Forward Looking Statements
This quarterly report contains forward-looking statements. These statements
relate to future events or the Company's future financial performance. In some
cases, forward-looking statements can be identified by terminology such as
"may", "should", "expects", "plans", "anticipates", "believes", "estimates",
"predicts", "potential" or "continue" or negative of these terms or other
comparable terminology. These statements are only predictions and involve known
and unknown risks, uncertainties and other factors" that may cause the Company's
or its industry's actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by these
forward-looking statements.
Although the Company believes that the expectations reflected in the
forward-looking statements are reasonable, it cannot guarantee future results,
levels of activity, performance or achievements. Except as required by
applicable law, including the securities laws of the United States, the Company
does not intend to update any of the forward-looking statements to conform these
statements to actual results.
The Company's unaudited financial statements are stated in United States Dollars
(US$) and are prepared in accordance with United States Generally Accepted
Accounting Principles. The following discussion should be read in conjunction
with the Company's financial statements and the related notes that appear
elsewhere in this quarterly report.
The following discussion contains forward-looking statements that reflect the
Company's plans, estimates and beliefs. The Company's actual results could
differ materially from those discussed in the forward-looking statements.
Factors that could cause or contribute to such differences include but are not
limited to those discussed below and elsewhere in this quarterly report. All
adjustments necessary for a fair statement of the results for the interim
periods have been made, and all adjustments are of a normal recurring nature.
In this quarterly report, unless otherwise specified, all dollar amounts are
expressed in United States Dollars and all references to "common shares" refer
to the common shares in the Company's capital stock.
As used in this quarterly report, the terms "we", "us", "our" and "ESSI" mean
Eco Science Solutions, Inc. unless otherwise indicated. "Ga-Du" refers to our
wholly owned subsidiary Ga-Du Corporation.
Description of Business
The Company was incorporated in the state of Nevada on December 8, 2009 under
the name Pristine Solutions, Inc. On February 14, 2014, the Company changed its
name to Eco Science Solutions, Inc. ("ESSI")
With headquarters in Maui, Hawaii, Eco Science Solutions, Inc. is a bio and
software technology-focused Company targeting the multibillion-dollar health and
wellness industry. As consumers continue to take ownership of their health,
wellness and alternative medicines they consume, there is a growing shift away
from the sole dependence on large pharmaceutical companies and prescription
drugs. Thus, in 2020 and beyond, there will be a growing need for both
established and new health and wellness businesses to address this increasing
demand. In recent years the Company has changed the focus of its original
strategy from App based revenue to revenue generated from several key
operational areas, including the licensed Herbo Enterprise Software. Herbo is a
customizable, all-in-one business software (SaaS) and resource for businesses in
the Cannabis and Hemp industries. Herbo provides the software, custom web
development, operational training and support needed to plan and manage
Marijuana or CBD businesses. The software has provided businesses with
intelligence software for over 15 years, while offering seed-to-sale software
solutions to the Cannabis and Hemp industries since 2010.
Cultivators, Processors, Manufacturers, Labs, Distributors, Transporters, Dispensaries,
Retailers and Regulators, from seed-to-CPA are all target users of Herbo.
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Headquartered in Maui, Hawaii, with operations in Southern California, Eco
Science Solutions, Inc. is an enterprise technology Company delivering solutions
to the global health and wellness industry. The Company continues to develop its
Herbo Platform, a 360-degree ecosystem for business location, communications
between consumers and business operators, inventory management / selection,
payment facilitation, delivery arrangement and unitized accounting.
* Eco Science Solutions, Inc. is not in the business of growing, manufacturing,
or distributing cannabis.
Current business overview
Our business operations commenced generating modest revenues subsequent to our
fiscal year ended January 31, 2018 and up to the period ended October 31, 2018,
when the initial phase of our eXPOTM beta revenue model testing were complete.
Subsequently the operations were suspended through August 2019, during which
time AFN solidified its' primary banking relationship and is now able to service
and scale as needed with the client's needs. While AFN re-commenced operating
the eXPOTM platform during August 2019, Ga-Du does not yet have any additional
revenue allocations. Presently AFN is growing exclusively on a Member referral
basis. We expect revenue from this agreement to resume during fiscal 2021.
