UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________.
Commission File Number: 000-12350
EVIO, INC.
(Exact name of registrant as specified in its charter)
Colorado | 47-1890509 | |
(State of Incorporation) | (I.R.S. Employer Identification No.) | |
2654 W. Horizon Ridge Pkwy, Suite B5-208 Henderson, NV |
89052 | |
(Address of principal executive offices) | (Zip Code) |
(702) 748-9944
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
N/A | N/A | N/A |
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. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | [ ] | Non-accelerated filer | [ ] |
Accelerated filer | [ ] | Smaller reporting company | [X] |
Emerging growth company | [X] |
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 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of September 4, 2020 there were 89,142,473 shares of common stock outstanding.
EVIO, INC.
FORM 10-Q
QUARTERLY PERIOD ENDED JUNE 30, 2020
TABLE OF CONTENTS
2 |
PART I — FINANCIAL INFORMATION
EVIO, INC.
Consolidated Balance Sheets (Unaudited)
June 30, | September 30, | |||||||
2020 | 2019 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 71,396 | $ | 110,325 | ||||
Accounts receivable, net | 110,786 | 133,022 | ||||||
Prepaid expenses | 105,039 | 190,460 | ||||||
Other current assets | 44,766 | 9,689 | ||||||
Note receivable, current portion | 538,904 | 538,904 | ||||||
Total current assets | 870,891 | 982,400 | ||||||
Right of use assets | 1,832,856 | 2,543,976 | ||||||
Capital assets, net | 1,116,734 | 1,383,828 | ||||||
Land | 212,550 | 212,550 | ||||||
Property and equipment, net | 2,643,460 | 3,080,426 | ||||||
Security deposits | 176,650 | 178,918 | ||||||
Prepaid expenses, net | - | 4,061 | ||||||
Total assets | $ | 6,853,141 | $ | 8,386,159 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued liabilities | $ | 4,443,243 | $ | 3,811,237 | ||||
Client deposits | 42,022 | 108,418 | ||||||
Interest payable | 1,693,136 | 1,387,642 | ||||||
Capital lease obligation, current | 902,894 | 957,673 | ||||||
Derivative liability | 2,134,395 | 2,545,735 | ||||||
Convertible notes payable, net of discounts | 3,721,712 | 3,695,484 | ||||||
Loans payable, net of discounts, current | 788,006 | 762,476 | ||||||
Total current liabilities | 13,725,408 | 13,268,665 | ||||||
Convertible debentures, net of loan discounts | 3,694,043 | 1,734,890 | ||||||
Lease liabilities | 1,886,722 | 2,594,726 | ||||||
Capital lease obligation, net | 121,729 | 381,786 | ||||||
Loans payable, net | 702,578 | 657,603 | ||||||
Loans payable, related party, net | 1,417,793 | 1,560,849 | ||||||
Total liabilities | 21,548,273 | 20,198,519 | ||||||
Commitments and contingencies | - | - | ||||||
Stockholders’ Equity: | ||||||||
Series B convertible preferred stock, $0.0001 par value. 5,000,000 authorized; 5,000,000 shares issued and outstanding at June 30, 2020 and September 30, 2019, respectively | 500 | 500 | ||||||
Series C convertible preferred stock, $0.0001 par value. 500,000 authorized; 500,000 shares issued and outstanding at June 30, 2020 and September 30, 2019, respectively | 50 | 50 | ||||||
Series D convertible preferred stock, $0.0001 par value. 1,000,000 authorized; 349,500 and 349,500 shares issued and outstanding at June 30, 2020 and September 30, 2019, respectively | 34 | 34 | ||||||
Common stock, $0.0001 par value. 1,000,000,000 authorized; 94,217,473 and 29,314,419 shares issued and outstanding at June 30, 2020 and September 30, 2019, respectively | 9,422 | 2,931 | ||||||
Stock subscriptions receivable | - | - | ||||||
Additional paid-in capital | 30,001,524 | 26,498,076 | ||||||
Retained earnings (accumulated deficit) | (44,391,942 | ) | (37,775,183 | ) | ||||
Accumulated other comprehensive income | (328,036 | ) | (353,090 | ) | ||||
Total stockholders’ equity | (14,708,448 | ) | (11,626,682 | ) | ||||
Noncontrolling interest | 13,317 | (185,678 | ) | |||||
Total equity | (14,695,131 | ) | (11,812,360 | ) | ||||
Total liabilities and equity | $ | 6,853,142 | $ | 8,386,159 |
The accompanying notes are an integral part of the consolidated financial statements.
