ESSI.OIDEco Science Solutions, INC
10-Q: Eco Science Solutions Reports Continued Losses and Going Concern Doubts Amidst Subsidiary Dissolution and Mounting Debt
Sentiment:
Quarterly Report
Eco Science Solutions Inc. (ESSI) reported a net loss of $273,421 for the quarter ended April 30, 2025, with no revenue generated, and continues to operate under substantial doubt about its ability to continue as a going concern, exacerbated by significant accumulated deficits and multiple defaulted loans.
Delay expectedImplementation of several corporate governance reforms mandated by the 2020 shareholder derivative litigation settlement has been delayed due to the company's lack of revenue and financing. These include:The purchase of Directors and Officers Insurance.Appointment of two new, independent Directors (only one new independent director has been appointed).Creation of a board-level Governance Committee.Adoption of Written Corporate Governance Guidelines and Code of Ethics.Enhanced Board Independence (beyond the two current members).Creation of an Investor Relations Officer.Creation of a written Whistleblower Policy.Adoption of a Clawback Policy.Adoption of enhanced conflicts policies and practices.Establishment of documentation of Policies and Financial Reporting Checklist.Annual assessment of the adequacy of the company's internal controls.Provision of continuing director education and employee compliance training.Full implementation of board oversight of company expenditures.
Capital raiseThe company explicitly states its need for ongoing capital by way of loans, sale of equity, and/or convertible notes to fund business operations and cover operational shortfalls.It has historically relied on related party and third-party loans, and equity sales of common shares and/or shares for services rendered.The company acknowledges that future funding could result in potentially dilutive issuances of equity securities or the incurrence of additional debt.
Worse than expectedThe company continues to report no revenue, indicating a persistent inability to commercialize its products and generate income.The accumulated deficit has increased to nearly $79 million, reflecting ongoing losses and a deteriorating equity position.The working capital deficit has worsened, highlighting severe liquidity issues.The company remains heavily reliant on related party funding, and multiple long-standing debts are in default, indicating a precarious financial structure.Despite a slight reduction in net loss, the overall financial health and operational sustainability have deteriorated, as evidenced by declining cash balances and increasing liabilities.
Summary
- Eco Science Solutions Inc. (ESSI) reported no revenue for the three months ended April 30, 2025, consistent with the prior year period.
- The company incurred a net loss of $273,421 for the quarter ended April 30, 2025, a slight improvement from the $294,613 net loss in the same period last year.
- As of April 30, 2025, ESSI had a working capital deficit of approximately $16.94 million and an accumulated deficit of nearly $79 million, raising substantial doubt about its ability to continue as a going concern.
- Cash on hand decreased to $1,699 as of April 30, 2025, from $2,817 at January 31, 2025.
- Total liabilities increased to $16,940,362 as of April 30, 2025, from $16,669,544 at January 31, 2025.
- The company's wholly-owned subsidiary, Ga-Du Corporation, was dissolved on April 3, 2025, with ESSI assuming $975,000 in liabilities from the divestiture.
- Multiple notes payable and a convertible note, totaling over $4.6 million in principal, are in default.
- The company continues to rely heavily on loans and advances from its CEO and CFO, Mr. Michael Rountree, and other related parties to cover operational shortfalls, with total related party payables reaching $6,814,021.
- Many corporate governance reforms mandated by a 2020 shareholder derivative litigation settlement remain unimplemented due to a lack of revenue and financing.
Sentiment
Score: 2
Explanation: The sentiment is overwhelmingly negative due to the company's severe financial distress, including no revenue, a substantial accumulated deficit, a critical working capital deficit, and heavy reliance on related-party funding. The explicit 'going concern' warning, multiple defaulted loans, and unfulfilled governance commitments further underscore the precarious situation, indicating a very high risk of failure.
Positives
- The net loss for the three months ended April 30, 2025, decreased slightly to $273,421 from $294,613 in the prior year period, indicating a marginal reduction in losses.
- Operating expenses decreased to $254,295 in the current quarter from $276,063 in the comparative period, primarily due to a substantial decrease in accounting and audit fees.
- Cash used in operating activities decreased to $70,593 from $82,816 in the comparative period, indicating a reduced operational cash burn.
- The company's shares resumed quotation on the OTC Markets Pink Sheets under the trading symbol ESSI on December 6, 2024, and FINRA completed processing Form 211 on February 7, 2025, allowing brokers to resume market making.
- The company maintains a strategic focus on its cloud-based ERP platform (Herbo) and financial services platform (Herbo Pay) for regulated, cash-intensive industries.
Negatives
- The company generated no revenue for the three months ended April 30, 2025, and has not generated significant revenues to date.