During fiscal 2020 we took steps to shift our focus to monetizing our Herbo
branded apps and recently developed enterprise software to assist companies in
the cannabis industry to simplify their processes, remain compliant, and enjoy
steady growth.
During fiscal 2020 the Company and Haiku Holdings LLC ("Haiku"), a company
controlled by our COO, Mr. Mike Rountree, entered into a Trademark Licensing
Agreement whereunder our Licensed Marks, including and incorporating Herbo, may
be used by Haiku to facilitate business including lead generation and referral
services. Subsequently our agreements with Haiku were expanded to include a
Software Reseller Agreement with respect to the Herbo suite of enterprise
software offerings owned by Haiku. Under the terms of our Reseller agreements
with Haiku we commenced generating revenues from licensing of the Herbo software
during fiscal 2020 and continue to seek expansion of this growing area of
operation during fiscal 2021.
Results of Operations
Comparison of the three months ended October 31, 2020 and 2019:
The following summary of the Company's results of operations should be read in
conjunction with the Company's unaudited consolidated financial statements for
the three months ended October 31, 2020 and 2019:
For the Three Months
Ended October 31,
2020 2019
Revenue $ 12,732 $ 9,194
Revenue, related parties 2,697 4,197
Total revenue 15,429 13,391
Operating expenses:
Cost of revenue 12,625 17,754
Depreciation 193 1,106
Legal, accounting and audit fees 42,784 69,139
Management and consulting fees 214,122 75,541
Research, development, and promotion 36,892 66,468
Office supplies and other general expenses 7,692 19,655
Advertising and marketing 1,810 10,599
Total operating expenses 316,118 260,262
Net operating loss (300,689 ) (246,871 )
Other income (expenses)
Interest income - 3,000
Interest expense (64,723 ) (63,204 )
Other expense (506,502 ) (127,833 )
Total other income (expense) (571,225 ) (434,908 )
Net loss $ (871,914 ) $ (434,908 )
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Revenue
During the three months ended October 31, 2020, the Company generated $15,429 in
total revenue of which $2,697 was from contracts with related parties, as
compared to $13,391 in the three months ended October 31, 2019, with $4,197
related to contracts with related parties. Revenue recorded during the most
recently completed three-month period relates directly to the licensing of the
Herbo enterprise software to various customers. We entered into amendments to
certain licensing and marketing agreements subsequent during fiscal 2019 which
provide for fee-based income calculated retroactively between March and October
2018 as a result of certain beta trials with respect to the eXPOTM platform, as
at October 31, 2020, the amounts generated from this agreement have not been
received by the Company and therefore while revenue has been generated, no
revenue has been recorded in our financial statements. We intend to record the
revenue attributable to the Company of $28,431 upon receipt.
Cost of Revenue
Costs of revenue consist of the direct expenses incurred to generate revenue,
including fees and commissions payable. Such costs are recorded as incurred.
During the three months ended October 31, 2020 we incurred costs of $12,625 as
compared to $17,754 during the three months ended October 31, 2019. Current
costs are related to sales of our licensed Herbo enterprise software. Our
ongoing costs of revenue will consist consists primarily of fees and commissions
paid in respect to the operation and installation of our Herbo enterprise
software. In the case of revenue earned by our wholly owned subsidiary, when
recorded, proceeds allocated to our revenue interest are net of associated
costs.
General and Administrative Expenses
For the three Months
Ended October 31,
2020 2019 Variances
Operating expenses:
Cost of revenue $ 12,625 $ 17,754 $ (5,129 )
Depreciation 193 1,106 (913 )
Legal, accounting and audit fees 42,784 69,139 (26,355 )
Management and consulting fees 214,122 75,541 138,581
Research, development, and promotion 36,892 66,468 (29,576 )
Office supplies and other general expenses 7,692 19,655 (11,963 )
Advertising and marketing 1,810 10,599 (8,789 )
Total operating expenses $ 316,118 $ 260,262 $ 55,856
General and administrative expenses during the three-month period ended October
31, 2020 of $316,118 ($260,262- 2019) include management and consulting fees of
$214,122 as compared to $75,541 in the comparative three months ended October
31, 2019. This increase to consulting fees is due to the addition of certain
consultants in the current three month period as compared to prior reporting
period, as the Company changed its focus to the Herbo suite of software.
