Forward Looking Statements
This quarterly report contains forward-looking statements. These statements relate to future events or the Company's future financial performance. In some cases, forward-looking statements can be identified by terminology such as "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors" that may cause the Company's or its industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws ofthe 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 inUnited 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 inUnited 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" meanEco Science Solutions, Inc. unless otherwise indicated. "Ga-Du" refers to our wholly owned subsidiaryGa-Du Corporation .
Description of Business
The Company was incorporated in the state ofNevada onDecember 8, 2009 under the namePristine Solutions, Inc. OnFebruary 14, 2014 , the Company changed its name toEco Science Solutions, Inc. ("ESSI") With headquarters inMaui, Hawaii ,Eco Science Solutions, Inc. is a bio and software technology-focused Company targeting the multibillion-dollar health and wellness industry. As Consumers continue to take ownership of their health, wellness and alternative medicines they consume, there is a growing shift away from the sole dependence on large pharmaceutical companies and prescription drugs. Thus, in 2019 and beyond, there will be a growing need for both established and new health and wellness businesses to market to this increasing demand.Eco Science Solutions, Inc. continues to focus on becoming a premier health, wellness and alternative medicines business by effectively servicing and connecting wisely conscious consumers with like-minded businesses. The Company's consumer initiatives are centered on education and connecting consumers with various holistic health, wellness and alternative medicine businesses. Its business initiatives are focused on developing technology solutions coupled with data analytics to help those very same holistic health and wellness businesses to be more effective in their abilities to connect, market, and sell to consumers. With the acquisition of Ga-Du, ESSI's product suite represent is now an enclosed ecosystem for business location, localized communications between consumers and business operators, on-topic social networking, inventory management / selection, payment facilitation and delivery arrangement. The Company's holistic commerce and content platform enables health, wellness and alternative medicine enthusiasts to easily locate, access, and connect with others to facilitate the research of and purchasing of eco-science friendly products. 5 -------------------------------------------------------------------------------- As Alliance continues its efforts to expand its eXPOTM banking relationships to support next phase operations, the Company is currently focusing on rolling out its Herbo Enterprise software and building that user base. The Herbo software provides a point of sale, bookkeeping and banking functions, inventory management and tracking, compliance and reporting, tax and accounting, payroll and HR, ecommerce and payment gateway services and CRM and customer loyalty functions all under one software suite. During the most recent quarter endedOctober 31, 2019 , the Company entered into various end user software licensing contracts for theHerbo Enterprise Software and has commenced generating revenue from this segment of its operations.
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Current business overview During fiscal 2019, our business commenced generating modest revenues betweenOctober 2017 andOctober 31, 2018 , as a result of our licensing agreement with AFN when the initial phase of the eXPOTM beta revenue model testing was complete. We continue to build both consumer and enterprise technology, consumer package goods, invest in research & development and advertising to consumer and professional traffic for both our apps and web properties, as well as the marketing of our financial services partnership through AFN and its next stage development. Once we have gained a large enough audience the Company will begin to aggressively monetize its audience relationships through: 1) paid advertisements from businesses seeking exposure to users of the Herbo platform; 2) enterprise license agreements with professional customers; 3) sales of products targeting general health and wellness and alternative medicines and 4) successful marketing of our financial services to an expanded number of clients across various states in the US through our AFN partnership. Our 2018 acquisition of Ga-Du and the aforementioned marketing agreement with AFN will allow us to offer certain financial and marketing services to businesses and individuals, including the Cannabis Industry, on a programmatic or membership basis (the "Financial Program"), from which AFN and Ga-Du derive fees and income from enrolling companies in the Financial Program and providing a range of services to our clients (the "Members") according to the AFN pricing schedule (the "Fees"). Under our agreements, Ga-Du was granted the exclusive right to undertake marketing responsibilities of Alliance's Financial Services to businesses in the Cannabis industry, initially inMichigan ,Oregon andWashington , and subsequently,Colorado , with plans to extend throughoutthe 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 ofFlorida ,Montana , andPennsylvania . 