ITEM 1. FINANCIAL STATEMENTS
ECO SCIENCE SOLUTIONS, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
ECO SCIENCE SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
ECO SCIENCE SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
ECO SCIENCE SOLUTIONS, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
(Unaudited)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
ECO SCIENCE SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
ECO SCIENCE SOLUTIONS, INC.
NOTES TO THE CONDENSED CONSOLIDTED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: NATURE OF BUSINESS AND CONTINUANCE OF OPERATIONS
Organization and nature of business
The Company was incorporated in the state of Nevada on December 8, 2009 under the name Pristine Solutions, Inc. On January 8, 2014, the Company changed its name from Pristine Solutions, Inc. to Eco Science Solutions,
Inc.
During fiscal 2016 the Company changed its business focus and on January 1, 2016, the Company entered into a technology licensing and marketing support agreement with Separation Degrees – One, Inc. ("SDOI") that was
focused on the development, licensing and management of on-going technology solutions and marketing campaigns for ESSI's initiatives. Additionally, the Company entered into an Asset Purchase Agreement with SDOI wherein the Company acquired a
proprietary messaging and customer relationship management software platform from SDOI.
On January 11, 2016, the Company's Board of Directors (the "Board") authorized the creation of 1,000 shares of Series A Voting Preferred Stock. The holder of the shares of the Series A Voting Preferred Stock has the
right to vote those shares of the Series A Voting Preferred Stock regarding any matter or action that is required to be submitted to the shareholders of the Company for approval. The vote of each share of the Series A Voting Preferred Stock is equal
to and counted as 10 times the votes of all of the shares of the Company's (i) common stock, and (ii) other voting preferred stock issued and outstanding on the date of each and every vote or consent of the shareholders of the Company regarding each
and every matter submitted to the shareholders of the Company for approval. The Agreement with SDOI was revised so that SDOI received 500,000 shares of Common Stock rather than Preferred Shares; no Preferred Shares were issued to SDOI. In addition
to the issuance of the 500,000 shares of common stock as consideration for the Asset Purchase Agreement with SDOI, the Company agreed further to settle all invoices received for services rendered by SDOI, as well as advertising fees incurred, by way
of issuance of common stock at a 30% discount to market as S-8 shares.
On January 10, 2017, the Company entered into a Cancellation and Release Agreement with SDOI wherein the Company agreed to issue 4,000,000 common shares to SDOI (or its designee) in exchange for the cancellation of the
$1,920,424 worth of remaining outstanding invoices and fees owed to SDOI.
On June 21, 2017, Eco Science Solutions, Inc. (ESSI) entered into a Stock Purchase Agreement ("SPA") with the shareholders of Ga-Du Corporation, a Nevada corporation ("Ga-Du", "Sellers"), wherein, ESSI
agreed to purchase, and Sellers agreed to sell 100% of the shares of capital stock of Ga-Du to ESSI, in exchange for fifteen million (15,000,000) shares of ESSI Common Stock, to be issued to Sellers, pursuant to the SPA. In addition, the SPA
called for the issuance of an additional 15,000,000 shares of the Company's common stock to the Ga-Du Founders when they brought a bank equity interest to the Company. Subsequently, effective July 30, 2017 the Company and the stockholders of Ga-Du
entered into certain amendments to the original June 21, 2017, SPA cancelling the term regarding the issuance of an additional 15,000,000 Shares.
Additionally, on September 22, 2017, and in order to avoid diluting the holdings of existing ESSI Shareholders, Jeffery and Don Taylor, CEO and CFO of ESSI, agreed to return 8,000,000 Shares each of ESSI's Common Stock
of their own to the Company for cancellation, effective September 22, 2017.
Following the closing of the SPA, Ga-Du is a wholly owned subsidiary of ESSI, bringing to ESSI a Financial Services Platform, and Inventory Control and Advisory
Software Platforms, thus completing the ESSI product suite to benefit both consumer and professional customers of the Company.
ECO SCIENCE SOLUTIONS, INC.
NOTES TO THE CONDENSED CONSOLIDTED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: NATURE OF BUSINESS AND CONTINUANCE OF OPERATIONS (cont'd)
Organization and nature of business (cont'd)
On July 26, 2017, all of the Shares of an Uruguayan entity, Holway Sociedad Anonima ("Holway", "Holway SA") were purchased by certain former shareholders of Ga-Du who thereafter became the sole shareholders of Holway.
Holway's objective is to perform business in the Free-trade zone in Uruguay in accordance with the laws of the Free-trade zone; in every kind of industrial, commercial or other activity relating to its business of providing financial services. On
September 19, 2017, the Holway shareholders transferred all of their shares of Holway to Ga- Du, and will hereafter conduct business pursuant to the Holway Uruguayan registration as Ga-Du; Doing Business As (DBA).
Additionally, Holway has applied for a financial advisory services charter to perform its financial services through Ga-Du, and under the regulatory laws of the Uruguayan Central Bank. As of the date of this report,
the process to secure the financial advisory charter remains in suspense until such time as ESSI secures additional financing.
Once the application for the Financial Advisory Services Charter is approved, Ga-Du, through its Financial Advisory Services Charter, and in conjunction with the Alliance Financial Network system, intends to provide
foreign jurisdictions with legalized cannabis, a banking mechanism to conduct business relative to the cannabis industry, and within the laws governing cannabis industry in those foreign jurisdictions doing business with the United States, and in
compliance with US and foreign laws relative to the cannabis industry.
Furthermore, Ga-Du will work closely with representatives of the South American MasterCard/Visa Card services, allowing Ga-Du to process merchant services through the Uruguayan entity, Holway, for transactions relative
to the Cannabis industry, in countries and states where Cannabis is legalized. Presently the Company is awaiting approval of the charter prior to conducting operations under this entity.
Further, on September 22, 2017, Ga-Du Corporation entered into an Assignment Agreement with G&L Enterprises, wherein G&L Enterprises assigned, to Ga-Du Corporation, all
of its rights, interest in, and obligations under a License and Master Marketing Agreement (LMMA) it entered into with Alliance Financial Network, Inc. ("AFN", "Alliance") on September 6, 2017 (ref: Note 6). Alliance is registered with
FinCEN (MSB Registration Number: 31000094744769) as a "non-bank financial institution", compliant with the AML/BSA guidelines of FinCEN, and is regulated by the Internal Revenue Service. Alliance operates a mobile application known as the eXPO™
electronic eXchange Portal ("eXPOTM") and provides financial and marketing services to businesses and individuals which are challenged in the traditional banking systems, and require more intensive compliance then banks are willing, or
able to perform.
On March 5, 2018, an Addendum to the LMMA was entered into and agreed upon, wherein the LMMA was amended to reflect the right of Ga-Du to receive revenue from Colorado businesses; the LMMA originally excluded existing
Colorado business as any revenue generating businesses. In addition, the revenue split under the LMMA was also revised. Among other things, in exchange for the split, where under Ga-Du is to receive 50% of all revenues, Ga-Du agreed to pay to
Alliance $405,000 in two tranches, for operational expenses and business development in the State of Colorado as well as in other states. As a result, Ga-Du is entitled to receive 10% of all of Alliance's net revenue earned from Colorado
revenues from October 15, 2017 forward.