3 |
EVIO, INC.
Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
Three Months Ended June 30, | Three Months Ended June 30, | |||||||
2020 | 2019 | |||||||
Revenues | ||||||||
Testing revenue | $ | 603,192 | $ | 1,098,310 | ||||
Consulting revenue | - | 3,000 | ||||||
Total revenues | 603,192 | 1,101,310 | ||||||
Cost of revenue | ||||||||
Testing services | 455,497 | 823,540 | ||||||
Consulting services | (1,824 | ) | - | |||||
Depreciation and amortization | 289,594 | 289,523 | ||||||
Total cost of revenue | 743,267 | 1,113,063 | ||||||
Gross margin | (140,075 | ) | (11,753 | ) | ||||
Operating expenses: | ||||||||
Selling, general and administrative | 147,873 | 1,504,539 | ||||||
Depreciation and amortization | 17,907 | 62,291 | ||||||
Total operating expenses | 165,780 | 1,566,830 | ||||||
Income (loss) from operations | (305,855 | ) | (1,578,583 | ) | ||||
Other income (expense) | ||||||||
Interest income (expense), net | (960,485 | ) | (592,089 | ) | ||||
Other income (expense) | (359,805 | ) | (178,549 | ) | ||||
Gain (loss) on settlement of debt | - | - | ||||||
Impairment charge | - | - | ||||||
Gain (loss) on change in fair market value of derivative liabilities | 224,783 | 981,421 | ||||||
Total other income (expense) | (1,095,507 | ) | 210,783 | |||||
Income (loss) before income taxes | (1,401,362 | ) | (1,367,800 | ) | ||||
Provision for income taxes (benefit) | - | 2,735 | ||||||
Net income (loss) | (1,401,362 | ) | (1,370,535 | ) | ||||
Net income (loss) attributable to noncontrolling interest | (51,954 | ) | (49,257 | ) | ||||
Net income (loss) attributable to EVIO, Inc. shareholders | $ | (1,349,408 | ) | $ | (1,321,278 | ) | ||
Basic and diluted earnings (loss) per common share | $ | (0.03 | ) | $ | (0.05 | ) | ||
Weighted-average number of common shares outstanding: | ||||||||
Basic and diluted | 49,561,707 | 25,366,021 | ||||||
Comprehensive loss: | ||||||||
Net income (loss) | $ | (1,401,362 | ) | $ | (1,370,535 | ) | ||
Foreign currency translation adjustment | 26,282 | 64,261 | ||||||
Comprehensive income (loss) | $ | (1,375,080 | ) | $ | (1,306,274 | ) |
The accompanying notes are an integral part of the consolidated financial statements.
4 |
EVIO, INC.