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 endedJanuary 31, 2018 and up toOctober 31 , 2018.Thereafter revenue generating operations under the terms of the agreement with AFN were suspended pending expansion of a banking relationship by eXPOTM in order to allow next stage transactional volume growth. Recently, Alliance has secured the banking relationships required to recommence operations beyond the beta phase and we expect to see revenue generation from this business segment resume prior to the close of fiscal 2020. The Company's Herbo apps, Fitrix app, UseHerbo.com and "The Pursuit of Fine Herb" original content also remain available for use, either through Apple and Google app stores or online through a web-browser or through social channels, such as Facebook, Instagram and YouTube. During fiscal 2019, and continuing through Q3 2020, the Company has focused its attention on the enhancement of its Herbo enterprise software package. Along with the ongoing development of app and ecommerce platforms the Company continues to expand its suite of financial based software. This is further enhanced by our operating subsidiary, Ga-Du. The Company's enterprise technology investments are centered on our platform that matches and connects consumers with desired products and/or providers, as well as providing for a convenient payment solution. We have a much larger suite of financial platforms available under our LMMA with AFN. OnMarch 1, 2019 the Company andHaiku Holdings LLC "Haiku", a company controlled by our COO,Mr. Rountree , entered into aTrademark 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. 6 -------------------------------------------------------------------------------- EffectiveJuly 1, 2019 , the Company ("Reseller") entered into a Software Reseller Agreement with respect to the Herbo suite of software offerings with Haiku ("Licensor"). The Herbo software provides a point of sale, bookkeeping and banking functions, inventory management and tracking, compliance and reporting, tax and accounting, payroll and HR, ecommerce and payment gateway services and CRM and customer loyalty functions all under one software suite. Licensor is the owner of certain computer software-as-a-service offerings and related documentation that it provides to end users. Under the terms of the agreement, the Reseller desires (a) a non-exclusive license of the Software and (b) a non-exclusive, non-transferable, non-assignable and limited right and license to reproduce, market, and distribute such Software, and Licensor agrees to grant to Reseller such right and license. Under the terms of the agreement for each respective End User License Agreement (EULA) entered into with an End User, Reseller shall pay Licensor the corresponding license fee for the software usage of 10% of gross receipts from End Users.
Results of Operations
Comparison of the three months ended
The following summary of the Company's results of operations should be read in conjunction with the Company's unaudited consolidated financial statements for the three months endedOctober 31, 2019 and 2018: For the Three Months Ended October 31, 2019 2018 Revenue$ 9,194 $ - Revenue, related parties 4,197 - Total revenue 13,391 - Operating expenses: Cost of revenue 17,754 Depreciation 1,106 1,294 Legal, accounting and audit fees 69,139 113,019 Management and consulting fees 75,541 301,500 Research, development, and promotion 66,468 - Office supplies and other general expenses 19,655 24,066 Advertising and marketing 10,599 21,189 Total operating expenses 260,262 461,068 Net operating loss (246,871 ) (461,068 ) Other income (expenses) Interest income 3,000 3,000 Interest expense (63,204 ) (188,219 ) Bad debt (127,833 ) Total other income (expenses) (188,037 ) (185,219 ) Net loss$ (434,908 ) $ (646,287 ) 7
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Revenue
During the three months endedOctober 31, 2019 , the Company generated$13,391 in total revenue of which$4,197 was from contracts with related parties, as compared to $Nil in the three months endedOctober 31, 2018 . Revenue recorded during the most recently completed three-month period relates directly to the licensing of the Herbo enterprise software to various customers. We also entered into amendments to certain licensing and marketing agreements during the fiscal year endedJanuary 31, 2019 which provide for fee-based income calculated retroactively toOctober 2017 , as atJanuary 31, 2019 , the amounts generated from this agreement have not been received by the Company and therefore while revenue has been generated, no revenue has been recorded in our financial statements. We intend to record the revenue attributable to the Company of$28,431 on the cash basis.
Cost of Revenue
Costs of revenue consist of the direct expenses incurred to generate revenue, including fees and commissions payable. Such costs are recorded as incurred. During the three months endedOctober 31, 2019 we incurred costs of$17,754 as compared to $Nil during the three months endedOctober 31, 2018 . Current costs are related to sales of our licensed Herbo enterprise software. Our ongoing costs of revenue will consist consists primarily of fees and commissions paid in respect to the operation and installation of our Herbo enterprise software.
In
the case of revenue earned by our wholly owned subsidiary, when recorded, proceeds allocated to our revenue interest are net of associated costs.