A final payment to Alliance was made on April 24, 2018, as agreed upon in the Addendum to the LMMA, making the Addendum Effective. As part of the agreed final payment $170,000 was advanced
in cash by Mr. Lewis, the CEO of Ga-Du, as a loan to the Company, and Mr. Rountree, our COO, assumed the remaining $35,000 in the form of a debt assignment between a third party and Alliance. As a result, the Company was notified of its first
revenues from beta testing under the LMMA totaling $28,431 (10% of net revenue generated by Colorado Business), as at October 31, 2018. Thereafter revenue generating operations under the terms of the LMMA with Alliance were suspended pending
expansion of a banking relationship by eXPO
TM in order to allow next stage transactional volume growth. Banking relationships were secured during the most recently competed quarter ended October 31, 2019, and the Company expects revenue
generating operations under the terms of the LMMA to resume immediately. The Company intends to record revenues from the aforementioned beta testing of the eXPO
TM platform as of the date funds are received into our accounts.
ECO SCIENCE SOLUTIONS, INC.
NOTES TO THE CONDENSED CONSOLIDTED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: NATURE OF BUSINESS AND CONTINUANCE OF OPERATIONS (cont'd)
Organization and nature of business (cont'd)
Subsequent to the period ended October 30, 2018, the Company and Alliance determined the $35K in amounts payable to a third party assumed by Mr. Rountree would be paid in cash, and the note assignment canceled.
During July and August 2018, Mr. Rountree remitted the final $35,000 in payments for the benefit of Alliance, which amount has been included in related party payables.
With the acquisition of Ga-Du, ESSI's product suite represent is now an enclosed ecosystem for business location,
localized communications between consumers and business operators, on-topic social networking, inventory management / selection, payment facilitation and delivery arrangement. The Company's holistic commerce and content platform enables health,
wellness and alternative medicine enthusiasts to easily locate, access, and connect with others to facilitate the research of and purchasing of eco-science friendly products.
As Alliance continues its efforts to expand its eXPOTM banking relationships to support next phase operations, the Company is currently focusing on rolling out its
Herbo Enterprise Software and building that user base. The Herbo software provides a point of sale, bookkeeping and banking functions, inventory management and tracking, compliance and reporting, tax and accounting, payroll and HR, ecommerce and
payment gateway services and CRM and customer loyalty functions all under one software suite. During the most recent quarter ended October 31, 2019, the Company entered into various licensing contracts for the Herbo Enterprise Software and has
commenced generating revenue from this segment of its operations.
Financial Statements Presented
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and
Article 210 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included. All such adjustments are of a normal recurring nature. Operating results for the nine months ended October 31, 2019, are not necessarily indicative of the results that may be expected
for the fiscal year ending January 31, 2020. For further information, refer to the financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2019 as filed with the
Securities and Exchange Commission on June 28, 2019.
Principals of Consolidation
The consolidated financial statements include the accounts of Eco Science Solutions, Inc. and its wholly-owned subsidiary, Ga-Du
Corporation. All significant intercompany balances and transactions have been eliminated.
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, 2019, the
Company had a working capital deficit of $10,751,994 and an accumulated deficit of $72,551,248. 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.
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.
ECO SCIENCE SOLUTIONS, INC.
NOTES TO THE CONDENSED CONSOLIDTED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist in understanding the Company's consolidated financial statements. These accounting policies conform to
accounting principles, generally accepted in the United States of America, and have been consistently applied in the preparation of the consolidated financial statements. Certain reclassifications have been made to the prior period's consolidated
financial statements to conform to the current period's presentation.
Use of Estimates
The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related
to long-lived assets and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ
materially and adversely from the Company's estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Cash and cash equivalents
The Company considers all highly liquid instruments with maturity of three months or less at the time of purchase to be cash equivalents. As of October 31, 2019, and January 31, 2019, respectively, the Company had
cash, but no cash equivalents.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization on property and equipment are determined using the straight-line method over the three to five year estimated useful lives of the assets.
Technology, licensing rights and software (Intangible assets)
Technology, licensing rights and software are recorded at cost and capitalized and are reviewed for impairment at a minimum of once per year or whenever events or changes in circumstances suggest a need for
evaluation. There is no impairment expense for the intangible assets in three and nine months ended October 31, 2019.
Advertising and Marketing Costs
Advertising and marketing costs are expensed as incurred and were $10,599 and $38,502 during the three and nine months ended
October 31, 2019, respectively; and $21,189 and $919,952 in the three and nine months ended October 31, 2018, respectively. Advertising and marketing costs include ad placement and click through programs placed on a wide network of mediums acquired
from advertising consolidators including Outbrain, MGID, Rev Content, Yahoo, MSN, AOL, Google and others for the full scope of the Company's brands including the Herbo and Fitrix apps for all platforms, GooglePlay, iOS, Android, as well as the
corporate e-commence site and all the other underlying supporting social media platforms such as YouTube, Twitter, Instagram, and Facebook. Further the Company incurs other advertising expense in respect to its attendance at various venues to
promote our business objectives.
ECO SCIENCE SOLUTIONS, INC.
NOTES TO THE CONDENSED CONSOLIDTED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
Revenue Recognition
Effective January 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from licensing agreements and contracts by applying the following steps: (1)
identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when
each performance obligation is satisfied. For the comparative periods, revenue has not been adjusted and continues to be reported under ASC 605 — Revenue Recognition. Under ASC 605, revenue is recognized when the following criteria are met: (1)
persuasive evidence of an arrangement exists; (2) the performance of service has been rendered to a customer or delivery has occurred; (3) the amount of fee to be paid by a customer is fixed and determinable; and (4) the collectability of the fee is
reasonably assured.
$13,391 has been recognized as revenue in the three and nine months ended October 31, 2019, with $0 revenue in the three and nine months ended October 31, 2018. Revenue generated under enterprise software licenses will
be recorded in accordance with the terms of the individual Customer contracts. We expect license fees will be recorded on a monthly basis over the term of the contract, activation fees will be earned upon completion of set up and installation of the
enterprise software, and customization and/or professional consulting services will be earned as rendered.
While the Company has entered into an LMMA (re: Note 6) under which we are entitled to fee-based revenue on a profit-sharing basis from a financial services platform known as eXPOTM, the Company has
determined that when recording its revenue, the monthly income is not clearly determinable until the fees are actually paid to the Company by AFN. As at October 31, 2018 fees payable by AFN for the period October 2017 through October 2018 as
reconciled in commission reports received from AFN have not been received by the Company. In addition, subsequent to October 31, 2018 fees from the eXPOTM platform have been suspended as Alliance seeks banking relationships for larger
volume transactions in order to move to the next phase of the platform launch. Banking relationships were secured during the most recently competed quarter ended October 31, 2019, and the Company expects revenue generating operations under the
terms of the LMMA to resume immediately. The Company has determined to record its revenue in respect to the LMMA on the cash basis. In the future, should the fee structure and reporting process become more easily determinable, the recognition
method may change. Pursuant to AFN's revenue reports, the amount payable to Ga-Du Corporation is $28,431 (10% of net revenue generated by Colorado Business) at October 31, 2018 and January 31, 2019. The Company will record the revenue once we receive
the proceeds.
Cost of Revenue
Costs of revenue consist of the direct expenses incurred to generate revenue. Such costs are recorded as incurred. Our cost of revenue will consist consists primarily of fees associated with the operation of our social
media venues and fulfillment of specific customer advertising campaigns related to our downloadable apps. In the case of revenue earned by our wholly owned subsidiary, proceeds allocated to our revenue interest are net of associated costs.
The Company records stock-based compensation in accordance with ASC 718, Share-Based Payments, using the fair value method. All transactions in which goods or services are the
consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued
to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.
Convertible Debt and Beneficial Conversion Features
The Company evaluates embedded conversion features within convertible debt under ASC 815 "Derivatives and Hedging" to determine whether the embedded conversion feature(s) should
be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under
ASC 470-20 "Debt with Conversion and Other Options" for consideration of any beneficial conversion features.