- As of April 30, 2025, the company had a significant working capital deficit of $16,935,693 and an accumulated deficit of $78,999,693.
- Cash balance is critically low at $1,699 as of April 30, 2025.
- Total liabilities increased to $16,940,362, indicating a growing debt burden.
- Multiple notes payable, including those from fiscal years 2017, 2018, 2019, and 2021, totaling $2,960,118, are in default.
- A convertible note with a net value of $1,656,213 is in default.
- The company is heavily reliant on loans and advances from related parties, including its CEO and CFO, Mr. Michael Rountree, to meet operational shortfalls.
- Significant amounts are owed to related parties, totaling $6,814,021 as of April 30, 2025, including accrued and unpaid salaries and consulting fees to current and former officers and their family members.
- Many corporate governance reforms agreed upon in a 2020 shareholder derivative litigation settlement, such as purchasing D&O insurance, appointing independent directors, and creating an investor relations officer, have not been fully implemented due to lack of funding.
Risks
- The company's ability to continue as a going concern is dependent upon continued financial support from shareholders, ability to raise equity or debt financing, and attainment of profitable operations, which raises substantial doubt.
- Inability to generate significant revenues in the immediate or foreseeable future poses a significant risk to sustainability.
- Heavy reliance on related party loans and advances for funding creates financial vulnerability and potential conflicts of interest.
- Default on multiple notes payable and a convertible note could lead to legal actions by creditors and further financial strain.
- Failure to implement mandated corporate governance reforms could lead to further legal or regulatory scrutiny and erode investor confidence.
- Future funding, if available, may result in significant dilution to existing shareholders.
- General economic factors such as inflation, geopolitical events (e.g., war in Ukraine), and climate change may adversely impact the company's operations and consumer spending.
Future Outlook
The company anticipates a continued need for ongoing capital through loans, equity sales, and/or convertible notes during the current fiscal year until it can establish revenues from operations to cover all operational overhead. Management is actively seeking users for its Herbo software and pursuing opportunities with state legislatures in states where cannabis is legal, as well as searching for businesses that would benefit from using the Herbo ERP and HerboPay financial software.
Management Comments
- "We currently have no revenue and are actively seeking users of our software; Mr. Rountree is pursuing opportunities with state legislature in states where cannabis is legal."
- "Additionally, Mr. Rountree is actively searching out businesses that would benefit from using the Herbo ERP and HerboPay financial software."
- "Mr. Rountree continues to fund the Company with his personal funds and once the Company begins generating revenue or secures financing, 15% will be put aside [for governance reforms]."
- "To date, Mr. Rountree is funding the Company and there aren't enough funds to implement all of the requirements of the Stipulation."
Industry Context
Eco Science Solutions Inc. operates in the eco-friendly technology sector, specifically targeting regulated, cash-intensive industries such as cannabis, CBD, gaming, firearm and ammunition, and highly complex industries like oil and gas, with its cloud-based ERP platform (Herbo) and financial services platform (Herbo Pay). The company emphasizes its end-to-end business commerce solution designed to support unique compliance requirements. The broader industry context for cannabis and CBD technology is characterized by evolving regulatory landscapes and a demand for robust compliance and financial management tools. However, ESSI's current lack of revenue and significant financial distress place it far behind established players or even emerging startups in these sectors.
Comparison to Industry Standards
- NA The company has not generated any revenue, making direct comparisons to industry-standard financial performance metrics (e.g., revenue growth, profitability margins, market share) impossible.
- Unlike successful ERP or FinTech companies in regulated industries, ESSI has not demonstrated commercial viability or customer acquisition at scale.
- The company's reliance on related-party funding and its significant accumulated deficit are not indicative of a healthy or competitive position within the software or financial services industry, where companies typically demonstrate strong cash flow generation or access to diverse capital sources for growth.
Management Changes
| Role | Previous Person | New Person | Effective Date | Reason |
|---|---|---|---|---|
| Secretary | S. Randall Oveson | Michael Rountree | 2025-04-02 | Resignation of S. Randall Oveson and appointment of Michael Rountree by the Board of Directors. |
Corporate Governance
| Change Type | Description | Effective Date | Impact Assessment |
|---|---|---|---|
| Subsidiary Dissolution | The Board of Directors approved the dissolution of Ga-Du Corporation, a wholly-owned subsidiary, on April 2, 2025, with a Certificate of Dissolution/Withdrawal filed on April 3, 2025. This resulted in the company assuming $975,000 in liabilities. | 2025-04-03 | Simplifies corporate structure but transfers significant liabilities to the parent company, potentially increasing financial burden. |
| Unfulfilled Governance Reforms | Several governance reforms agreed upon in the 2020 shareholder derivative litigation settlement remain unimplemented due to lack of funding. These include D&O insurance, appointment of additional independent directors, creation of a governance committee, adoption of written corporate guidelines and code of ethics, enhanced board independence, creation of an investor relations officer, whistleblower policy, clawback policy, and others. | NA | Indicates a continued weakness in corporate oversight and internal controls, potentially exposing the company to future legal or regulatory issues and undermining investor confidence. The Ombudsman, Mr. A. Carl Mudd, continues to monitor progress, but implementation is at his discretion and subject to funding availability. |
Legal Proceedings
- A shareholder derivative litigation (In re Eco Science Solutions, Inc. Shareholder Derivative Litigation Lead Civil No. 1:17-cv-00530-LEW-WRP (D. Haw.)) was settled in 2020. Key terms included:
- Resignation of Jeffery Taylor as Chairman and Don Taylor as CFO and Board member.
