ECO SCIENCE SOLUTIONS, INC. - Quarter Report: 2019 October (Form 10-Q)

---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

Securities registered pursuant to Section 12(b) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

      If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

ECO SCIENCE SOLUTIONS, INC.

TABLE OF CONTENTS

PART I -- FINANCIAL INFORMATION

 

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.

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.

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.

---

ECO SCIENCE SOLUTIONS, INC.

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 ("eXPO^TM") 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.

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 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 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.

 

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.

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 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 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 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.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)

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 eXPO^TM, 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 eXPO^TM 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.

 

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.

 

---

ECO SCIENCE SOLUTIONS, INC.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)

 

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.

 

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.

NOTE 4: INTANGIBLE ASSETS

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).

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.

NOTE 6: LICENSE AND MASTER MARKETING AGREEMENT

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.

NOTE 6: LICENSE AND MASTER MARKETING AGREEMENT (cont'd)

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 eXPO^TM) ("Alliance", "eXPO^TM"), 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 eXPO^TM 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 eXPO^TM 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.

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).

NOTE 9: NOTES PAYABLE

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.

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.

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.

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.

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.

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.

NOTE 11: RELATED PARTY TRANSACTIONS (cont'd)

NOTE 12: COMMITMENTS

ECO SCIENCE SOLUTIONS, INC.

NOTE 12: COMMITMENTS (cont'd)

 

---

ECO SCIENCE SOLUTIONS, INC.

NOTE 12: COMMITMENTS (cont'd)

---

ECO SCIENCE SOLUTIONS, INC.

NOTE 12: COMMITMENTS (cont'd)

NOTE 13: CAPITAL 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)).

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.

NOTE 14: CONTINGENCIES

 

(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.

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.

---

ECO SCIENCE SOLUTIONS, INC.

NOTE 14: CONTINGENCIES (continued)

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

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")

---

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.

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 eXPO^TM 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 eXPO^TM 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.

  

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.

---

 

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.

---

---

 

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.

---

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.

---

 

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.

ITEM 3.                QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

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.

ITEM 4.                CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that is designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

An evaluation was conducted under the supervision and with the participation of our management of the effectiveness of the design and operation of our disclosure controls and procedures as of October 31, 2019. Based on that evaluation, our management concluded that our disclosure controls and procedures were not effective as of such date to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Such officer also confirmed that there was no change in our internal control over financial reporting during the nine-month period ended October 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Changes in Internal Control over Financial Reporting

There have been no changes in the Company's internal controls over financial reporting that occurred during the nine months ended October 31, 2019 that have materially, or are reasonably likely to materially, affect the Company's internal controls over financial reporting.

 

---

PART II

ITEM 1.                LEGAL PROCEEDINGS

 

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.

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.

 

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.

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.

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.

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.

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.

Other than as set out above, the Company knows of no material, existing or pending legal proceedings against it, nor is the Company involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which its director, officer or any affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to its interest.

ITEM 1A.             RISK FACTORS

 

The Company is a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and is not required to provide the information under this item.

 

ITEM 2.                UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There were no sales of equity securities during the period covered by this Report which have not been prior disclosed on Current Report on Form 8-K, Form 10-Q or Form 10-K.

ITEM 3.                DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4.                MINE SAFETY STANDARDS

Not applicable.

 

ITEM 5.                OTHER INFORMATION

None.

ITEM 6.                EXHIBITS, FINANCIAL STATEMENT SCHEDULES

SIGNATURES
 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.