ECO SCIENCE SOLUTIONS, INC.
NOTES TO THE CONDENSED CONSOLIDTED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
Stock Settled Debt
In certain instances, the Company will issue convertible notes which contain a provision in which the price of the conversion feature is priced at a fixed discount to the
trading price of the Company's common shares as traded in the over-the-counter market. In these instances, the Company records a liability, in addition to the principal amount of the convertible note, as stock-settled debt for the fixed value
transferred to the convertible note holder from the fixed discount conversion feature. As of October 31, 2019, and January 31, 2019, $248,432 for the value of the stock settled debt for certain convertible notes is included in the Convertible
note, net account under balance sheet. (see Note 10).
Basic and Diluted Net Income (Loss) Per Share
The Company computes net income (loss) per share in accordance with ASC 260, Earning per Share. ASC 260 requires presentation of both basic and diluted earnings per share (EPS)
on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to
all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing Diluted EPS, the average stock price for the period is used in determining
the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.
Recently issued accounting pronouncements
The Company has reviewed other recently issued accounting pronouncements and plans to adopt those that are applicable to it. The Company does not expect the adoption of any other pronouncements to have an impact on its
results of operations or financial position.
NOTE 3: PROPERTY AND EQUIPMENT
Property and equipment, net consists of the following:
Depreciation expense (excluding impairment) amounted to $1,106 and $1,294for the three month periods ended October 31, 2019 and 2018, respectively.
Depreciation expense (excluding impairment) amounted to $3,317and $3,883 for the nine month periods ended October 31, 2019 and 2018, respectively.
ECO SCIENCE SOLUTIONS, INC.
NOTES TO THE CONDENSED CONSOLIDTED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4: INTANGIBLE ASSETS
On June 21, 2017, the Company acquired a 100% interest in Ga-Du including certain intangible assets such as a Financial Services Platform, Testing Labs, and Inventory Control
and Advisory Software Platforms. Intangible assets acquired as part of the acquisition of Ga-Du were fully impaired on acquisition.
During the three months ended July 31, 2018 the Company continued to develop its software platforms and has capitalized a total of $12,282 in respect to ongoing software development, the entire amount of which was
funded by the Company's Chief Operating Officer, Mr. Mike Rountree.
During the three months ended October 31, 2018 the Company incurred additional software development costs totaling $350,000 from Take2L Enterprises, which amount remains payable and is included on the Company's balance
sheets as Accounts payable. Software development for our Herbo division, supporting the cannabis industry, includes a consumer and enterprise software platform which among other key functionality, will include CRM (customer relationship
management), MRP (materials resource planning), Inventory management, seed to sale compliancy, e-commerce, merchant processing (tied to our AFN partnership), accounting and taxation functionality, HR management and a robust suite of analytics. The
Company is working with Take2L to build this software suite from the ground up.
In the fiscal year ended January 31, 2019, the Company impaired intangible assets totaling $362,282.
NOTE 5: SPONSORSHIP AGREEMENTS
On February 9, 2017, the Company entered into a Sponsorship Agreement with Fruit of Life Productions LLC, wherein, the Company
agreed to pay Fruit of Life Productions LLC the sum of Fifty Thousand Dollars ($50,000).
On April 16, 2017, the Company entered into a Sponsorship, Content Development and Licensing Agreement with Roaring Lion Tours, Inc., wherein, the Company agreed to pay Roaring
Lion Tours, Inc. the sum of One Hundred Thirty-Five Thousand Dollars ($135,000) for the licensing and distribution right to content developed during Kaya Fest, in Miami, Florida on April 22, 2017. The arrangement allowed for the Company to sponsor
the Kaya Festival as well as the right to use any audio and audio-visual content developed by the Kaya Festival.
The total amount of $185,000 expended has been recorded as research,
development, and promotional expenses during the three months ended April 30, 2017.
On April 1, 2018, ESSI entered into a Sponsorship Agreement with Fruit of Life Productions, LLC. The terms of the Agreement allow Eco Science Solutions, Inc. (ESSI) to sponsor Kaya Fest 2018, to be held in San
Bernardino, California, and to be acknowledged by Fruit of Life Productions as a Sponsor at Kaya Fest, the Company agrees to pay Fruit of Life Productions $250,000. Sponsorship benefits will include, among other things, the following:
(1) Main Stage named after ESSI; (2) Four 10x10 on site vendor booths; (3) Banner (10) placement in venue; (4) Audio/Video assets provided as promotional use for ESSI's Herbo; (5) Name and phrase of ESSI called out on
stage between performers sets; (6) ESSI's logo and a link to ESSI on Kaya Fest website; (7) ESSI's logo on video wall; (8) ESSI's name and logo as presenting sponsor; (9) Banner at main entrance of venue; (10) On stage banner placement; and (11)
ESSI's logo on all promotional print for Kaya Fest.
The term of the Agreement began on April 1, 2018, and continued until April 30, 2018, at 11:59 p.m. at the closing of the Kaya Fest. Total fees payable of $250,000 have been recorded as research, development, and promotional expenses during the three months ended April 30, 2018. These fees were paid to Fruit of Life directly by a third party.
ECO SCIENCE SOLUTIONS, INC.
NOTES TO THE CONDENSED CONSOLIDTED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6: LICENSE AND MASTER MARKETING AGREEMENT
On September 22, 2017, Ga-Du Corporation entered into an Assignment Agreement with G&L Enterprises, wherein G&L Enterprises assigned to Ga-Du Corporation, all of its
rights, interest in, and obligations under a License and Master Marketing Agreement (LMMA) it entered into with Alliance Financial Network, Inc. ("AFN", "Alliance") on September 6, 2017. The basic terms of that Agreement are as follows:
Alliance provides certain financial and marketing services to businesses and individuals, including the Cannabis Industry, on a programmatic or membership basis (the "Financial Program"), of which Alliance derives fees
and income from enrolling companies in the Financial Program and providing a range of services, with respect to which AFN and Ga-Du may derive fees and income, for such clients (the "Members") according to the AFN pricing schedule (the "Fees").
Alliance Financial Network is registered with FinCEN (MSB Registration Number: 31000094744769) as a "non-bank financial institution", compliant with the AML/BSA guidelines of FinCEN, and is regulated by the Internal
Revenue Service. Operating a mobile application known as eXPO™ electronic eXchange Portal, Alliance provides financial and marketing services to businesses and individuals, which are challenged in the traditional banking systems, and generally are
those that require more intensive compliance then banks are willing, or able to perform. One such industry is the cannabis industry; Alliance is configured to establish Membership relationships businesses in this industry following a full compliance
audit on the business.
Ga-Du has agreed to issue, or cause to be issued, two hundred thousand (200,000) shares of the Company's common stock to Alliance. Ga-Du shall have the exclusive right to undertake marketing responsibilities of
Alliance's Financial Services to businesses in the Cannabis industry, initially in Michigan, and Washington, with plans to extend throughout the United States, provided that it shall not extend to any states where Cannabis sales have not been
legalized by that state's laws.
Ga-Du shall be credited with all Cannabis related members and revenues that use Alliance's financial and marketing services, regardless of the source of revenue, or the party that enrolled the customer that generated
the revenues, that are generated within any territory in which Ga-Du has commenced business.
Alliance provides all software platform(s) necessary to deliver the Financial Services, assure compliance with appropriate Federal Requirements and international money laundering restrictions, administer all
compliance, enrollment, and collection of fees from the Members contracting with Alliance, provide any and all necessary marketing or other materials describing Alliance's services and program, will forward any required Sales Commissions to the
appropriate recipients, and assure adequate customer service at all times.