Expenditures of $1,810 during the three months ended October 31, 2020 (2019 -
$10,599) on advertising and marketing reflect a reduction in costs paid to Yahoo
as the Company has refocused its marketing efforts on its licensed Herbo
enterprise software suite through a reseller agreement and curtailed its app
marketing expenses during the current three-month period. During the current
three months the Company recorded costs of revenue of $12,732 compared to $9,194
in the prior comparative three-month period ended October 31, 2019 as we were
able to expand our customer base for our licensed Herbo Enterprise Software.
Legal, accounting and audit fees incurred in the three-month period ended
October 31, 2020 of $42,784 have also decreased as compared to $69,139 in the
prior comparative period as the Company's legal fees with respect to certain
ongoing litigation declined in the current period as legal actions have moved to
settlement phase. The Company expended $36,892 on research, development and
promotion in the current three months ended October 31, 2020, a reduction in the
current period due to the fact the Company was required to spend less on updates
and improvements to our licensed Herbo enterprise software as compared to
$66,468 expended in the same three months ended October 31, 2019. Office
supplies and other general expenses decreased period over period and totaled
$7,692 (2020) and $19,655 (2019), respectively, with the decrease primarily
relating to a reduction in travel for staff and consultants due to the impact of
COVID-19.
The Company increased its operating expenses by $55,856 over the respective
three-month periods ended October 31, 2020 and 2019.
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The Company recorded interest expense of $64,723 and $63,204 in respect of
certain convertible notes and other loan agreements, respectively during the
three months ended October 31, 2020 and 2019. Interest income recorded in the
three months ended October 31, 2020 and 2019 totaled $Nil and $3,000,
respectively.
The Company recorded other expenses during the three month period ended October
31, 2020 in the amount of $506,502 as compared to $127,833 during the period
ended October 31, 2019. The increase to other expenses is directly related to
accrued liabilities relating to a judgment against the Company as a result of
litigation with a former employee.
The net loss in the comparative three-month periods ended October 31, 2020 and
2019 totaled $871,914 and $434,908, respectively.
Comparison of the nine months ended October 31, 2020 and 2019
The following summary of the Company's results of operations should be read in
conjunction with the Company's unaudited consolidated financial statements for
the nine months ended October 31, 2020 and 2019:
For the Nine Months
Ended October 31,
2020 2019
Revenue $ 44,991 $ 9,194
Revenue, related parties 8,091 4,197
Total revenue 53,082 13,391
Operating expenses:
Cost of revenue 39,269 17,754
Depreciation 1,741 3,317
Legal, accounting and audit fees 108,021 207,089
Management and consulting fees 372,123 643,541
Research, development, and promotion 108,413 86,232
Office supplies and other general expenses 23,864 81,611
Advertising and marketing 5,050 38,502
Total operating expenses 658,481 1,078,046
Net operating loss (605,399 ) (1,064,655 )
Other income (expenses)
Interest income - 9,000
Interest expense (191,926 ) (186,308 )
Total other income (expense) (506,502 ) (127,833 )
Total other incomes (expense) (698,428 ) (305,141 )
Net loss $ (1,303,827 ) $ (1,369,796 )
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Revenue
During the nine months ended October 31, 2020, the Company generated $53,082 in
total revenue of which $8,091 was from contracts with related parties, as
compared to $13,391 with $4,197 from contracts with related parties in the nine
months ended October 31, 2019. Revenue recorded during the most recently
completed nine-month period relates directly to the licensing of the Herbo
enterprise software to various customers. We entered into amendments to certain
licensing and marketing agreements subsequent during fiscal 2019 which provide
for fee-based income calculated retroactively between March and October 2018 as
a result of certain beta trials with respect to the eXPOTM platform, as at
October 31, 2020, the amounts generated from this agreement have not been
received by the Company and therefore while revenue has been generated, no
revenue has been recorded in our financial statements. We intend to record the
revenue attributable to the Company of $28,431 upon receipt.
