Ann: Quarterly Activities/Appendix 4C Cash Flow Report, page-54

I will add to that with my discussion with Nan, but first let me just say that there isn't a single person invested in this company who has actually set out to lose money. It may end up that way (nobody has a crystal ball) but where there is cause for optimism let's be optimistic and where there is concern we should be concerned. The quarterly that came out contains both, my views on each below.

Let's start with the concern, there is really only one from my perspective and that is lower revenue than expected. Originally I thought it was because they were selling more product at cheaper prices but it's actually because their B2B customers are selling less due to the increased competition. To counter this ECS have expanded their outdoor cultivation to counter the cheap imports and give their B2B customers sharper pricing. ECS are currently and will still make money on this channel given their low cost or production, a lot of the Canadian imports being sold here at being done at below cost which can't last forever. Who knows, if the Israeli government commits to their tariffs on Canadian imports perhaps Australia will follow suit. Alternatively the producers selling at below cost may go broke. Both of those things are out of ECS' control so the strategy they have come up with sounds like the best course of action.

Now for optimism, the company has only just launched B2C domestically which commands higher margins than B2B and more control on pricing to better meet demand. In B2B it's up to the white-label customer to set the pricing so if they set it too high then less product gets sold. Being B2C means ECS also gets a foot in the door with doctors and I can imagine those conversations including GMP and how imports aren't tested for pesticides and other nasties which could do a lot of damage to the immunocompromised or even healthier people. This isn't something doctors have ever really had to worry about with other pharmaceuticals so it's probably going to be a real eye-opener for them. Also, exports are also just starting to take off which is why more PCEs are required and the company gets a lot more for this product than they do for the outdoor crop.

The final note is that I was also told (similar to 4C) that we should expect a sizeable increase in revenue next quarter with all of the activity that's been occuring. The harvest was only completed in the June quarter so they will have a large stockpile of inventory to sell. If that revenue increase doesn't occur the alarm bells will absolutely be ringing, I'm not a blind faither.