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended June 30, | Nine Months Ended June 30, | |||||||
2020 | 2019 | |||||||
Cash flows from operating activities of continuing operations: | ||||||||
Net income (loss) | $ | (6,688,377 | ) | $ | (7,842,302 | ) | ||
Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
Amortization of debt discount | 2,875,551 | 2,241,279 | ||||||
Common stock issued in exchange for fees and services | 333,830 | 342,910 | ||||||
Default penalties and other covenant adjustments on convertible debentures | 62,500 | |||||||
Deferred taxes | - | - | ||||||
Depreciation and amortization | 819,099 | 1,080,100 | ||||||
Impairment of goodwill and long lived assets | 375,614 | - | ||||||
Loss on disposal of assets | 2,979 | 64,095 | ||||||
Loss on settlement of accounts payable | - | - | ||||||
Loss on settlement of debt | 10,000 | - | ||||||
Provision for doubtful accounts | 25,873 | 49,835 | ||||||
Provision for excess or obsolete inventory | - | - | ||||||
Stock based compensation | 903,683 | 576,124 | ||||||
Unrealized (gain) loss on derivative liability | (450,580 | ) | (424,774 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (7,944 | ) | (144,052 | ) | ||||
Prepaid expenses | 89,483 | (74,605 | ) | |||||
Other current assets | (35,115 | ) | 89,842 | |||||
Security deposits | 1,775 | (35,646 | ) | |||||
Operating lease right of use assets | 3,116 | 49,541 | ||||||
Other assets | - | - | ||||||
Accounts payable and accrued liabilities | 471,812 | 1,281,150 | ||||||
Customer deposits and deferred revenues | (66,397 | ) | (206,113 | ) | ||||
Deposits, related party | - | - | ||||||
Income taxes payable | - | - | ||||||
Interest payable | 515,321 | 595,752 | ||||||
Net cash provided by (used in) operating activities | (757,777 | ) | (2,356,864 | ) | ||||
Cash flows from investing activities: | ||||||||
Cash consideration for acquisition of business | - | - | ||||||
Notes receivable | - | 761,096 | ||||||
Purchase of fixed assets | (39,206 | ) | (853,644 | ) | ||||
Purchase of intangible assets | - | - | ||||||
Net cash provided by (used in) financing activities | (39,206 | ) | (92,548 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of preferred stock, net of issuance costs | - | - | ||||||
Proceeds from issuance of common stock, net of issuance costs | - | 592,000 | ||||||
Proceeds from exercise of common stock purchase warrants, net of issuance costs | - | - | ||||||
Proceeds from issuance of convertible debentures | - | 374,000 | ||||||
Proceeds from issuance of convertible notes, net of issuance costs | 1,055,102 | 1,078,732 | ||||||
Proceeds from loans payable | - | 2,718 | ||||||
Proceeds from related party advances | 80,431 | 144,193 | ||||||
Repayments of capital leases | (294,727 | ) | 274,553 | |||||
Repayments of convertible debentures | - | - | ||||||
Repayments of loans payable | (34,920 | ) | (30,476 | ) | ||||
Repayments of related party loans payable | (71,063 | ) | (11,906 | ) | ||||
Net cash provided by (used in) financing activities | 734,823 | 2,423,814 | ||||||
Effect of exchange rates on cash and cash equivalents | 23,232 | 4,927 | ||||||
Net increase (decrease) in cash and cash equivalents | (38,928 | ) | (20,671 | ) | ||||
Cash and cash equivalents at beginning of period | 110,325 | 81,735 | ||||||
Cash and cash equivalents at end of period | $ | 71,397 | $ | 61,064 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for interest | $ | - | $ | - | ||||
Cash paid for income taxes | $ | - | $ | - | ||||
Supplemental disclosure of non-cash investing and financing activities: | ||||||||
Conversion of convertible note and accrued interest into common stock | $ | 1,828,842 | $ | 708,089 | ||||
Reclassification of derivative liability to additional paid in capital | $ | - | $ | - | ||||
Settlement of account payable for common stock | $ | 6,000 | $ | - | ||||
Common stock issued for settlement of note payable | $ | - | $ | 15,000 | ||||
Common stock issued for settlement of related party note payable | $ | - | $ | - | ||||
Common stock issued for subscription receivable | $ | - | $ | - | ||||
Conversion of Series D Preferred stock to common stock | $ | - | $ | 364,462 | ||||
Debt discount recorded on convertible notes and debentures payable upon initial measurement of derivative liability | $ | 39,241 | $ | 846,985 | ||||
Debt discounts recorded for beneficial conversion features on convertible debentures and notes payable | $ | 260,083 | $ | - | ||||
Debt discounts recorded for original issue discounts on convertible debentures | $ | - | ||||||
Vehicles financed through notes payable | $ | 105,424 | $ | - | ||||
Equipment financed through capital leases | $ | - | $ | 322,383 | ||||
Issuance of convertible notes payable and other obligations in connection with the acquisition of a business | $ | - | $ | - | ||||
Sale and assumption of note payable and accrued interest | $ | - | $ | 556,658 |
The accompanying notes are an integral part of the consolidated financial statements.
5 |
EVIO, INC.
