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, 2021 and 2020, 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, 2021 and 2020
During the fiscal years ended January 31, 2021 and 2019, the Company has
generated $52,728 and $59,729 in total revenue. During fiscal 2021 and 2020
revenues include $Nil and $6,894 respectively of revenue generated from related
parties, of which amount accounts receivable of $2,697 were written down as
uncollectible in fiscal 2021. While we entered into certain licensing and
marketing agreements in fiscal 2019 providing for fee-based income in relation
to beta trials for the eXPO™ platform, we no longer expect to collect any
revenue from these agreements.
Costs of revenue totaled $51,894 and $36,329 in fiscal 2021 and 2020,
respectively.
As at January 31, 2021 and 2020, the Company had $4,907 and $59,310 in cash and
total current assets. During the year ended January 31, 2021 the Company wrote
down certain accounts receivable and prepaid expenses totaling $42,683, leaving
cash on hand as our only asset.
During the fiscal years ended January 31, 2021 and 2020, the Company incurred
total operating expenses of $1,221,002 and $1,557,564, respectively, including
costs of sales of $51,894 and $36,329 in fiscal 2021 and 2020 respectively.
During fiscal 2021 and 2020 the Company recorded depreciation and impairment of
$1,741 and $4,423 respectively. Amounts expended on advertising and marketing
reflect a reduction in expenses year over year from $49,099 in fiscal 2020 to
$6,777 in fiscal 2021. The majority of the expense in 2020 included costs
associated with the introduction of the Herbo enterprise software. Amounts
expended on management and consulting fees were also reduced from $785,541
(2020) to $594,122 as certain management contracts were not renewed on expiry.
Amounts incurred for accounting, audit and legal fees decreased period over
period as a result of a decline in legal costs from $425,741 in fiscal 2020 to
$340,732. During fiscal 2021 and 2020 research and development fees incurred
were $153,275 and $157,837 respectively. Costs for research and development
remained constant over these fiscal years. Other operating and general and
administrative expenses were reduced year over year from $98,594 in fiscal 2020
to $72,463 in fiscal 2021 relative to amounts paid to maintain our public
listing, rent, travel and other costs.
The Company recorded cumulative interest expense of $258,795 and $249,962 in
respect of certain convertible notes and other loan agreements, respectively
during fiscal 2021 and 2020. 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 2020. In fiscal 2021, the Company recorded net
income from litigation of $1,337,252 with no comparable expense in fiscal 2020.
Other income recorded in fiscal 2020 totaled $9,000 with no comparable other
income recorded in fiscal 2021. Other expenses in the year ended January 31,
2021, included impairment of certain intangible assets of $16,500 with no
comparable expense in the prior comparative year ended January 31, 2020.
The net loss in fiscal 2021 totaled $106,317, as compared to $1,866,630 in
fiscal 2020, largely in part due to the income from litigation.
The Company used net cash in operations of $388,295 and $787,142 respectively
during the twelve-month periods ended January 31, 2021 and 2020, recorded $Nil
in both years as net cash used for investing activities and received cash from
financing activities of $390,325 and $788,410, predominantly as a result of
certain notes payable, as well as proceeds from related party loans.
13
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 the benefit of ESSI, however, the
Company has been unsuccessful in collecting these amounts to date and does not
expect to continue with collection actions.
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.
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, 2021, the Company had a working capital
deficit of $10,640,399 and an accumulated deficit of $73,154,399 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.
While the COVID-19 pandemic has waned in 2022, COVID-19 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 potential ongoing
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.
14
Liquidity and Capital Resources
As of January 31, 2021, the Company had total current assets consisting of cash
of $4,907, and total current liabilities of $10,645,306. 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, we have been unable to obtain any
funding under this agreement in the most recently completed fiscal year and the
agreement has been abandoned 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 as we continue to implement our business
plan. While we generated modest revenue in fiscal 2021, 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.
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
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 2021 and 2020 we recorded gross revenues of $52,728 and $59,729,
respectively, 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 consists primarily of
fees associated with the operational charges related to our Herbo enterprise
software. During fiscal 2021and 2020 we incurred costs of sales of $51,894 and
$36,329, respectively 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,
2021 2020 Variances
Depreciation and impairment 1,741 4,423 $ (2,682 )
Legal, accounting and audit fees 340,732 425,741 (85,000 )
Management and consulting fees 594,122 785,541 (191,419 )
Research, development, and promotion 153,275 157,837 (4,562 )
Office supplies and other general expenses 72,463 98,594 (26,131 )
Advertising and marketing 6,777 49,099 (42,322 )
Total operating expenses 1,169,108 1,521,235 $ (352,127 )
Contractual Obligations
As a "smaller reporting company", the Company is not required to provide tabular
disclosure obligations.
15
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 $6,777 during
the fiscal year ended January 31, 2021 and $49,099 in the same period ended
January 31, 2020. Advertising and marketing costs include costs incurred with
the marketing of our Herbo Software including ad placement and other mainstream
marketing efforts.
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.
$52,728 and $59,729 has been recognized as revenue in the fiscal years ended
January 31, 2021 and 2020, respectively. 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 entered into an LMMA 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 and January 31, 2021, 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. While reports from AFN
indicated an amount of $28,431 (10% of net revenue generated by Colorado
Business) payable to Ga-Du Corporation as at January 31, 2021, the Company
determined the funds are uncollectible and has not recorded any associated
revenue.
16
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 consists primarily of
fees associated with the operational charges related to our Herbo enterprise
software. During fiscal 2021and 2020 we incurred costs of sales of $51,894 and
$36,329, respectively 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.
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, 2021, and January 31,
2020, $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.
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.
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