Cost of Revenue
Costs of revenue consist of the direct expenses incurred to generate revenue,
including fees and commissions payable. Such costs are recorded as incurred.
During the nine months ended October 31, 2020 we incurred costs of $39,269 as
compared to $17,754 during the nine months ended October 31, 2019. Current
costs are related to sales of our licensed Herbo enterprise software. Our
ongoing costs of revenue will consist consists primarily of fees and commissions
paid in respect to the operation and installation of our Herbo enterprise
software. In the case of revenue earned by our wholly owned subsidiary, when
recorded, proceeds allocated to our revenue interest are net of associated
costs.
General and Administrative Expenses
For the Nine Months
Ended October 31,
2020 2019 Variances
Operating expenses:
Cost of revenue $ 39,269 $ 17,754 $ 21,515
Depreciation 1,741 3,317 (1,576 )
Legal, accounting and audit fees 108,021 207,089 (99,068 )
Management and consulting fees 372,123 643,541 (271,418 )
Research, development, and promotion 108,413 86,232 22,181
Office supplies and other general expenses 23,864 81,611 (57,747 )
Advertising and marketing 5,050 38,502 (33,452 )
Total operating expenses $ 658,481 $ 1,078,046 $ (419,565 )
General and administrative expenses during the nine-month period ended October
31, 2020 of $658,481 ($1,078,046 - 2019) include management and consulting fees
of $372,123 as compared to $643,541 in the comparative nine months ended October
31, 2019. This decrease to management fees is a result of a reduction in
consulting fees during the current nine-month period due to the departure of
certain consultants and management and the Company's determination not to renew
certain contracts on their expiry, as well as a credit related to certain prior
accrued fees for consulting services in the amount of $90,000 which were
forgiven in the current nine months ended October 31, 2020. Expenditures of
$5,050 during the three months ended October 31, 2020 (2019 - $38,502) on
advertising and marketing reflect a reduction in costs paid to Yahoo as the
Company has refocused its marketing efforts on its licensed Herbo enterprise
software suite through a reseller agreement and curtailed its app marketing
expenses during the current nine-month period. During the current nine months
the Company recorded costs of revenue of $39,269 compared to $17,754 in the
prior comparative nine-month period as we were able to expand our customer base
for our licensed Herbo Enterprise Software. Legal, accounting and audit fees
incurred in the nine month period ended October 31, 2020 of $108,021 have also
decreased substantially as compared to $207,089 in the prior comparative period
as the Company's legal fees with respect to certain ongoing litigation declined
in the current period as legal actions are moving to settlement. The Company
expended $108,413 on research, development and promotion in the current nine
months ended October 31, 2020 as we continued improvements to our licensed Herbo
enterprise software as compared to $86,232 in the same nine months ended October
31, 2019. Office supplies and other general expenses decreased period over
period and totaled $23,864 (2020) and $81,611 (2019), respectively. The decrease
primarily relates to a reduction in travel for staff and consultants due to the
impact of COVID-19 in the current nine month period.
The Company reduced its operating expenses by $419,565 over the respective
nine-month periods ended October 31, 2020 and 2019.
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The Company recorded interest expense of $191,926 and $186,308 in respect of
certain convertible notes and other loan agreements, respectively during the
nine months ended October 31, 2020 and 2019. Interest income recorded in the
nine months ended October 31, 2020 and 2019 totaled $Nil and $9,000,
respectively.
The Company recorded other expenses during the three month period ended October
31, 2020 in the amount of $506,502 as compared to $127,833 during the period
ended October 31, 2019. The increase to other expenses is directly related to
accrued liabilities relating to a judgment against the Company as a result of
litigation with a former employee.
The net loss in the comparative nine-month periods ended October 31, 2020 and
2019 totaled $1,303,827 and $1,369,796, respectively.