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Series B | Series C | Series D | Stock | Additional | Other | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred Stock | Preferred Stock | Preferred Stock | Common Stock | Subscriptions | Paid-in | Retained | Comprehensive | Stockholders’ | Noncontrolling | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Value | Shares | Value | Shares | Value | Shares | Value | Receivable | Capital | Earnings | Income | Equity | Interest | Equity | ||||||||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2019 | 5,000,000 | $ | 500 | 500,000 | $ | 50 | 552,500 | $ | 55 | 16,068,505 | $ | 1,606 | $ | - | $ | 12,925,709 | $ | (10,258,765 | ) | $ | - | $ | 2,669,155 | $ | 545,328 | $ | 3,214,483 | |||||||||||||||||||||||||||||||||
Net income (loss) | - | - | - | - | - | - | - | - | - | - | (3,199,989 | ) | - | (3,199,989 | ) | (257,101 | ) | (3,457,090 | ) | |||||||||||||||||||||||||||||||||||||||||
Change in foreign currency translation | - | - | - | - | - | - | - | - | - | - | - | (317,132 | ) | (317,132 | ) | - | (317,132 | ) | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the conversion of | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Series D preferred stock | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with sales made under | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
private offerings | - | - | - | - | - | - | 1,291,392 | 129 | - | 1,533,372 | - | - | 1,533,501 | - | 1,533,501 | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the exercise of | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
common stock purchase warrants | - | - | - | - | - | - | 13,333 | 1 | - | 7,998 | - | - | 7,999 | - | 7,999 | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock as compensation to employees, officers | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
and/or directors | - | - | - | - | - | - | 140,000 | 14 | - | 272,548 | - | - | 272,562 | - | 272,562 | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in exchange for consulting, professional | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
and other services provided | - | - | - | - | - | - | 15,000 | 2 | - | 10,805 | - | - | 10,807 | - | 10,807 | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in satisfaction of debt issuances costs | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the settlement | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of accounts payable | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the settlement | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of notes payable | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the conversion | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of loans payable | - | - | - | - | - | - | 2,121,233 | 212 | - | 1,493,573 | - | - | 1,493,785 | - | 1,493,785 | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the conversion | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of debentures | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the conversion | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of related party notes payable | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the conversion | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of interest payable | - | - | - | - | - | - | 70,440 | 7 | - | 48,096 | - | - | 48,103 | - | 48,103 | |||||||||||||||||||||||||||||||||||||||||||||
Common stock options issued under employee equity incentive plan | - | - | - | - | - | - | - | - | - | 321,898 | - | - | 321,898 | - | 321,898 | |||||||||||||||||||||||||||||||||||||||||||||
Reclassifcation of derivative liability to additional paid-in capital | - | - | - | - | - | - | - | - | - | 1,459,658 | - | - | 1,459,658 | - | 1,459,658 | |||||||||||||||||||||||||||||||||||||||||||||
Recognition of beneficial conversion features related to | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
convertible debt instruments | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
Acquisition of equity interests in subsidiaries | - | - | - | - | - | - | - | - | - | - | - | - | - | 1,962,095 | 1,962,095 | |||||||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2019 | 5,000,000 | $ | 500 | 500,000 | $ | 50 | 552,500 | $ | 55 | 19,719,903 | $ | 1,971 | $ | - | $ | 18,073,657 | $ | (13,458,754 | ) | $ | (317,132 | ) | $ | 4,300,347 | $ | 2,250,322 | $ | 6,550,669 |
Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Additional | Additional | Other | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred Stock | Preferred Stock | Preferred Stock | Common Stock | Paid-in | Paid-in | Retained | Comprehensive | Stockholders’ | Noncontrolling | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Value | Shares | Value | Shares | Value | Shares | Value | Capital | Capital | Earnings | Income | Equity | Interest | Equity | ||||||||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2020 | 5,000,000 | $ | 500 | 500,000 | $ | 50 | 339,500 | $ | 34 | 78,717,473 | $ | 7,872 | $ | - | $ | 29,695,137 | $ | (43,042,534 | ) | $ | (348,167 | ) | $ | (13,687,108 | ) | $ | (205,342 | ) | $ | (13,892,450 | ) | |||||||||||||||||||||||||||||
Net income (loss) | - | - | - | - | - | - | - | - | - | - | (1,349,408 | ) | - | (1,349,408 | ) | (51,954 | ) | (1,401,362 | ) | |||||||||||||||||||||||||||||||||||||||||
Change in foreign currency translation | - | - | - | - | - | - | - | - | - | - | - | 20,131 | 20,131 | - | 20,131 | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the conversion of | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Series D preferred stock | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with sales made under | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
private offerings | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with stock subscriptions | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
received under private offerings | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the exercise of | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