- Appointment of Carl Mudd as Ombudsman and Chairman of the Board.
- Cancellation of 3,500,000 common shares from various shareholders (Gannon Giguiere, Jeffery Taylor, Don Taylor, L John Lewis, S Randall Oveson).
- Issuance of 1,400,000 restricted common stock to Robbins LLP for attorney fees.
- Issuance of a $350,000 promissory note to Robbins LLP for legal fees (currently in default).
- Forgiveness and cancellation of $1,500,000 debt held by Phenix Ventures LLC.
- Commitment to dedicate not less than 15% (or 18% after $10M) of revenue, debt raised, or equity infused towards achieving agreed-upon objectives and implementing governance reforms. This commitment has not been met due to lack of revenue or financing.
Related Party Transactions
- Total related party payables and notes payable amounted to $6,814,021 as of April 30, 2025, up from $6,666,476 at January 31, 2025.
- Accrued and unpaid salary to Mr. Jeffery Taylor (former CEO) totaled $44,721 as of April 30, 2025.
- Accrued and unpaid salary to Mr. Don Lee Taylor (former CFO) totaled $426,450 as of April 30, 2025.
- Accrued and unpaid consulting fees to Ms. Jennifer Taylor (sister of former officers) totaled $166,000 as of April 30, 2025.
- Accrued and unpaid consulting fees to Ms. Meredith Rountree (sister of CEO) totaled $161,250 as of April 30, 2025.
- Accrued and unpaid salary to Mr. Michael Rountree (CEO, CFO, COO, President, Treasurer, Secretary) totaled $1,502,500 as of April 30, 2025.
- Mr. Michael Rountree funded $5,932 for company expenses during the quarter, with total owed expenses of $328,815 as of April 30, 2025.
- Promissory notes totaling $69,475 were issued to Rountree Consulting (controlled by Mr. Rountree) during the quarter, with several notes currently in default.
- Accrued and unpaid salary to L. John Lewis (former CEO of Ga-Du) totaled $240,000, reflected as a liability held on divestiture.
- Accrued and unpaid salary to S. Randall Oveson (former COO of Ga-Du) totaled $240,000, reflected as a liability held on divestiture.
- Accrued and unpaid salary to Andy Tucker (consultant to Ga-Du) totaled $240,000, reflected as a liability held on divestiture.
- Mr. Carl Mudd (Chairman of the Board and Ombudsman) was owed $520,000 in advisory fees as of April 30, 2025.
Stakeholder Impact
- **Shareholders**: Face significant dilution risk from future equity raises, no dividends, and potential loss of investment due to the company's going concern issues and accumulated deficit. Some shareholders had shares cancelled as part of a legal settlement.
- **Employees/Management**: Current and former management and consultants have substantial accrued and unpaid salaries/fees, indicating financial strain on individuals who have provided services.
- **Creditors**: Multiple notes payable and a convertible note are in default, posing a risk of non-payment and potential legal action from creditors.
- **Customers**: Potential customers for Herbo software may be hesitant to engage with a company facing severe financial instability and going concern doubts, impacting future revenue generation.
- **Suppliers**: Unpaid invoices to service providers like Take2L ($1,001,310 due) indicate a risk to suppliers who may not be compensated for services rendered.
Next Steps
- Establish revenues from operations to cover all operational overhead.
- Secure additional equity or debt financing to support ongoing operations.
- Actively seek users for the Herbo ERP and HerboPay financial software.
- Pursue opportunities with state legislatures in states where cannabis is legal.
- Implement remaining corporate governance reforms as funding becomes available.