Alliance is responsible for the functional operation of any software utilized in providing its services and for the administration and handling of monies and/or any credits relating thereto and, in the event of any
claim, cause of action or lawsuit (together the "Claims") for failure to properly administer such responsibilities, Alliance shall have the sole obligation to defend such Claim(s) and shall fully indemnify, defend and hold harmless Ga-Du from and
against such Claims.
Alliance maintains accounting and data concerning the income from the Cannabis Industry and will generate a monthly income statement as to each of the following revenue streams: (i) membership fees; (ii) cash
depository fees; (iii) merchant processing and credit card fees; (iv) transfer fees; and (v) advertising fees.
Alliance and Ga-Du will split compensation derived from income generated from enrollees of Ga-Du as follows: (a) for income from point of sale payments to merchants, after deducting any Sales Commissions and cost basis
(interchange and bank fees), Alliance will receive forty percent (40%), and Ga-Du shall receive sixty percent (60%); (b) for income from cash depository business deriving from the Cannabis industry, Alliance will receive sixty five percent (65%), and
Ga-Du will receive thirty five percent (35%); (c) for income derived from membership fees from the Cannabis industry, Alliance and Ga-Du will split the revenue 40/60 as in (a) above; (d) for income generated from transfer fees, Alliance and Ga-Du
will split the revenue on a 50/50 basis; and (e) for any other income derived from providing services to the Cannabis industry, Alliance and Ga-Du will split the income on an equal fifty/fifty basis, except that income derived from advertising fees
paid by advertisers utilizing Alliance's kiosks will be split eighty-five percent (85%) to Alliance and fifteen percent (15%) to Ga-Du.
ECO SCIENCE SOLUTIONS, INC.
NOTES TO THE CONDENSED CONSOLIDTED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6: LICENSE AND MASTER MARKETING AGREEMENT (cont'd)
Additionally, the terms of the License and Master Marketing Agreement G&L entered into with Alliance included a $100,000 Convertible Promissory Note ("Note") payable to
G&L, based upon money G&L loaned to Alliance; the sole member of G&L Enterprises, L. John Lewis, is one of the founding members of Ga-Du Corporation. On September 22, 2017, G&L Enterprises assigned the July 6, 2017 $100,000
Convertible Promissory Note to Ga-Du The terms of the Note are for one year with 12% interest, and following the above-referenced assignment, payable to the Ga-Du Corporation. Furthermore, the Note can, at Ga-Du's option, be converted upon
maturity into 1.12% of the equity of Alliance.
200,000 shares of common stock valued at $50,000, or $0.25 per share were expensed as research and development expenses.
A total amount of $102,533 in respect to the assigned convertible note, include principal of $100,000 and accrued interest receivable of $2,533 which amounts were recorded as additional paid in capital.
On March 5, 2018, an Addendum to that certain LMMA entered into between Ga-Du, the Company and AFN. (d/b/a eXPOTM) ("Alliance", "eXPOTM"), and dated September 6, 2017, was entered into and agreed
upon, wherein the LMMA was amended to reflect the right of Ga-Du to receive revenue from Colorado businesses; the LMMA originally excluded existing Colorado business as any revenue generating businesses.
The Addendum allows for the following split:
"With respect to the fee split between Alliance and Ga-Du as to income derived from cash depository business designated by eXPOTM as "Legacy Cash" deposited from businesses in the Cannabis industry, or
other cash depository business brought in by Ga-Du, the Company shall receive fifty percent (50%) of all revenues and Ga-Du shall receive fifty percent (50%) of all such revenues (the "Cash Depository Revenues")".
Among other things, in exchange for the split, whereby Ga-Du is to receive 50% of all revenues, Ga-Du agreed to pay to Alliance $405,000 in two tranches, for operational expenses and business development in the State
of Colorado as well as in other states.
Additionally, Ga-Du, from October 15, 2017, and going forward, is entitled to receive 10% of all of Alliance's net revenue earned from Colorado revenues.
The payment to Alliance in the amount of $405,000 was concluded as of April 24, 2018, and has been recorded as research, development, and promotional expenses during the
three months ended April 30, 2018.
Pursuant to Alliance's revenue reports, the amount payable to Ga-Du Corporation is $28,431 (10% of net revenue generated by Colorado Business) as at October 31, 2018. The Company will record the revenue once we receive
the proceeds. Subsequent to October 31, 2018 fees from the eXPOTM platform have been suspended as Alliance seeks banking relationships for larger volume transactions in order to move to the next phase of the platform launch. We expect
revenue from this agreement to resume during fiscal 2020.
ECO SCIENCE SOLUTIONS, INC.
NOTES TO THE CONDENSED CONSOLIDTED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 7: PREPAID EXPENSES
Prepaid expenses consist of the following:
NOTE 8: CONVERTIBLE PROMISSORY NOTE RECEIVABLE
As discussed in Note 6, the Company acquired a convertible note receivable in the principal amount of $100,000 and accrued interest receivable in the amount of $14,533 on September 22, 2017.
The Note matures on July 6, 2018 and bears interest at a rate of 12% per annum and is payable to Ga-Du Corporation. The Note can, at Ga-Du's option, be converted upon maturity
into 1.12% of the equity of Alliance. The Company wrote off the balance of promissory note receivable on Oct 31, 2019
During the three and nine month periods ended October 31, 2019 and 2018, the company recorded interest income of $3,000 and $9,000, respectively. The Company wrote off the balance of interest receivable on Oct 31,
2019. As of October 31, 2019, the interest receivable on this note totaled $0 (January 31, 2019 - $18,833).
During the fiscal year ended January 31, 2017, the Company received an accumulated amount of $14,930 from a third party. The notes bear interest at a rate of 1% per annum, and each due three months from issue date
.
During the three and nine months ended October 31, 2019 the Company accrued interest expense of $37 and $111, respectively. During the three and nine
months ended October 31, 2018 the Company accrued interest expense of $37 and $117, respectively. As of October 31, 2019, and January 31, 2019, the Company has accrued interest payable of $517 and $406, respectively.
Note 2:
During the fiscal year ended January 31, 2017, the Company received an amount of $50,000 from a third party. The note bears interest at a rate of 1% per annum and is due three months from issue date. As at January 31,
2018 the note became due and remained unpaid. During the three and nine months ended October 31, 2019 the Company accrued interest expense of $126 and $374, respectively. During the three and nine months ended October 31, 2018 the Company accrued
interest expense of $126 and $374 respectively. As of October 31, 2019, and January 31, 2019, the Company has accrued interest payable of $1,500 and $1,126, respectively.
ECO SCIENCE SOLUTIONS, INC.
NOTES TO THE CONDENSED CONSOLIDTED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 9: NOTES PAYABLE (cont'd)
During the fiscal year ended January 31, 2017, the Company received an amount of $225,000 from a third party. The note bears interest at a
rate of 6% per annum and is due one year from issue date.
During the fiscal year ended January 31, 2018 the Company received accumulated amounts of $1,842,500 from a third party. The notes bear interest at a rate of 6% per
annum and
each is due one year from issue date.
During the fiscal year ended January 31, 2019 the Company received accumulated amounts of $1,420,500 from a third party. The notes bear interest at a rate of 6% per annum and each is due one year from issue date.
On March 28, 2018 this third party purchased an additional $250,000 in notes from our COO, Mr. Michael Rountree. The purchased notes bear
interest at a rate of 1% per annum beginning on June 27, 2018 and are payable within thirty days notice of the Maturity Date.