common stock purchase warrants | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock as compensation to employees, officers | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
and/or directors | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in exchange for consulting, professional | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
and other services provided | - | - | - | - | - | - | 500,000 | 50 | - | 4,950 | - | - | 5,000 | - | 5,000 | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in satisfaction of debt issuances costs | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the settlement | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of accounts payable | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the settlement | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of notes payable | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the conversion | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of loans payable | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the conversion | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of debentures | - | - | - | - | - | - | 10,000,000 | 1,000 | - | 99,000 | - | - | 100,000 | - | 100,000 | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the conversion | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of related party notes payable | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the conversion | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of interest payable | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock purchase warrants in satisfaction of | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
debt issuances costs | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
Reclassifcation of derivative liability to additional paid-in capital | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
Recognition of beneficial conversion features related to | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
convertible debt instruments | - | - | - | - | - | - | - | - | - | 84,763 | - | - | 84,763 | - | 84,763 | |||||||||||||||||||||||||||||||||||||||||||||
Stock based compensation related to employee stock options | - | - | - | - | - | - | - | - | - | 13,173 | - | - | 13,173 | - | 13,173 | |||||||||||||||||||||||||||||||||||||||||||||
Acquisition of equity interests in subsidiaries | - | - | - | - | - | - | 5,000,000 | 500 | - | 104,500 | - | - | 105,000 | 270,614 | 375,614 | |||||||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2020 | 5,000,000 | $ | 500 | 500,000 | $ | 50 | 339,500 | $ | 34 | 94,217,473 | $ | 9,422 | $ | - | $ | 30,001,523 | $ | (44,391,942 | ) | $ | (328,036 | ) | $ | (14,708,449 | ) | $ | 13,318 | $ | (14,695,131 | ) |
The accompanying notes are an integral part of the consolidated financial statements.
6 |
EVIO, INC.
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Series B | Series C | Series D | Additional | Other | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred Stock | Preferred Stock | Preferred Stock | Common Stock | Paid-in | Retained | Comprehensive | Stockholders’ | Noncontrolling | Total | |||||||||||||||||||||||||||||||||||||||||||||||
Shares | Value | Shares | Value | Shares | Value | Shares | Value | Capital | Earnings | Income | Equity | Interest | Equity | |||||||||||||||||||||||||||||||||||||||||||
Balance, September 30, 2018 | 5,000,000 | $ | 500 | 500,000 | $ | 50 | 552,500 | $ | 55 | 23,255,411 | $ | 2,326 | $ | 21,495,621 | $ | (19,226,462 | ) | $ | (263,985 | ) | $ | 2,008,105 | $ | 1,934,634 | $ | 3,942,739 | ||||||||||||||||||||||||||||||
Net income (loss) | - | - | - | - | - | - | - | - | - | (18,548,721 | ) | - | (18,548,721 | ) | (2,120,312 | ) | (20,669,033 | ) | ||||||||||||||||||||||||||||||||||||||
Change in foreign currency translation | - | - | - | - | - | - | - | - | - | - | (89,105 | ) | (89,105 | ) | - | (89,105 | ) | |||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the conversion of | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Series D preferred stock | - | - | - | - | (213,000 | ) | (21 | ) | 532,500 | 53 | (32 | ) | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with sales made under | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
private offerings | - | - | - | - | - | - | 1,415,000 | 141 | 591,859 | - | - | 592,000 | - | 592,000 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with stock subscriptions | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
received under private offerings | - | - | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the exercise of | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
common stock purchase warrants | - | - | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock as compensation to employees, officers | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
and/or directors | - | - | - | - | - | - | 287,500 | 29 | 397,691 | - | - | 397,720 | - | 397,720 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in exchange for consulting, professional | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
and other services provided | - | - | - | - | - | - | 1,038,017 | 104 | 331,047 | - | - | 331,151 | - | 331,151 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in satisfaction of debt issuances costs | - | - | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the settlement | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of accounts payable | - | - | - | - | - | - | 31,579 | 3 | 14,997 | - | - | 15,000 | - | 15,000 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the settlement | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of notes payable | - | - | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the conversion | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of loans payable | - | - | - | - | - | - | 2,054,887 | 205 | 686,995 | - | - | 687,200 | - | 687,200 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the conversion | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of debentures | - | - | - | - | - | - | 669,362 | 67 | 387,933 | - | - | 388,000 | - | 388,000 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the conversion | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of related party notes payable | - | - | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the conversion | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of interest payable | - | - | - | - | - | - | 10,163 | 1 | 25,109 | - | - | 25,110 | - | 25,110 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock purchase warrants in satisfaction of | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
