD
sales. After evaluating certain alternatives, management determined that the best course of action to avoid the negative impact that
a period of losses would have would be best accomplished through strategic acquisitions. That is, acquisitions that would bring in substantial
revenue and earnings.
Ultimately
in mid 2020, an acquisition candidate that was in a related business was identified that had worldwide brand recognition however, it
was still not going to be possible to structure an acquisition until all of the administrative liabilities of the receivership had been
determined / verified, accepted/approved and any plan necessary to manage them had been adopted.. The target company understandably did
not wish to enter into a transaction of this nature while the Company remained in receivership and needed to know what legacy issues
were left to be addressed. In order to proceed and delineate a path out of receivership for the acquisition target to consider a transaction
with the Company, it was first necessary to know what the outstanding administrative and other liabilities were, and then to develop
a plan to address them, whether it be by raising capital to pay them off, issuing shares in exchange or by mutual agreement with the
creditors’ to reduce the amount that they were due or a combination of all three.
After
months of requesting the total amount of outstanding administrative and other liabilities from the Receiver and finally with the assistance
of independent legal counsel, the Company’s President still had only been able to gather information through February 2020. This
was insufficient and not only meant that the Receiver did not have a reorganization plan and path for the Company to emerge from receivership,
it meant that the Company was not going to be able to benefit from a particularly promising acquisition opportunity that had been presented.
Further, without a plan to emerge from receivership or any indication how much of any funds that might be secured for the Company, would
be used to advance revenue producing activities or to pay old liabilities, management was unwilling to ask investors to make additional
investments in the Company. Then when discussing the need for funding to ensure that the Company could continue trading on OTC Markets
as a fully reporting company under the Exchange Act, on January 19, 2021 one of the Company’s largest shareholders decided to intervene
and commence the litigation against the Receiver by way of a notice of motion and motion to intervene.
On
January 19, 2021, one of the Company’s largest shareholders served and filed a notice of motion and motion to intervene against
Robert L. Stevens and Strongbow Advisors, Inc. (individually or collectively referred to as “Receiver”) this action was later
joined by additional shareholders representing approximately 33% of the issued and outstanding shares of the Company at that time. This
motion to intervene, at its heart, was based upon and resulted from, what the interveners saw as, a lack of transparency by the Receiver.
What was filed was initially based upon concerns of Mr. Stevens’ lack of transparency. However as the matter progressed in court,
additional concerns have arisen and on August 27, 2021, Stevens and Strongbow were discharged and removed and William Leonard was appointed
to replace them as Receiver, by the Nevada District Court. Mr. Leonard is currently reviewing various matters, including past invoices
presented by Stevens, as well as his conduct during the time he acted as Receiver for the Company as well as others that the prior Receiver
had a prior relationship with that have derived benefits from working with the prior Receiver. The outcome of this review is uncertain
at this time and a wide number of outcomes is possible.
The
Company is now optimistic that it will be able to emerge from receivership under the new receiver, in a reorganized position that will
allow it to proceed with the acquisitions of the three entities. Combined, these entities present a larger opportunity to realize the
synergies that they have among themselves and in so doing, the Company believes it will be possible for shareholder value to increase
at a faster rate than would otherwise be possible with only its CBD business and licensing of its medical device, Hygee, The Company
has executed a joint letter of intent with three entities involved in the durable medical equipment, retail sales and compounding pharmacy
businesses with the objective of negotiating the final terms of a transaction that will result in the Company’s acquisition of
these entities.
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
ETST
has changed its immediate focus from researching and developing innovative hemp extracts and making them accessible worldwide; with plans
to be a supplier of high quality hemp oil enriched with high-grade CBD. Its primary goal had been 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. Initially our missions were 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. With the decline in CBD sales due to the factors described
above, we determined that the most efficient means to increase shareholder value would be the acquisition of a complimentary business
that would bring revenues sufficient to support its own operations but that would allow the business to expand and for the Company to
rebuild its CBD business. The opportunity that the Company is currently pursuing is the acquisition of JBC Medical Equipment, Inc. together
with RxCompoundStore.com, LLC and Peaks Curative, LLC. The acquisition of all three businesses would give the Company the ability to
cross-sell among the businesses as well as our current customers. There are also some areas that have been identified in these companies
that are at the point where the revenue levels are at a point where allocating minimal incremental expenses in certain product offerings
should result in more significant increases in revenue and earnings. The corporate strategy currently is to develop the acquisition plan,
structure and terms while the Company’s receivership is wound down so that when it emerges from receivership, it is in a position
to execute on the planned acquisitions. As the Company assimilates the new businesses into its operations, it plans to work to raise
additional capital necessary to expand on the existing operations and to capitalize on their synergistic opportunities that provide the
greatest immediate return on investment (i.e. pick the low hanging fruit), then to continue capitalizing on the opportunities among the
companies and to rebuild its CBD sales. Finally it plans to license its Hygee product to a third party, if it is able to negotiate terms
that are acceptable.