During the three and nine months ended October 31, 2019 the Company accrued interest expense of $56,531 and $167,749, respectively. During the three and nine months ended October 31, 2018 the Company accrued interest
expense of $56,531 and $145,792 respectively. As of October 31, 2019, and January 31, 2019, the Company has accrued interest payable of $436,511 and $268,762, respectively.
Note 4:
During the year ended January 31, 2019, the Company received accumulated amount of $305,266 from a third party. The notes bear interest at a rate of 1% per annum, and due nine months from issue date. During the three
and nine months ended October 31, 2019 the Company accrued interest expense of $716 and $2,126, respectively. During the three and nine months ended October 31, 2018 the Company accrued interest expense of $717 and $717, respectively. As of October
31, 2019, and January 31, 2019, the Company has accrued interest payable of $3,589 and $1,463, respectively.
On September 12, 2018 the Company received amount of $14,422 from a third party. The notes bear interest at a rate of 1% per annum, and due nine months from issue date. During the three and nine months ended October
31, 2019 the Company accrued interest expense of $37 and $108, respectively on the aforementioned notes. As of October31, 2019, and January 31, 2019, the Company has accrued interest payable of $147, respectively.
NOTE 10: CONVERTIBLE NOTE PAYABLE
On October 31, 2017 a third party agreed to purchase debt owed to Mr. Rountree, our COO, in the amount of $1,407,781 with a maturity date on or before November 1, 2018. Interest shall be 1% per annum, beginning on
November 1, 2017 on the total amount of the debt of $1,407,781, and paid every 120 days on any outstanding balance, and shall begin to accrue on the date of conveyance.
At the Maturity Date of this convertible debenture, Lender has the option to:
ECO SCIENCE SOLUTIONS, INC.
NOTES TO THE CONDENSED CONSOLIDTED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 10: CONVERTIBLE NOTE PAYABLE (cont'd)
The total beneficial conversion feature discount recognized was $496,864 which is being amortized over the terms of the convertible notes payable. During the years ended
January 31, 2019 and 2018 the Company recognized interest expense of $371,969 and $124,895, respectively, related to the amortization of the beneficial conversion feature discount. The unamortized balance of the beneficial conversion feature was $0
and $371,969 as of January 31, 2019 and January 31, 2018, respectively.
At October 31, 2019 and January 31, 2019, convertible note payable consisted of the following:
During the three months ended October 31, 2019 and 2018, the Company accrued interest expense of $3,598. During the nine months ended October 31, 2019 and 2018, the Company accrued interest expense of $10,676. As of
October 31, 2019, and January 31, 2019, the Company has accrued interest payable of $28,547 and $17,871, respectively.
As at the date of this report, the Lender has not made a demand for payment and the note is in default.
NOTE 11: RELATED PARTY TRANSACTIONS
As of October 31, 2019, and January 31, 2019, related parties are due a total of $1,543,088 and $537,325, respectively.
ECO SCIENCE SOLUTIONS, INC.
NOTES TO THE CONDENSED CONSOLIDTED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 11: RELATED PARTY TRANSACTIONS (cont'd)
Interest expenses from related parties:
Revenue from related parties:
ECO SCIENCE SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 11: RELATED PARTY TRANSACTIONS (cont'd)
ECO SCIENCE SOLUTIONS, INC.
NOTES TO THE CONDENSED CONSOLIDTED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 11: RELATED PARTY TRANSACTIONS (cont'd)
ECO SCIENCE SOLUTIONS, INC.
NOTES TO THE CONDENSED CONSOLIDTED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 12: COMMITMENTS (cont'd)
ECO SCIENCE SOLUTIONS, INC.
NOTES TO THE CONDENSED CONSOLIDTED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 12: COMMITMENTS (cont'd)
ECO SCIENCE SOLUTIONS, INC.
NOTES TO THE CONDENSED CONSOLIDTED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 12: COMMITMENTS (cont'd)
NOTE 13: CAPITAL STOCK
Common Stock
The total number of authorized shares of common stock that may be issued by the Company is 650,000,000 shares with a par value of $0.0001.
As of October 31, 2019, and January 1, 2019, there were 48,557,572 shares issued and 47,557,572 shares outstanding.
No common stock was issued during the nine months ended October 31, 2019.
Common stock issued during the fiscal year ended January 31, 2019
On May 1, 2018, the Company deemed the issuance of 1,000,000 shares of restricted stock valued at $90,000 or $0.09 per share, the fair market value on the date of the
agreement. (ref: Note 12 (h)).
Series A Voting Preferred Shares
On January 11, 2016, the Company's Board of Directors (the "Board") authorized the creation of 1,000 shares of Series A Voting Preferred Stock. The holder of the shares of the Series A Voting Preferred Stock has the
right to vote those shares of the Series A Voting Preferred Stock regarding any matter or action that is required to be submitted to the shareholders of the Company for approval. The vote of each share of the Series A Voting Preferred Stock is equal
to and counted as 10 times the votes of all of the shares of the Company's (i) common stock, and (ii) other voting preferred stock issued and outstanding on the date of each and every vote or consent of the shareholders of the Company regarding each
and every matter submitted to the shareholders of the Company for approval. The Series A Voting Preferred Stock will not be convertible into Common Stock.
As of October 31, 2019, and January 31, 2019, no Series A Voting Preferred Shares were issued.
ECO SCIENCE SOLUTIONS, INC.
NOTES TO THE CONDENSED CONSOLIDTED FINANCIAL STATEMENTS
(UNAUDITED)
(1) On July 7, 2017, a purported shareholder of Eco Science Solutions, Inc. (the "Company"), Mr. Jimmie Glorioso, filed a verified shareholder derivative complaint against Jeffrey L. Taylor, Don L. Taylor (collectively, Jeffrey and
Don Taylor are the "Taylors"), L. John Lewis and S. Randall Oveson, directors and officers in the Company, and Gannon Giguiere (collectively, the Taylors, Lewis, Oveson and Giguiere are the "Individual Defendants"), in the First Judicial District
Court of the State of Nevada, Carson City County (the "Nevada Complaint"). Mr. Glorioso filed an amended complaint on or about January 11, 2019. The Company is identified as a nominal defendant, against which no claims are plead. The Nevada
Complaint arises out of alleged materially false and misleading statements or omissions from SEC filings and/or public statements by or on behalf of Company. The Nevada Complaint asserts claims on behalf of the Company for breach of fiduciary
duties against the Individual Defendants, aiding and abetting the breach of fiduciary duties against Lewis, Oveson and Giguiere, against the Individual Defendants for waste of corporate assets, and unjust enrichment against the Individual
Defendants. The Nevada Complaint (1) seeks judicial declarations that (i) Mr. Glorioso may maintain this action on behalf of the Company and (ii) all individual defendants have breached and/or aided and abetted the breach of their fiduciary duties
to the Company; (2) seeks damages to the Company allegedly sustained as a result of the acts/omissions of all individual defendants; (3) seeks an order directing the Company and all individual defendants to take all necessary actions to reform and
improve the Company's corporate governance in order to avoid any alleged future harm to the Company.