debt issuances costs | - | - | - | - | - | - | 20,000 | 2 | 11,758 | - | - | 11,760 | - | 11,760 | ||||||||||||||||||||||||||||||||||||||||||
Reclassification of derivative liability to additional paid-in capital | - | - | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Recognition of beneficial conversion features related to | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
convertible debt instruments | - | - | - | - | - | - | - | - | 1,844,834 | - | - | 1,844,834 | - | 1,844,834 | ||||||||||||||||||||||||||||||||||||||||||
Stock based compensation related to employee stock options | - | - | - | - | - | - | - | - | 710,264 | - | - | 710,264 | - | 710,264 | ||||||||||||||||||||||||||||||||||||||||||
Acquisition of equity interests in subsidiaries | - | - | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Balance, September 30, 2019 | 5,000,000 | $ | 500 | 500,000 | $ | 50 | 339,500 | $ | 34 | 29,314,419 | $ | 2,931 | $ | 26,498,076 | $ | (37,775,183 | ) | $ | (353,090 | ) | $ | (11,626,682 | ) | $ | (185,678 | ) | $ | (11,812,360 | ) | |||||||||||||||||||||||||||
Net income (loss) | - | - | - | - | - | - | - | - | - | (6,616,759 | ) | - | (6,616,759 | ) | (71,618 | ) | (6,688,377 | ) | ||||||||||||||||||||||||||||||||||||||
Change in foreign currency translation | - | - | - | - | - | - | - | - | - | - | 25,054 | 25,054 | - | 25,054 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the conversion of | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Series D preferred stock | - | - | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with sales made under | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
private offerings | - | - | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with stock subscriptions | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
received under private offerings | - | - | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the exercise of | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
common stock purchase warrants | - | - | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock as compensation to employees, officers | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
and/or directors | - | - | - | - | - | - | 7,453,538 | 745 | 742,367 | - | - | 743,112 | - | 743,112 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in exchange for consulting, professional | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
and other services provided | - | - | - | - | - | - | 5,775,670 | 578 | 333,252 | - | - | 333,830 | - | 333,830 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in satisfaction of debt default penalties | - | - | - | - | - | - | 2,285,449 | 229 | 62,271 | - | - | 62,500 | - | 62,500 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the settlement | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of accounts payable | - | - | - | - | - | - | 26,666 | 3 | 5,997 | - | - | 6,000 | - | 6,000 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the settlement | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of a legal matter | - | - | - | - | - | - | 144,928 | 14 | 9,986 | - | - | 10,000 | - | 10,000 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the settlement | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of notes payable | - | - | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the conversion | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of loans payable | - | - | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the conversion | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of debentures | - | - | - | - | - | - | 39,606,438 | 3,961 | 1,615,424 | - | - | 1,619,385 | - | 1,619,385 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the conversion | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of related party notes payable | - | - | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the conversion | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of interest payable | - | - | - | - | - | - | 4,610,365 | 461 | 208,996 | - | - | 209,457 | - | 209,457 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock purchase warrants in satisfaction of | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
debt issuances costs | - | - | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Reclassification of derivative liability to additional paid-in capital | - | - | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Recognition of beneficial conversion features related to | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
convertible debt instruments | - | - | - | - | - | - | - | - | 260,083 | - | - | 260,083 | - | 260,083 | ||||||||||||||||||||||||||||||||||||||||||
Stock based compensation related to employee stock options | - | - | - | - | - | - | - | - | 160,571 | - | - | 160,571 | - | 160,571 | ||||||||||||||||||||||||||||||||||||||||||
Acquisition of equity interests in subsidiaries | - | - | - | - | - | - | 5,000,000 | 500 | 104,500 | - | - | 105,000 | 270,614 | 375,614 | ||||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2020 | 5,000,000 | $ | 500 | 500,000 | $ | 50 | 339,500 | $ | 34 | 94,217,473 | $ | 9,422 | $ | 30,001,523 | $ | (44,391,942 | ) | $ | (328,036 | ) | $ | (14,708,449 | ) | $ | 13,318 | $ | (14,695,131 | ) |
The accompanying notes are an integral part of the consolidated financial statements.