Plan of Operation
The Company changed the focus of its business at the close of fiscal 2016 to
operate in the ecofriendly technology sector using social media sites and
offering apps to generate advertising revenues and download fees. During fiscal
2017 the Company laid the groundwork for income generation from these services
by investing in ongoing development of its applications, websites and visibility
in both the local and global market. The Company has invested heavily in
advertising and research and development to allow its applications and ecommerce
website visibility on a global stage. During fiscal 2018 we further added to our
business portfolio with the acquisition of Ga-Du corporation and the entry into
a licensing and marketing agreement that should see the Company generating
revenues in fiscal 2019. During fiscal 2019, the Company licensed the Herbo
Enterprise Software suite and completed certain customization efforts, which has
allowed the Company to commence generating revenue by way of sales of software
licenses during fiscal 2020 and during the current nine months ended October 31,
2020. The Company's need for ongoing capital by way of loans, sale of equity
and/or convertible notes is expected to continue during the current fiscal year
until we can establish substantive revenues from operations. We have also had to
rely heavily on loans from related parties in our most recently completed fiscal
year as we work to have our shares returned for quotation to the OTCMarkets.
There are no assurances additional capital will be available to the Company on
acceptable terms or that this equity line will be available to us when needed.
Future funding could result in potentially dilutive issuances of equity
securities, the incurrence of debt, contingent liabilities and/or amortization
expenses related to goodwill and other intangible assets, which could materially
adversely affect the Company's business, results of operations and financial
condition. Any future funding might require the Company to obtain additional
equity or debt financing, which might not be available on terms favorable to the
Company, or at all, and such financing, if available, might be dilutive.
Going Concern
These unaudited condensed consolidated financial statements have been prepared
on a going concern basis, which implies that the Company will continue to
realize its assets and discharge its liabilities in the normal course of
business. The Company has not generated significant revenues to date and has
never paid any dividends and is unlikely to pay dividends or generate
significant earnings in the immediate or foreseeable future. As at October 31,
2020, the Company had a working capital deficit of $12,549,809 and an
accumulated deficit of $74,351,909. The continuation of the Company as a going
concern is dependent upon the continued financial support from its shareholders,
the ability to raise equity or debt financing, and the attainment of profitable
operations from the Company's future business. These factors raise substantial
doubt regarding the Company's ability to continue as a going concern.
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The recent COVID-19 pandemic could have an adverse impact on the Company going
forward. COVID-19 has caused significant disruptions to the global financial
markets, which may severely impact the Company's ability to raise additional
capital and to pursue certain planned business activities. The Company may be
required to cease operations if it is unable to finance its' operations. The
full impact of the COVID-19 outbreak continues to evolve as of the date of this
report and is highly uncertain and subject to change. Management is actively
monitoring the situation but given the daily evolution of the COVID-19 outbreak,
the Company is not able to estimate the effects of the COVID-19 outbreak on its
operations or financial condition in the next 12 months. There are no assurances
that the Company will be able to meet its obligations, raise funds or continue
to implement its planned business objectives to obtain profitable operations.
The unaudited consolidated financial statements reflect all adjustments
consisting of normal recurring adjustments, which, in the opinion of management,
are necessary for a fair presentation of the results for the periods shown. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts of and
classification of liabilities that might be necessary in the event the Company
cannot continue in existence.
Liquidity and Capital Resources
As of October 31, 2020, the Company had total current assets of $60,657, and
total current liabilities of $12,610,466 as compared to $59,310 in current
assets and $11,307,033 in total current liabilities at the fiscal year ended
January 31, 2020. The Company has limited financial resources available outside
loans from its officers and directors and funds it has obtained through use of
convertible notes and loans from related parties. We have recently commenced
generating revenue from the licensing of our Herbo Enterprise Software, however,
these revenues are not yet sufficient to meet our ongoing operational overhead.
While the Company entered into an Equity Purchase Agreement to sell up to
10,000,000 shares of our common stock (Ref: Note 11(b)) to the financial
statements contained herein) we have been unable to obtain any funding under
this agreement in the most recently completed fiscal year. There can be no
guarantee the Company will receive proceeds from loans, related party advances
or convertible notes sufficient to meet its ongoing operational overheads.