(2) On October 20, 2017, a purported shareholder of the Company, Mr. Ian Bell, filed a verified
stockholder derivative complaint against the Individual Defendants in the United States District Court for the District of Hawaii (the "First Hawaii Complaint"). On January 11, 2018, a purported shareholder of the Company, Mr. Marc D' Annunzio, filed
a verified stockholder derivative complaint against the Individual Defendants in the United States District Court for the District of Hawaii (the "Second Hawaii Complaint"). On February 9, 2018, the Hawaii federal court consolidated the First Hawaii
Complaint and the Second Hawaii Complaint (the "Consolidated Hawaii Action"). On December 10, 2018, plaintiffs in the Consolidated Hawaii Action filed their amended complaint (the "Amended Hawaii Complaint"). The Company is identified as a nominal
defendant, against which no claims are plead. The Amended Hawaii Complaint arises out of alleged materially false and misleading statements or omissions from SEC filings and/or public statements by or on behalf of the Company. The Amended Hawaii
Complaint asserts claims on behalf of the Company for breach of fiduciary duty against the Taylors and Mr. Lewis and Mr. Oveson, for aiding and abetting breaches of fiduciary duties against Mr. Lewis and Mr. Oveson, for aiding and abetting breaches
of fiduciary duties against Mr. Giguiere, for waste of corporate assets against the Individual Defendants, and for unjust enrichment against the Individual Defendants. The Amended Hawaii Complaint seeks damages for the alleged breaches of fiduciary
duties, aiding and abetting, waste and unjust enrichment, demands restitution and disgorgement and requests an order directing the Company and all individual defendants to take all necessary actions to reform and improve the Company's corporate
governance in order to avoid any alleged future harm to the Company. The Parties have agreed to mediate the potential resolution of all claims with U.S. Magistrate Judge Wes R. Porter on December 3, 2019 in
Honolulu. The Parties have agreed to continue their settlement discussions, which are ongoing, in good faith. There is no guarantee that the claims will be settled.
(3) On November 3, 2017, a purported shareholder of the Company, Mr. Hans Menos, filed a verified
shareholder derivative complaint against the Individual Defendants in the United States District Court for the District of Nevada (the "Nevada Federal Complaint"). Mr. Menos amended the Nevada Federal Complaint on December 21, 2018. The Company is
identified as a nominal defendant, against which no claims are plead. The Nevada Federal Complaint arises out of alleged materially false and misleading statements or omissions from SEC filings and/or public statements by or on behalf of Company. The
Nevada Federal Complaint asserts claims on behalf of the Company for breach of fiduciary duties against the Individual Defendants, for aiding and abetting breaches of fiduciary duties against Mr. Giguiere, Mr. Lewis and Mr. Oveson, unjust enrichment
against the Individual Defendants, waste of corporate assets against the Individual Defendants, abuse of control against the Individual Defendants, and gross mismanagement against the Individual Defendants. The Nevada Federal Complaint (I) seeks
judicial declarations that (i) Mr. Menos may maintain this action on behalf of the Company and (ii) the Individual Defendants have breached and/or aided and abetted the breach of their fiduciary duties to the Company; (2) seeks damages to the Company
allegedly sustained as a result of the acts/omissions of the Individual Defendants; (3) seeks an order directing the Company and the Individual Defendants to take all necessary actions to reform and improve the Company's corporate governance in order
to avoid any alleged future harm to the Company.
ECO SCIENCE SOLUTIONS, INC.
NOTES TO THE CONDENSED CONSOLIDTED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 14: CONTINGENCIES (continued)
(4) On February 1, 2019, the lead plaintiff, Mr. Richard Raschke, a purported shareholder of the Company,
filed an amended consolidated class action complaint against the Company, the Taylors, and Mr. Gannon Giguiere in the United States District Court for the District of New Jersey (the "Class Action"). The Class Action arises out of alleged materially
false and misleading statements or omissions from SEC filings and/or public statements by or on behalf of Company. The Class Action asserts claims against all defendants for violation of Section 10(b) of the Securities Exchange Act of 1934 (the
"Act"), violation of Section 20(a) of the Act against the Taylors and Giguiere and Violation of Section 20(b) against Mr. Giguiere. The Class Action seeks (1) certification of the purported class of plaintiffs, (2) compensatory damages in favor of
the class and (3) an award of reasonable costs and expenses. Defendants have moved to stay this action. The Parties have tentatively agreed not to prosecute the litigation but, instead, to engage in settlement discussions.
(5) Although the following lawsuit was not filed against the Company or any of its officers or directors,
it nonetheless has a huge impact on the Company. On July 6, 2018, the Securities and Exchange Commission (the "SEC") filed a Complaint against Gannon Giguiere ("Giguiere"), president of Phenix Ventures, LLC and the Company's largest outside funder.
The Complaint alleges Mr. Giguiere's involvement in certain activities, of which the Company, its' officers, board members, and others directly involved with the Company, have no knowledge of. The Complaint seeks monetary and injunctive relief. On
October 24, 2018, the Court granted the U.S. Government's motion to intervene in the proceedings and stay the action pending resolution of parallel criminal proceedings (described below). Pursuant to the Complaint being filed, the Company continues
to seek funding elsewhere as it requires outside funding until it generates more consistent revenue. The Company previously filed an S-1 Registration Statement whereby Phenix would fund the Company in exchange for shares of common stock, and upon Put
Notices; to date, there have been no Put Notices and no funds from Phenix Ventures have been distributed to the Company under the registration statement - no shares have been issued pursuant to the Registration Statement.
(6) On June 29, 2018, the United States Government filed an indictment as to Gannon Giguiere in the U.S. District Court for the Southern District of California. In a Superseding Indictment, filed on January 25,
2019, the United States alleges that the defendant engaged in a scheme to manipulate the market for the common stock of two penny stock issuers, including ESSI. The United States claims that Mr. Giguiere is guilty of (1) conspiracy to commit
securities fraud and manipulative trading and (2) securities fraud. On April 22, 2019, Mr. Giguiere entered a plea of not guilty to each of the counts against him in the Superseding Indictment. On July 23, 2019, Defendant entered into a plea
agreement (the "Plea Agreement") with the United States in which Defendant agreed to "plead guilty to Count 1 of the Superseding Indictment," which count charged an alleged conspiracy that did not involve the common stock of ESSI. Under the Plea
Agreement, the Government further "agree[d] to move to dismiss all of the remaining charges when Defendant is sentenced" including, but not limited to, all charges involving the common stock of ESSI. On July 23, 2019, a Magistrate Judge for the
Southern District of California entered his finding and recommendations in which he recommended that the District Judge "accept the Defendant's guilty plea to [count] One (1) of the Superseding Indictment." The Plea Agreement is a publicly available
document which can be referenced for additional information.
(7) On September 10, 2018 the Company received a Letter of Summons and Notice of Complaint from Wendy
Maguire, Vice President of Business Development for Ga-Du Corporation, filed in the United States District Court from the Western District of Washington on September 4, 2018 and naming The Company, its subsidiary Ga-Du Corporation and two of the
Company's officers as Defendants. Maguire claims the Company (1) violated the Federal Labor Standards Act; (2) violated the Washington Minimum Wage and Rebate Act; (3) breached her employment contract; and (4) was unjustly enriched thereby. Maguire
seeks payment of accrued and unpaid wages, legal fees and damages. The Company has filed its Answer. Plaintiff filed a Motion for Summary Judgment on March 14, 2019 on her statutory claim for unpaid wages and on her claim for breach of employment
contract (claims 2 and 3, supra). ). The motion has been fully briefed and on August 22, 2019, the United States District Court, Western District of Washington issued an Order granting, in part, Plaintiff’s Motion for Summary Judgement (the "Order")
with respect to unpaid wages under an employment contract. The Order concludes that the Employment Agreement was breached and the Company and Ga Du are liable for $240,000 in compensatory damages unless Defendants can establish that Plaintiff had a
duty to mitigate those damages and the amount of damages that could reasonably be avoided. At present Plaintiff is alleging total damages including unpaid wages, double damages for breach of contract, legal fees and other consequential damages in the
total approximate amount of $978,402.
ECO SCIENCE SOLUTIONS, INC.