7 |
EVIO, INC.
Notes To Unaudited Consolidated Financial Statements
For The Three Month Periods Ended June 30, 2020, and 2019
NOTE 1 – ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
EVIO, Inc., a Colorado corporation and its subsidiaries provide analytical testing and advisory services to the emerging legalized cannabis industry. EVIO, Inc. was originally incorporated in the State of New York, December 12, 1977, under the name 3171 Holding Corporation. On February 22, 1979, the name was changed to Electronomic Industries Corp. and on February 23, 1983, the name was changed to Quantech Electronics Corp. The Company was reincorporated in the State of Colorado on December 15, 2003. On August 29, 2014, the Company completed a reverse merger with Signal Bay Research, Inc., a Nevada Corporation, and assumed its operations. In September 2014, the Company changed its name from Quantech Electronics Corp. to Signal Bay, Inc. then to EVIO, INC. in August 2018. The Company has selected September 30 as its fiscal year-end. The Company is domiciled in the State of Colorado, and its corporate headquarters are located in Henderson, Nevada.
As a part of and prior to the consummation of the reverse merger, William Waldrop and Lori Glauser, principals of Signal Bay Research, Inc., purchased 80% of the issued and outstanding common stock from WB Partners. The merger between the Company and Signal Bay Research was finalized and closed contemporaneously with the share purchase. As part of this share purchase, Mr. Waldrop and Ms. Glauser became the officers and directors of the Company. Immediately after the reverse, WB Partners owned less than 5% of the common stock. The company filed a Form 10-12G on November 25, 2014, and was determined to be a shell company by the SEC as per the Form 10-12G/A which went effective on January 24, 2015. On January 29, 2015, the company filed an 8-K stating it entered into a material agreement and was no longer a shell company.
After the reverse merger, Signal Bay Research, Inc. continues to operate as a wholly-owned subsidiary providing compliance, research, and advisory services for Signal Bay, Inc.
Signal Bay Services was formed on January 25, 2015, as the management services division of EVIO.
On September 17, 2015, EVIO entered into a share exchange agreement with CR Labs, Inc., an Oregon Corporation, pursuant to which the Company acquired 80% of the outstanding common stock of CR Labs, Inc.
EVIO Inc. was formed on April 4, 2016, to become the holding company for all laboratory operations.
EVIO Labs Eugene was formed on May 23, 2016, as a wholly-owned subsidiary of EVIO Inc. Subsequently, on May 24, 2016, EVIO Labs Eugene acquired all of the assets of Oregon Analytical Services, LLC, inclusive of client lists, equipment, trade names, and personnel.
On June 1, 2016, EVIO Inc. entered into a share purchase agreement to purchase 80% of the outstanding common stock of Smith Scientific Industries, Inc. d/b/a Kenevir Research in Medford, OR.
On October 19, 2016, the Company entered into a Membership Interest Purchase Agreement to purchase 100% of the ownership of GreenHaus Analytical Labs, LLC.
On October 26, 2016, the Company entered into an Asset Purchase Agreement with Green Style Consulting, LLC which was closed on November 1, 2016.
The Company entered into a Membership Interest Purchase Agreement with Viridis Analytics MA, LLC which was closed on August 1, 2018.
8 |
On December 29, 2018, the Company entered into a Membership Purchase Agreement to purchase 60% of the outstanding shares of C3 Labs, LLC which closed On January 1, 2019.
On June 27, 2018, Greenhaus Analytical Labs LLC, a wholly-owned subsidiary of EVIO, Inc. entered into a Purchase and Sale Agreement with Michael G. Myers for the property located at 14775 SW 74th Ave., Tigard, OR 97224.