General and Administrative Expenses
For the three Months Ended October 31, 2019 2018 Variances Operating expenses: Cost of revenue$ 17,754 $ -$ 17,554 Depreciation 1,106 1,294 (188 ) Legal, accounting and audit fees 69,139 113,019 (43,880 ) Management and consulting fees 75,541 301,500 (225,959 ) Research, development, and promotion 66,468 -
66,468
Office supplies and other general expenses 19,655 24,066
(4,411 ) Advertising and marketing 10,599 21,189 (10,590 ) Total operating expenses$ 260,262 $ 461,068 $ (200,806 ) General and administrative expenses, exclusive of$10,599 (2018 -$21,189 ) expended on advertising and marketing in the three-month period endedOctober 31, 2019 totaling$249,663 ($439,879 - 2018), include a total of$75,541 for management and consulting fees as compared to$301,500 in the comparative three months endedOctober 31, 2018 . This decrease to management fees is a result of a reduction in consulting fees during the current three-month period as a result of the departure of certain consultants, and the Company's determination not to renew certain contracts on their expiry. The decline in advertising and marketing fees period over period is directly related to a reduction of advertising expenses paid to Yahoo as the Company did not have sufficient funding during the current three-month period endedOctober 31, 2019 to carry out a more substantial marketing program such as during the prior three-month period endedOctober 31, 2018 . During the current three months the Company recorded costs of revenue of$17,754 compared to $Nil in the prior comparative three-month period as we were able to secure our first customers for our licensedHerbo Enterprise Software . Legal, accounting and audit fees incurred in the three-month period endedOctober 2019 of$69,139 had also decreased substantially as compared to$113,019 in the prior comparative period as the Company's legal fees with respect to certain ongoing litigation declined in the current period. The Company expended$66,468 on research, development and promotion in the current three months endedOctober 31, 2019 as we completed work on our licensed Herbo enterprise software as compared to $Nil in the same three months endedOctober 31, 2018 . Office supplies and other general expenses reflect a decrease period over period from$24,066 (2018) to$19,655 in the current three-month period as the Company's travel expenses and office overhead was reduced. 8
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Comparison of the nine months ended
The following summary of the Company's results of operations should be read in conjunction with the Company's unaudited consolidated financial statements for the nine months endedOctober 31, 2019 and 2018: For the Nine Months Ended October 31, 2019 2018 Revenue$ 9,194 $ - Revenue, related parties 4,197 - Total revenue 13,391 - Operating expenses: Cost of revenue 17,754 - Depreciation 3,317 3,883 Legal, accounting and audit fees 207,089 545,692 Management and consulting fees 643,541 990,500 Research, development, and promotion 86,232 657,948 Office supplies and other general expenses 81,611 218,742 Advertising and marketing 38,502 919,952 Total operating expenses 1,078,046 3,336,717 Net operating loss (1,064,655 ) (3,336,717 ) Other income (expenses) Interest income 9,000 9,000 Interest expense (186,308 ) (535,756 ) Bad debt (127,833 ) Total other income (expenses) (305,141 ) (526,756 ) Net loss$ (1,369,796 ) $ (3,863,473 ) 9
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Revenue
During the nine months endedOctober 31, 2019 , the Company generated$13,391 in total revenue of which$4,197 was from contracts with related parties, as compared to $Nil in the nine months endedOctober 31, 2018 . Revenue recorded during the most recently completed three-month period relates directly to the licensing of the Herbo enterprise software to various customers. We also entered into amendments to certain licensing and marketing agreements during the fiscal year endedJanuary 31, 2019 which provide for fee-based income calculated retroactively toOctober 2017 , as atJanuary 31, 2019 , the amounts generated from this agreement have not been received by the Company and therefore while revenue has been generated, no revenue has been recorded in our financial statements. We intend to record the revenue attributable to the Company of$28,431 on the cash basis.
Cost of Revenue
Costs of revenue consist of the direct expenses incurred to generate revenue, including fees and commissions payable. Such costs are recorded as incurred. During the nine months endedOctober 31, 2019 we incurred costs of$17,754 as compared to $Nil during the nine months endedOctober 31, 2018 . Current costs are related to sales of our licensed Herbo enterprise software. Our ongoing costs of revenue will consist consists primarily of fees and commissions paid in respect to the operation and installation of our Herbo enterprise software.
In
the case of revenue earned by our wholly owned subsidiary, when recorded, proceeds allocated to our revenue interest are net of associated costs.