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. Then with the acquisition of the compounding pharmacy, we will focus on men’s health as well as other areas. In particular,
the Company plans to continue with plans to build a sterile facility so that injectable products may be compounded and sold. Our current
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 - CBD
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.)
Provided that we are able to negotiate acceptable terms of acquisition, we plan to acquire JBC Medical Equipment, Inc. together with
RxCompoundStore.com, LLC and Peaks Curative, LLC
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, 2021, the Company has three (3) 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 periodic report. 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, 2021 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 2021 and beyond as it develops its business model.
The Company has stockholders’ deficiencies at March 31, 2021 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.
The
Cromogen Litigation has now been settled for $585,885.90 under terms that involve monthly payments. If we default on the payment
terms, the total amount due would be substantially greater, however the Cromogen matter has been resolved to management’s satisfaction.
Although
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 representation of their practice and reputation for 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. A receiver, however,
is an agent of the court, and needs be independent and neutral in managing the Company’s operations and trying to preserve the
Company’s value for the creditors and shareholders. Notwithstanding the forgoing, when the motion to intervene was initiated by
one of the Company’s major shareholders, the Receiver proposed a plan of liquidation to the Court which the Court rejected. As
that litigation progressed, what began as a concern about the Receiver’s transparency turned to concerns about that Receiver’s
certifications both to the Company’s Auditor and in the Periodic Reports that were filed with the SEC. The Receiver fired the Company’s
President and it’s CFO resigned because of requests made by the Receiver that the CFO considered inappropriate. Initially, because
of a high six figure invoice presented by the Receiver to covered time periods beginning with the Receiver’s appointment until
the time the statement was presented to the court and because there was nobody left in management to evaluate or otherwise challenge
its treatment, it was both management and the auditor’s position that restatements of the financial statements was going to be
required. However, with the discharge and removal of that Receiver and the appointment of Mr. Leonard by the Court Order doing so had
the specific direction to the successor receiver to investigate any potential conversion, fraud or embezzlement and to claw-back the
same if found, as well as to review the Receiver’s claimed fees and those received as part of his investigation. Management believes
that the evidence will support a denial of the most recent statement presented by Stevens and Strongbow, and depending on that outcome
and what is determined by the successor receiver, it may not be necessary for the Company to restate its financial statements and amend
its periodic reports filed with the SEC.
There
are a number of possible outcomes to the receivership, including settlement and payment to creditors, reorganization, or, although management
believes it unlikely at this juncture, liquidation. The stated intent of the successor receiver is to reorganize the Company, pay or
settle the Company’s debts and emerge from receivership. Management and a number of shareholders were concerned about a lack of
transparency in the amount of administrative expenses on the part of the Receiver and as a result, a motion to intervene was filed in
the Nevada District Court culminating it the discharge and removal of the original Receiver. The Receiver was replaced by William Leonard
upon the Order of the Nevada District Court on August 27, 2021. The successor receiver is investigating a number of issues during the
period of the prior Receiver’s appointment. If the successor receiver does not mitigate the impact or otherwise settle or restructure
the Company’s liabilities, the Company’s results could be materially adversely impacted and the Company may be forced to
liquidate its business.
As
part of the receivership, the Court issued a Writ of Injunction or “Blanket Stay” covering the Company and its assets during
the time that the Company is in receivership. As a result of the “Blanket Stay” the Company’s estate is protected from
creditors and interference with its administration is prevented while the Company’s financial issues are being fully analyzed and
resolved. As part of this process, creditors were notified and required to provide claims in writing under oath on or before the deadline
stated in the notice provided by the Receiver and those claims not made before the deadline were 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.
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 as well as the durable medical equipment, retail pharmacy and compounding pharmacy businesses are 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 and the compounding pharmacy as well as rules and regulations
affecting the insurance coverage for durable medical equipment (assuming we are successful in our planned acquisitions) 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
current 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:
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 activity;
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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.
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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:
Currently,
our CBD business is 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.
FDA
and Other Regulation of Compounding Pharmacies and Ownership.
Assuming
we are successful in pursuing the acquisition of RxCompoundingStore.com, LLC, and Peaks Curative, LLC, we will also be subject to FDA
and other regulatory oversight and regulation related to the products we offer through our compounding pharmacy, the billing through
Medicare and Medicaid as to durable medical equipment. In addition it is possible that we may be subject to additional issues because
of our common ownership of Peaks Curative and the Pharmacy that supplies the product prescribed. This may result in our inability to
realize certain synergies we are hopeful that will exist.
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.
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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 volumes;
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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 competitors;
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adverse
media reports on the use or efficacy of nutritional supplements; and
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our
inability to make our online division profitable.
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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.
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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.
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, 2021 there were 50,883,056
shares issued and outstanding and as of September 17, 2021 there were 53,183,056 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.
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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 50,883,056
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 to enter into acquisitions may have a significant dilutive effect.
Depending
on the number of shares we issue pursuant to the any definitive agreements we enter into with acquisition candidates, it could have a
significant dilutive effect upon our existing shareholders.