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ECO SCIENCE SOLUTIONS, INC.

(ESSI)
Delayed OTC Markets  -  11:08 2022-10-04 am EDT
0.000500 USD   -.--%
09/22ECO SCIENCE SOLUTIONS, INC. Other Events (form 8-K/A)
AQ
09/15Eco Science Solutions, Inc. : Other Events, Financial Statements and Exhibits (form 8-K)
AQ
09/08ECO SCIENCE SOLUTIONS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)
AQ
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ECO SCIENCE : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

07/07/2020 | 03:09pm EST

The following discussion should be read in conjunction with the Company's audited consolidated financial statements and the related notes for the year ended January 31, 2020 and 2019, that appear elsewhere in this annual 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 annual report.

The Company's consolidated financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.

Overview of Current Operations

Results of Operations for the years ended January 31, 2020 and 2019

During the fiscal years ended January 31, 2020 and 2019, the Company has generated $59,729 and $0 in total revenue. During fiscal 2020 revenues include $6,894 of revenue generated from related parties. We entered into amendments to certain licensing and marketing agreements subsequent to fiscal year ended January 31, 2018 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 January 31, 2020 and 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 upon receipt.

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Costs of revenue totaled $36,329 and $0 in fiscal 2020 and 2019.

As at January 31, 2020 and 2019, the Company had $59,310 and $148,569 in cash and total current assets.

During the fiscal years ended January 31, 2020 and 2019, the Company incurred total operating expenses of $1,557,564 and $4,208,201, respectively, including costs of sales of $36,329 in fiscal 2020 with no similar expense in fiscal 2019. During fiscal 2020 and 2019 the Company recorded depreciation and impairment of $4,423 and $367,391 respectively, with 2019 results including the impairment of certain amounts expended on software development during the year, with no impairment expense in fiscal 2019. Amounts expended on advertising and marketing reflect a reduction in expenses year over year from $942,021 (2019) to $49,099 in fiscal 2020. The majority of the expense in 2019 included costs associated with the introduction its Herbo enterprise software and Herbo app on various media, including iOS and Android and other marketing initiatives including promotional expenses for various public venues and sponsorship fees, with no recurring charges in fiscal 2020. Amounts expended on management and consulting fees were also reduced from $1,287,333 (2019) to $785,541 as several management contracts were not renewed on expiry during the current fiscal year. Amounts incurred for accounting, audit and legal fees decreased period over period as a result of a decline in legal costs from $707,135 in fiscal 2019 to only $425,741 in fiscal 2020. During fiscal 2020 and 2019 research and development fees incurred were $157,837 and $657,948 respectively. Costs for research and development were reduced as the Company completed commercialization of its enterprise software platform "Herbo". Other operating and general and administrative expenses were reduced year over year from $246,353 in 2019 to $98,594 in fiscal 2020 relative to amounts paid to maintain our public listing, rent, travel and other costs.

The Company recorded interest expense of $249,962 and $586,702 in respect of certain convertible notes and other loan agreements, respectively during fiscal 2020 and 2019, including amortization of debt discount of $371,969 during fiscal 2019, with no similar expense in the current fiscal year. During fiscal 2020 the Company recorded bad debt of $127,833 with respect to a loan receivable which remained uncollected with no comparable expense if fiscal 2019. Interest income recorded in fiscal 2020 and 2019 totaled $9,000 and $12,000, respectively.

The net loss in fiscal 2020 totaled $1,866,630 as compared to $4,782,903 in fiscal 2019.

The Company used net cash in operations of $787,142 and $2,416,138 respectively during the twelve-month periods ended January 31, 2020 and 2019, recorded $Nil in both years as net cash used for investing activities and received cash from financing activities of $788,410 and $2,415,645, predominantly as a result of certain notes payable, as well as proceeds from related party loans.

Plan of Operation

The Company changed the focus of its business at the close of fiscal 2016 to operate in the eco friendly technology sector using social media sites and offering apps to generate advertising revenues and download fees, and to development certain enterprise software for the cannabis industry. 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 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 future fiscal periods. A series of beta tests on the eXPOTM platform between March and October 2018 generated revenues of $28,431 for ESSI which will be recorded upon receipt from AFN. 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.

Fiscal 2020 brought our first revenues from our Herbo enterprise software and we expect to see increasing revenues from this suite of services as we focus on marketing to a larger client base. 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 to cover all operational overhead. 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 QB. 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.

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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 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 January 31, 2020, the Company had a working capital deficit of $11,247,723 and an accumulated deficit of $73,048,082. 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 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 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 consolidated 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 January 31, 2019, the Company had total current assets of $59,310, and total current liabilities of $11,307,033. 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. 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 we generated modest revenue in fiscal 2020, 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.

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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.

Revenue

While the Company has entered into an LMMA (re: Note 6 to the financial statements contained herein) 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 March 2018 through October 2018 as reconciled in commission reports received from AFN have not been received by the Company. 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. Because of this, the Company has determined to record its revenue in respect to the LMMA upon receipt. 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) January 31, 2020 and 2019. The Company will record the revenue once we receive the proceeds.

During fiscal 2020 we commenced operation of our Herbo enterprise software suite. The Herbo enterprise software 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 your Marijuana or CBD business. During fiscal 2020 we recorded gross revenues of $59,729 in respect to the licensing of the software.

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 as well as commissions and operational charges related to our Herbo enterprise software. During fiscal 2020 we incurred costs of sales of $36,329 with respect to the licensing of our Herbo software suite. In the case of revenue earned by our wholly owned subsidiary, proceeds allocated to our revenue interest are net of associated costs.

General and Administrative Expenses


                                                 For the year ended
                                                     January 31,
                                                2020            2019          Variances
Depreciation and impairment                        4,423         367,391     $   (362,968 )
Legal, accounting and audit fees                 425,741         707,155         (281,414 )
Management and consulting fees                   785,541       1,287,333         (501,792 )
Research, development, and promotion             157,837         657,948         (500,111 )
Office supplies and other general expenses        98,594         246,353         (147,759 )
Advertising and marketing                         49,099         942,021         (892,922 )
Total operating expenses                       1,521,235       4,208,201     $ (2,686,966 )



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Contractual Obligations

As a "smaller reporting company", the Company is not required to provide tabular disclosure obligations.

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 discussion and analysis of the Company's financial condition and results of operations are based upon the Company's consolidated audited financial statements, which have been prepared in accordance with the accounting principles generally accepted in the United States of America. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management's application of accounting policies. The Company believes that understanding the basis and nature of the estimates and assumptions involved with the following aspects of the Company's financial statements is critical to an understanding of its consolidated financial statements.

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.

Advertising and Marketing Costs

Advertising and marketing costs are expensed as incurred and were $49,099 during the fiscal year ended January 31, 2020 and $942,021 in the same period ended January 31, 2019. 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 app and enterprise software 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.

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.

$59,729 has been recognized as revenue in the fiscal year ended January 31, 2020, with $0 revenue in the same period ended January 31, 2019. 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 May through October 2018 as reconciled in commission reports received from AFN have not been received by the Company. 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. The Company has determined to record its revenue in respect to the LMMA upon receipt until such time as the fee structure and reporting process become more easily determinable. 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 January 31, 2020 and January 31, 2019. The Company will record the revenue once we receive the proceeds.

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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.

Stock-Based Compensation

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.

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 January 31, 2020, 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).

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.

© Edgar Online, source Glimpses

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