General and Administrative Expenses
For the Nine Months Ended October 31, 2019 2018 Variances Operating expenses: Cost of revenue$ 17,754 $ -$ 17,554 Depreciation 3,317 3,883 (566 ) Legal, accounting and audit fees 207,089 545,692 (338,603 ) Management and consulting fees 643,541 990,500 (346,959 ) Research, development, and promotion 86,232 657,948 (571,716 ) Office supplies and other general expenses 81,611 218,742 (137,131 ) Advertising and marketing 38,502 919,952 (881,450 ) Total operating expenses$ 1,078,046 $ 3,336,717 $ (2,258,671 ) General and administrative expenses, exclusive of$38,502 (2018 -$919,852 ) expended on advertising and marketing in the nine-month period endedOctober 31, 2019 totaling$1,039,544 ($2,416,765 - 2018), include a total of$643,541 for management and consulting fees as compared to$990,500 in the comparative nine months endedOctober 31, 2018 . This decrease to management fees is a result of a reduction in consulting fees during the current three-month period as a result of the departure of certain consultants, and the Company's determination not to renew certain contracts on their expiry. The substantive decline in advertising and marketing fees period over period is directly related to a reduction of advertising expenses paid to Yahoo as the Company did not have sufficient funding during the current nine-month period endedOctober 31, 2019 to carry out an aggressive marketing program such as during the prior nine-month period endedOctober 31, 2018 . Further, legal, accounting and audit fees incurred in the nine-month period endedOctober 2019 of$207,089 had decreased substantially as compared to$545,692 in the prior comparative period as the Company's legal fees with respect to certain ongoing litigation declined in the current nine-month period. The Company expended only$86,232 on research, development and promotion in the current nine months endedOctober 31, 2019 as compared to$657,948 in the prior nine months endedOctober 31, 2018 . The substantive reduction to research development and promotional costs relate to a decline in expenditures on each of: attendance at certain sponsored events such as Kaya fest during the first quarter of the prior fiscal year, with no similar expenditures in the current fiscal quarter, and a substantial reduction to expenditures on software development during the current nine-month period as the software suite neared completion. During the current nine months the Company recorded costs of revenue of$17,754 compared to $Nil in the prior comparative nine-month period as we were able to secure our first customers for our licensedHerbo Enterprise Software . Office supplies and other general expenses reflect a substantive decrease period over period from$218,742 (2018) to$81 ,611in the current nine-month period as the Company's travel expenses and office overhead was reduced. 10 --------------------------------------------------------------------------------
Plan of Operation
The Company changed the focus of its business at the close of fiscal 2016 to operate in the ecofriendly technology sector using social media sites and offering apps to generate advertising revenues and download fees. During fiscal 2017 the Company laid the groundwork for income generation from these services by investing in ongoing development of its applications, websites and visibility in both the local and global market. The Company has invested heavily in advertising and research and development to allow its applications and ecommerce website visibility on a global stage. During fiscal 2018 we further added to our business portfolio with the acquisition of Ga-Du corporation and the entry into a licensing and marketing agreement that should see the Company generating revenues in fiscal 2019. In the most recent six-month period during fiscal 2019, the Company has licensed theHerbo Enterprise Software and completed certain customization efforts, which has allowed the Company to commence generating revenue by way of sales of software licenses in the most recently completed reporting period. The Company's need for ongoing capital by way of loans, sale of equity and/or convertible notes is expected to continue during the current fiscal year until we can establish substantive revenues from operations. We have also had to rely heavily on loans from related parties in our most recently completed fiscal year as we work to have our shares returned for quotation to the OTCMarkets. There are no assurances additional capital will be available to the Company on acceptable terms or that this equity line will be available to us when needed. Future funding could result in potentially dilutive issuances of equity securities, the incurrence of debt, contingent liabilities and/or amortization expenses related to goodwill and other intangible assets, which could materially adversely affect the Company's business, results of operations and financial condition. Any future funding might require the Company to obtain additional equity or debt financing, which might not be available on terms favorable to the Company, or at all, and such financing, if available, might be dilutive.