NOTES TO THE CONDENSED CONSOLIDTED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 14: CONTINGENCIES (continued)
(7) Currently pending before the Court are two motions filed by defendants and one motion
filed by plaintiff: (1) defendants’ motion for partial summary judgment to dismiss claims for breach of contract and unlawful retaliation against the individual officers of ESSI and Ga-Du. This motion was brought and fully briefed prior to the Court
entering its Order on Plaintiff’s motion for partial summary judgment; (2) defendants’ motion for reconsideration of Court’s Order granting plaintiff’s motion for partial summary judgment in order to clarify that the individual officers are not liable
for breach of contract or breach of Washington’s Wage statute; and (3) plaintiff’s motion for entry of judgment against all defendants for breach of contract and breach of Washington’s Wage statute. On October 29, 2019, the Court entered an Order
granting Plaintiff’s Motion to Amend Complaint to add two additional officers and directors of ESSI and to add additional alleged facts to support Plaintiff’s claim of unlawful retaliation and constructive discharge. On November 20, the Court issued an
Order denying the defendants’ Motion for reconsideration but concluded that evidence Plaintiff provided did not establish the liability of the individual defendants as a matter of law.
Although the Company is vigorously defending the above-referenced lawsuits, the successful defense of any of the lawsuits is undeterminable at this time, as are the extent of any possible damages.
NOTE 15: SUBSEQUENT EVENTS
On November 18, 2019 the Company and a third-party customer entered into a contract with a minimum one-year term for 12 Herbo Enterprise Software licenses at a monthly rate of $4,244 with a one-time retail activation
fee of $27,500 payable in two installments.
The Company has evaluated subsequent events from the balance sheet date through the date that the financial statements were issued and determined that there are no additional subsequent events to disclose.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
This quarterly report contains forward-looking statements. These statements relate to future events or the Company's future financial performance. In some cases,
forward-looking statements can be identified by terminology such as "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or negative of these terms or other comparable terminology. These
statements are only predictions and involve known and unknown risks, uncertainties and other factors" that may cause the Company's or its industry's actual results, levels of activity, performance or achievements to be materially different from any
future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, levels of activity,
performance or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.
The Company's unaudited financial statements are stated in United States Dollars (US$) 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 2019 and beyond, there
will be a growing need for both established and new health and wellness businesses to market to this increasing demand.
Eco Science Solutions, Inc. continues to focus on becoming a premier health, wellness and alternative medicines business by effectively servicing and connecting wisely
conscious consumers with like-minded businesses. The Company's consumer initiatives are centered on education and connecting consumers with various holistic health, wellness and alternative medicine businesses. Its business initiatives are focused on
developing technology solutions coupled with data analytics to help those very same holistic health and wellness businesses to be more effective in their abilities to connect, market, and sell to consumers.
With the acquisition of Ga-Du, ESSI's product suite represent is now an enclosed ecosystem for business location, localized
communications between consumers and business operators, on-topic social networking, inventory management / selection, payment facilitation and delivery arrangement. The Company's holistic commerce and content platform enables health, wellness and
alternative medicine enthusiasts to easily locate, access, and connect with others to facilitate the research of and purchasing of eco-science friendly products.
As Alliance continues its efforts to expand its eXPO
TM banking relationships to support next phase operations, the Company is currently
focusing on rolling out its Herbo Enterprise software and building that user base. The Herbo software provides a point of sale, bookkeeping and banking functions, inventory management and tracking, compliance and reporting, tax and accounting,
payroll and HR, ecommerce and payment gateway services and CRM and customer loyalty functions all under one software suite. During the most recent quarter ended October 31, 2019, the Company entered into various end user software licensing contracts
for the Herbo Enterprise Software and has commenced generating revenue from this segment of its operations.
* Eco Science Solutions, Inc. is not in the business of growing, manufacturing, or distributing cannabis.
Current business overview
During fiscal 2019, our business commenced generating modest revenues between October 2017 and October 31, 2018, as a result of our licensing agreement with AFN when the
initial phase of the eXPOTM beta revenue model testing was complete. We continue to build both consumer and enterprise technology, consumer package goods, invest in research & development and advertising to consumer and professional
traffic for both our apps and web properties, as well as the marketing of our financial services partnership through AFN and its next stage development. Once we have gained a large enough audience the Company will begin to aggressively monetize its
audience relationships through: 1) paid advertisements from businesses seeking exposure to users of the Herbo platform; 2) enterprise license agreements with professional customers; 3) sales of products targeting general health and wellness and
alternative medicines and 4) successful marketing of our financial services to an expanded number of clients across various states in the US through our AFN partnership. Our 2018 acquisition of Ga-Du and the aforementioned marketing agreement with
AFN will allow us to offer certain financial and marketing services to businesses and individuals, including the Cannabis Industry, on a programmatic or membership basis (the "Financial Program"), from which AFN and Ga-Du derive fees and income from
enrolling companies in the Financial Program and providing a range of services to our clients (the "Members") according to the AFN pricing schedule (the "Fees"). Under our agreements, Ga-Du was granted the exclusive right to undertake marketing
responsibilities of Alliance's Financial Services to businesses in the Cannabis industry, initially in Michigan, Oregon and Washington, and subsequently, Colorado, with plans to extend throughout the United States, provided that it shall not extend
to any states where Cannabis sales have not been legalized by that state's laws. Alliance and Ga-Du recently commenced business in the States of Florida, Montana, and Pennsylvania. Ga-Du is credited with all Cannabis related members and revenues
that use Alliance's financial and marketing services, regardless of the source of revenue, or the party that enrolled the customer that generated the revenues, that are generated within any territory in which Ga-Du has commenced business. As noted
above, the business segment was beta tested in fiscal 2019, and allowed us to start generating fee-based revenue subsequent to the fiscal year ended January 31, 2018 and up to October 31, 2018.Thereafter revenue generating operations under the terms
of the agreement with AFN were suspended pending expansion of a banking relationship by eXPOTM in order to allow next stage transactional volume growth. Recently, Alliance has secured the banking relationships required to recommence
operations beyond the beta phase and we expect to see revenue generation from this business segment resume prior to the close of fiscal 2020.
The Company's Herbo apps, Fitrix app, UseHerbo.com and "The Pursuit of Fine Herb" original content also remain available for use, either through Apple and Google app stores or
online through a web-browser or through social channels, such as Facebook, Instagram and YouTube. During fiscal 2019, and continuing through Q3 2020, the Company has focused its attention on the enhancement of its Herbo enterprise software package.
Along with the ongoing development of app and ecommerce platforms the Company continues to expand its suite of financial based software. This is further enhanced by our
operating subsidiary, Ga-Du. The Company's enterprise technology investments are centered on our platform that matches and connects consumers with desired products and/or providers, as well as providing for a convenient payment solution. We have a
much larger suite of financial platforms available under our LMMA with AFN.
On March 1, 2019 the Company and Haiku Holdings LLC "Haiku", a company controlled by our COO, Mr. Rountree, entered into a Trademark Licensing Agreement. Under the terms of
the agreement, the Licensed Marks, including and incorporating Herbo, may be used by Haiku to facilitate the Company's business including lead generation and referral services. Further, as a result of any revenue generating business generated by
Haiku, the Company shall receive 90% of the net revenue. The license remains in effect for a period of ten (10) years from the effective date of the agreement and may be terminated on sixty (60) days written notice by the Company should there be a
material breach which remains uncured, or at any time on ten (10) days written notice by Haiku without cause. The Company is hopeful this licensing arrangement will assist in more rapid growth of our Herbo suite of software offerings.