Key Dates
| Date | Description |
|---|---|
| 2009-12-08 | Company incorporated in Nevada under the name Pristine Solutions, Inc. |
| 2014-01-08 | Company changed its name from Pristine Solutions, Inc. to Eco Science Solutions, Inc. |
| 2015-12-21 | Employment agreements entered into with Mr. Jeffery Taylor and Mr. Don Lee Taylor. |
| 2016-01-11 | Mr. Jeffery Taylor appointed Secretary and to the Board of Directors; Mr. Don Taylor appointed to the Board of Directors; Series A Voting Preferred Stock authorized. |
| 2016-02-17 | Promissory notes issued to Mr. Jeffery Taylor and Mr. Don Lee Taylor. |
| 2017-06-21 | Company acquired 100% of Ga-Du Corporation; Michael Rountree employment agreement as COO; L. John Lewis employment agreement as CEO of Ga-Du; S. Randall Oveson employment agreement as COO of Ga-Du; Andy Tucker consulting agreement. |
| 2017-08-01 | Sublease for office space commenced. |
| 2017-09-01 | Monthly base rent for sublease began. |
| 2017-10-01 | Convertible note for $1,407,781 entered into during October 2017. |
| 2017-10-20 | Mr. Ian Bell filed a verified stockholder derivative complaint. |
| 2017-11-01 | Interest began on the convertible note. |
| 2018-01-11 | Mr. Marc D Annunzio filed a verified stockholder derivative complaint. |
| 2018-01-31 | Note 2 became due and defaulted. |
| 2018-02-09 | Hawaii federal court consolidated the derivative actions. |
| 2018-03-28 | Third party purchased $250,000 in notes from Rountree Consulting. |
| 2018-07-31 | Promissory notes issued to Mr. Lewis to convert payable amount to a note payable. |
| 2018-09-12 | Company received $14,422 from a third party (Note 5). |
| 2018-11-01 | Maturity Date for the convertible note. |
| 2018-12-10 | Plaintiffs in the Consolidated Hawaii Action filed their amended complaint. |
| 2020-09-21 | United States District Court for the District of Hawaii preliminarily approved a proposed settlement for the shareholder derivative litigation. |
| 2020-11-17 | Hearing held for settlement approval before the Honorable Leslie Kobayashi. |
| 2020-12-03 | Order and Final Judgment signed for the settlement of the shareholder derivative litigation. |
| 2020-12-08 | Michael Rountree appointed interim CFO and Treasurer; Promissory Note in the amount of $350,000 with Robbins LLP entered; Company cancelled $1,500,000 of debt on Notes 3. |
| 2020-12-23 | Board Advisory Agreement entered into with Mr. Carl Mudd. |
| 2021-01-28 | Asset Purchase Agreement with Haiku Holdings, LLC entered; Executive Employment Agreement with Michael Rountree entered (effective January 31, 2021); Debt Settlement and Share Purchase Agreement with Rountree Consulting, Inc. entered; Indemnification Agreement with Michael Rountree, A. Carl Mudd, S. Randall Oveson entered. |
| 2021-01-31 | Consolidation of principal sums of prior notes (Consolidated Note) entered into, due February 1, 2022. |
| 2022-10-06 | Company's securities were revoked along with its trading symbol. |
| 2023-01-17 | Resignation of Mr. Don Taylor as Director of Festivals and Mr. Jeffery Taylor as Director, President and Secretary accepted. |
| 2023-02-28 | Formal termination effective date for Mr. Don and Mr. Jeffery Taylor's employment contracts. |
| 2023-04-05 | Software Acquisition Agreement with eXPO Financial Services LLC entered. |
| 2023-04-15 | Installment payments for eXPO software commenced. |
| 2024-01-31 | eXPO software purchase price paid in full. |
| 2024-12-06 | OTC Markets began quotation of company shares on the OTC Markets Pink Sheets under the trading symbol ESSI. |
| 2025-02-07 | FINRA completed processing the company's Form 211, allowing brokers to resume publication of competing quotes. |
| 2025-04-02 | S. Randall Oveson resigned as Secretary; Michael Rountree appointed Secretary; Board approved dissolution of Ga-Du Corporation. |
| 2025-04-03 | Certificate of Dissolution/Withdrawal filed with the state of Nevada for Ga-Du Corporation, and Ga-Du Corporation was dissolved. |
| 2025-04-30 | End of the current quarterly reporting period. |
| 2025-06-13 | 52,957,572 shares of the registrant's common stock outstanding. |
| 2025-06-16 | Date of filing of the Quarterly Report on Form 10-Q. |
Recommendation
strong sellKeywords
Eco Science Solutions, ESSI, 10-Q, Quarterly Report, Going Concern, Financial Technology, ERP Software, Herbo, Herbo Pay, Cannabis Industry Software, CBD Industry Software, Software Development, Debt Default, Related Party Transactions, Corporate Governance, SEC Filing, OTC Markets
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