While we have generated modest revenue in fiscal 2020 and in the current quarter
from the Herbo Enterprise Software, as well as $28,431 during fiscal 2019
relative to Ga-Du's agreements with AFN, which will be recorded when received
from our licensing partner, we do not yet have resources to meet our operational
shortfalls. Without realization of additional capital, it would be unlikely for
the Company to continue as a going concern. As noted, additional working capital
may be sought through additional debt or equity private placements, additional
notes payable to banks or related parties (officers, directors or stockholders),
or from other available funding sources at market rates of interest, or a
combination of these. The ability to raise necessary financing will depend on
many factors, including the nature and prospects of any business to be acquired
and the economic and market conditions prevailing at the time financing is
sought. During the most recently completed fiscal year management has obtained
additional funding with success, however there is no guarantee we will be able
to continue to obtain financing if and when required. The current economic
downturn and ongoing impact of COVID-19 may make it difficult to find new
capital sources for the Company should they be required.
Cash flows from operating activities
During the nine months ended October 31, 2020 and 2019 the Company used $370,614
and $570,318 of cash for operating activities respectively. The decrease in cash
used in operating activities period over period is attributed to a reduction to
the net loss reported in the nine months ended October 31, 2020 as compared to
the same nine months in 2019. Current period results include an increase to
related party payables of $191,424 as compared to $250,317 in the same
nine-month period in 2019, and an increase to accounts payable of $739,384 in
the current nine months as compared to an increase of $436,772 in the period
ended October 31, 2019. The substantive increase to accounts payable and
accrued liabilities is directly related to a judgment against the Company as a
result of litigation with a former employee. The Company recorded an increase to
prepaid expenses of $4,865 during the nine months ended October 31, 2019, with
no comparable results during the current nine months ended October 31, 2020.
Finally, we recorded a decrease to accounts receivable in the current nine
months ended October 31, 2020 of $8,755 and an increase to related party
receivables of $8,091 with no comparable results during the nine months ended
October 31, 2019.
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Cash flows from investing activities
During the three months ended October 31, 2020 and 2019, the Company used no
cash for investing activities.
Cash flows from financing activities
During the nine months ended October 31, 2020 and 2019 the Company repaid $5,000
and $Nil of notes payable. Further during the current nine months ended October
31, 2020 the Company received related party loans of $377,625 as compared to
$578,333 in the prior comparative nine months ended October 31, 2019.
Future Financings
We anticipate continuing to rely on related party and third-party loans and
equity sales of our common shares and/or shares for services rendered in order
to continue to fund our business operations in the event of ongoing operational
shortfalls. Issuances of additional shares will result in dilution to our
existing shareholders. There is no assurance that we will achieve any of
additional sales of our equity securities or arrange for debt or other financing
to fund our research and development activities.
Contractual Obligations
The Company is a smaller reporting Company as defined by Rule 12b-2 of the
Securities Act of 1934 and we are not required to provide the information under
this item.
Off-Balance Sheet Arrangements
The Company has no significant off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on the Company's financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that are
material to stockholders.
Critical Accounting Policies
The preparation of our condensed consolidated financial statements and notes
thereto requires management to make estimates and assumptions that affect the
amounts and disclosures reported within those financial statements. On an
ongoing basis, management evaluates its estimates, including those related to
revenue recognition, contingencies, litigation and income taxes. Management
bases its estimates and judgments on historical experiences and on various other
factors believed to be reasonable under the circumstances. Actual results under
circumstances and conditions different than those assumed could result in
differences from the estimated amounts in the financial statements. There have
been no material changes to these policies during the nine months ended October
31, 2020. Refer to Note 2 to our unaudited condensed consolidated financial
statements contained herein.
Recently issued accounting pronouncements
The Company has reviewed all recently issued, but not yet effective, accounting
pronouncements and does not believe the future adoption of any such
pronouncements will have a material impact on its financial condition or the
results of its operations.
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