Going Concern
These unaudited condensed consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has not generated significant revenues to date and has never paid any dividends and is unlikely to pay dividends or generate significant earnings in the immediate or foreseeable future. As atOctober 31, 2019 , the Company had a working capital deficit of$10,751,994 and an accumulated deficit of$72,551,248 . The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability to raise equity or debt financing, and the attainment of profitable operations from the Company's future business. These factors raise substantial doubt regarding the Company's ability to continue as a going concern. The unaudited consolidated financial statements reflect all adjustments consisting of normal recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of the results for the periods shown. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
Liquidity and Capital Resources
As ofOctober 31, 2019 , the Company had total current assets of$47,512 , and total current liabilities of$10,799,507 as compared to$148,569 in current assets and$9,534,085 in total current liabilities at the fiscal year endedJanuary 31, 2019 . The Company has limited financial resources available outside loans from its officers and directors and funds it has obtained through use of convertible notes and loans from related parties. We have recently commenced generating revenue from the licensing of ourHerbo Enterprise Software , however, these revenues are not yet sufficient to meet our ongoing operational overhead. While the Company entered into an Equity Purchase Agreement to sell up to 10,000,000 shares of our common stock (Ref: Note 12(b)) to the financial statements contained herein) we have been unable to obtain any funding under this agreement in the most recently completed fiscal year. There can be no guarantee the Company will receive proceeds from loans, related party advances or convertible notes sufficient to meet its ongoing operational overheads. While generated modest revenue in fiscal 2019, which will be recorded when received from our licensing partner on the cash basis, we do not yet have resources to meet our operational shortfalls. Without realization of additional capital, it would be unlikely for the Company to continue as a going concern. As noted, additional working capital may be sought through additional debt or equity private placements, additional notes payable to banks or related parties (officers, directors or stockholders), or from other available funding sources at market rates of interest, or a combination of these. The ability to raise necessary financing will depend on many factors, including the nature and prospects of any business to be acquired and the economic and market conditions prevailing at the time financing is sought. During the most recently completed fiscal year management has obtained additional funding with success, however there is no guarantee we will be able to continue to obtain financing if and when required. The current economic downturn may make it difficult to find new capital sources for the Company should they be required. 11 --------------------------------------------------------------------------------
Cash flows from operating activities
During the nine months endedOctober 31, 2019 and 2018 the Company used$570,218 and$2,034,104 of cash for operating activities respectively. The decrease in cash used in operating activities period over period is attributed to a reduction to the net loss reported in the nine months endedOctober 31, 2019 as compared to the same nine months in 2018. Further during the prior comparative period, results include amortization of debt discount of$371,969 , stock-based compensation of$90,000 and research and development fees paid by a third party of$250,000 , with no comparable expenses during the current nine-month period endedOctober 31, 2019 . Current period results include bad debt of$127,833 with respect to a loan receivable and the associated interest income, with no similar results in the nine months endedOctober 31, 2018 . The current nine months endedOctober 31, 2019 also reflects an increase to related party payables of$250,317 as compared to$276,126 in the same nine month period in 2018, and an increase to accounts payable of$436,772 in the current nine months as compared to$842,294 in the period endedOctober 31, 2018 . The Company recorded a decrease to prepaid expenses of$4,097 during the nine months endedOctober 31, 2018 , as compared to an increase of$4,865 in the current nine-month period endedOctober 31, 2019 . Finally we recorded an increase to accounts receivable in the current nine months endedOctober 31, 2019 as a result of the commencement of revenues from ourHerbo Enterprise Software , as compared to $Nil in the same period endedOctober 31, 2018 .
Cash flows from investing activities
During the nine months ended
Cash flows from financing activities
During the nine months endedOctober 31, 2018 the Company received proceeds from notes payable of$1,731,232 as compared to $Nil the current nine months endedOctober 31, 2019 . Further during the nine months endedOctober 31, 2019 the Company received proceeds from notes payable, related party of$578,333 as compared to$303,734 in the prior comparative nine month period.
Future Financings
We anticipate continuing to rely on related party and third-party loans and equity sales of our common shares and/or shares for services rendered in order to continue to fund our business operations in the event of ongoing operational shortfalls. Issuances of additional shares will result in dilution to our existing shareholders. There is no assurance that we will achieve any of additional sales of our equity securities or arrange for debt or other financing to fund our research and development activities.
Contractual Obligations
The Company is a smaller reporting Company as defined by Rule 12b-2 of the Securities Act of 1934 and we are not required to provide the information under this item.
Off-Balance Sheet Arrangements
The Company has no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Critical Accounting Policies
The preparation of our consolidated financial statements and notes thereto requires management to make estimates and assumptions that affect the amounts and disclosures reported within those financial statements. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, contingencies, litigation and income taxes. Management bases its estimates and judgments on historical experiences and on various other factors believed to be reasonable under the circumstances. Actual results under circumstances and conditions different than those assumed could result in differences from the estimated amounts in the financial statements. There have been no material changes to these policies during the six months endedOctober 31, 2019 . Refer to Note 2 to our unaudited condensed consolidated financial statements contained herein. 12 --------------------------------------------------------------------------------
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.
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