Effective July 1, 2019, the Company (“Reseller”) entered into a Software Reseller Agreement with respect to the Herbo suite of software offerings with Haiku (“Licensor”). The Herbo software provides a point of sale,
bookkeeping and banking functions, inventory management and tracking, compliance and reporting, tax and accounting, payroll and HR, ecommerce and payment gateway services and CRM and customer loyalty functions all under one software suite. Licensor is
the owner of certain computer software-as-a-service offerings and related documentation that it provides to end users. Under the terms of the agreement, the Reseller desires (a) a non-exclusive license of the Software and (b) a non-exclusive,
non-transferable, non-assignable and limited right and license to reproduce, market, and distribute such Software, and Licensor agrees to grant to Reseller such right and license. Under the terms of the agreement for each respective End User License
Agreement (EULA) entered into with an End User, Reseller shall pay Licensor the corresponding license fee for the software usage of 10% of gross receipts from End Users.
Comparison of the three months ended October 31, 2019 and 2018:
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, 2019 and 2018:
Revenue
During the three months ended October 31, 2019, the Company generated $13,391 in total revenue of which $4,197 was from contracts with related parties, as compared to $Nil in
the three months ended October 31, 2018. Revenue recorded during the most recently completed three-month period relates directly to the licensing of the Herbo enterprise software to various customers. We also entered into amendments to certain
licensing and marketing agreements during the fiscal year ended January 31, 2019 which provide for fee-based income calculated retroactively to October 2017, as at January 31, 2019, 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 on the cash basis.
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, 2019 we incurred costs of $17,754 as compared to $Nil during the three months ended October 31, 2018. 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
General and administrative expenses, exclusive of $10,599 (2018 - $21,189) expended on advertising and marketing in the
three-month period ended October 31, 2019 totaling $249,663 ($439,879 - 2018), include a total of $75,541 for management and consulting fees as compared to $301,500 in the comparative three months ended October 31, 2018. This decrease to management
fees is a result of a reduction in consulting fees during the current three-month period as a result of the departure of certain consultants, and the Company’s determination not to renew certain contracts on their expiry. The decline in advertising
and marketing fees period over period is directly related to a reduction of advertising expenses paid to Yahoo as the Company did not have sufficient funding during the current three-month period ended October 31, 2019 to carry out a more substantial
marketing program such as during the prior three-month period ended October 31, 2018. During the current three months the Company recorded costs of revenue of $17,754 compared to $Nil in the prior comparative three-month period as we were able to
secure our first customers for our licensed Herbo Enterprise Software. Legal, accounting and audit fees incurred in the three-month period ended October 2019 of $69,139 had also decreased substantially as compared to $113,019 in the prior
comparative period as the Company's legal fees with respect to certain ongoing litigation declined in the current period. The Company expended $66,468 on research, development and promotion in the current three months ended October 31, 2019 as we
completed work on our licensed Herbo enterprise software as compared to $Nil in the same three months ended October 31, 2018. Office supplies and other general expenses reflect a decrease period over period from $24,066 (2018) to $19,655 in the
current three-month period as the Company's travel expenses and office overhead was reduced.
Comparison of the nine months ended October 31, 2019 and 2018
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, 2019 and 2018:
Revenue
During the nine months ended October 31, 2019, the Company generated $13,391 in total revenue of which $4,197 was from contracts with related parties, as compared to $Nil in
the nine months ended October 31, 2018. Revenue recorded during the most recently completed three-month period relates directly to the licensing of the Herbo enterprise software to various customers. We also entered into amendments to certain licensing
and marketing agreements during the fiscal year ended January 31, 2019 which provide for fee-based income calculated retroactively to October 2017, as at January 31, 2019, 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 on the cash basis.
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, 2019 we incurred costs of $17,754 as compared to $Nil during the nine months ended October 31, 2018. 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
General and administrative expenses, exclusive of $38,502 (2018 - $919,852) expended on advertising and marketing in the
nine-month period ended October 31, 2019 totaling $1,039,544 ($2,416,765 - 2018), include a total of $643,541 for management and consulting fees as compared to $990,500 in the comparative nine months ended October 31, 2018. This decrease to
management fees is a result of a reduction in consulting fees during the current three-month period as a result of the departure of certain consultants, and the Company’s determination not to renew certain contracts on their expiry. The substantive
decline in advertising and marketing fees period over period is directly related to a reduction of advertising expenses paid to Yahoo as the Company did not have sufficient funding during the current nine-month period ended October 31, 2019 to carry
out an aggressive marketing program such as during the prior nine-month period ended October 31, 2018. Further, legal, accounting and audit fees incurred in the nine-month period ended October 2019 of $207,089 had decreased substantially as compared
to $545,692 in the prior comparative period as the Company's legal fees with respect to certain ongoing litigation declined in the current nine-month period. The Company expended only $86,232 on research, development and promotion in the current
nine months ended October 31, 2019 as compared to $657,948 in the prior nine months ended October 31, 2018. The substantive reduction to research development and promotional costs relate to a decline in expenditures on each of: attendance at certain
sponsored events such as Kaya fest during the first quarter of the prior fiscal year, with no similar expenditures in the current fiscal quarter, and a substantial reduction to expenditures on software development during the current nine-month period
as the software suite neared completion. During the current nine months the Company recorded costs of revenue of $17,754 compared to $Nil in the prior comparative nine-month period as we were able to secure our first customers for our licensed Herbo
Enterprise Software. Office supplies and other general expenses reflect a substantive decrease period over period from $218,742 (2018) to $81,611in the current nine-month period as the Company's travel expenses and office overhead was reduced.
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. In the most recent six-month period during fiscal 2019, the Company has licensed the Herbo Enterprise Software and
completed certain customization efforts, which has allowed the Company to commence generating revenue by way of sales of software licenses in the most recently completed reporting period. 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, 2019, the
Company had a working capital deficit of $10,751,994 and an accumulated deficit of $72,551,248. 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.
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, 2019, the Company had total current assets of $47,512, and total current liabilities of $10,799,507 as compared to $148,569 in current assets and $9,534,085
in total current liabilities at the fiscal year ended January 31, 2019. 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 12(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 generated modest revenue in fiscal 2019, which will be recorded when received from
our licensing partner on the cash basis, 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 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, 2019 and 2018 the Company used $570,218 and $2,034,104 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, 2019 as compared to the same nine months in 2018. Further during the prior comparative period, results include
amortization of debt discount of $371,969, stock-based compensation of $90,000 and research and development fees paid by a third party of $250,000, with no comparable expenses during the current nine-month period ended October 31, 2019. Current period
results include bad debt of $127,833 with respect to a loan receivable and the associated interest income, with no similar results in the nine months ended October 31, 2018. The current nine months ended October 31, 2019 also reflects an increase to
related party payables of $250,317 as compared to $276,126 in the same nine month period in 2018, and an increase to accounts payable of $436,772 in the current nine months as compared to $842,294 in the period ended October 31, 2018. The Company
recorded a decrease to prepaid expenses of $4,097 during the nine months ended October 31, 2018, as compared to an increase of $4,865 in the current nine-month period ended October 31, 2019. Finally we recorded an increase to accounts receivable in
the current nine months ended October 31, 2019 as a result of the commencement of revenues from our Herbo Enterprise Software, as compared to $Nil in the same period ended October 31, 2018.
Cash flows from investing activities
During the nine months ended October 31, 2019 and 2018, the Company used no cash for investing activities.
Cash flows from financing activities
During the nine months ended October 31, 2018 the Company received proceeds from notes payable of $1,731,232 as compared to $Nil the current nine months ended October 31,
2019. Further during the nine months ended October 31, 2019 the Company received proceeds from notes payable, related party of $578,333 as compared to $303,734 in the prior comparative nine month period.
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 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 six months ended October 31, 2019. 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.