On June 27, 2018, Greenhaus Analytical Labs, LLC, a wholly-owned subsidiary of EVIO, Inc., entered into an Asset Purchase Agreement with MRX Labs LLC which closed on July 5, 2019.
On April 29, 2018, the Company entered into an Asset Purchase Agreement with Leaf Detective, LLC which was closed on the same date.
On May 2, 2018, the Company entered into a Stock Purchase Agreement with Keystone, Labs, Inc. to purchase 50% of the outstanding shares of Keystone Labs which was closed on the same date.
On May 29, 2020, the Company entered into a Membership Interest Purchase Agreement with Green Analytics to sell 100% of Viridis Analytics, MA, subject to permission of the Massachusetts Cannabis Control Commission.
Management’s Representation of Interim Financial Statements
The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s most recent Annual Financial Statements filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim period presented have been reflected herein. The results of operations for the interim period are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited consolidated financial statements for the most recent fiscal period, as reported in the Form 10-K, have been omitted.
Basis of Presentation
The consolidated financial statements of the Company have been prepared in accordance with GAAP and are expressed in United States dollars. For the three months ended June 30, 2020, and 2019, and the year ended September 30, 2019, the consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.
The subsidiaries of EVIO, Inc. are as follows:
Trade Name (dba) | Company Name | State of Incorporation | Ownership % | Acquisition Month | ||||||||
EVIO Labs Medford | Smith Scientific Industries, LLC | Oregon | 80 | % | June 2016 | |||||||
EVIO Labs Portland | Greenhaus Analytical Labs | Oregon | 100 | % | October 2016 | |||||||
EVIO Labs MA | Viridis Analytics | Massachusetts | 100 | % | August 2017 | |||||||
EVIO Labs Berkeley | C3 Labs, LLC | California | 90 | % | January 2018 | |||||||
Keystone Labs | Keystone Labs, Inc. | Ontario, Canada | 50 | % | May 2018 |
9 |
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. The core principle of the new revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:
● | Step 1: Identify the contract with the customer | |
● | Step 2: Identify the performance obligations in the contract | |
● | Step 3: Determine the transaction price | |
● | Step 4: Allocate the transaction price to the performance obligations in the contract | |
● | Step 5: Recognize revenue when the company satisfies a performance obligation |
The Company generates revenue from consulting services, licensing agreements, and testing of cannabis and hemp products for medicinal and adult-use consumption.
The Company accounts for a contract after it has been approved by all parties to the arrangement, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable.
The Company evaluates the services promised in each contract at inception to determine whether the contract should be accounted for as having one or more performance obligations. The Company’s services included in its contracts are distinct from one another.
The Company determines the transaction price for each contract based on the consideration it expects to receive for the distinct services being provided under the contract.
The Company recognizes revenue as performance obligations are satisfied and the customer obtains control of the services provided. In determining when performance obligations are satisfied, the Company considers factors such as contract terms, payment terms, and whether there is an alternative future use of the service.
The Company recognizes revenue from testing services upon delivery of its testing results to the client. Customer orders for testing services are generally completed within two weeks of receiving the order.
Consulting engagements may vary in length and scope, but will generally include the review and/or preparation of regulatory filings, business plans, and financial models, operating plans, and technology support to customers within the same industry. Revenue from consulting services is recognized upon completion of deliverables as outlined in the consulting agreement.
The Company recognizes revenue from the right of use license agreements upon transfer of control of the functional intellectual property. In certain licensing agreements, the Company may receive royalty revenues based upon performance metrics which are recognized as earned over time.
Stock-Based Compensation
In accordance with ASC No. 718, Compensation-Stock Compensation (“ASC 718”), the Company measures the cost of stock-based compensation arrangements based on the grant date fair value and recognizes the cost in the financial statements over the period during which employees are required to provide services. Stock-based compensation arrangements may include stock options, restricted stock plans, performance-based awards, stock appreciation rights, and employee stock purchase plans.
The Company utilizes the Black Scholes option pricing model, which was developed for use in estimating the fair value of options. Option pricing models require the input of highly complex and subjective variables including the expected life of options granted and the expected volatility of the Company’s stock price over a period equal to or greater than the expected life of the options.
10 |
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded at their original invoice amounts. We regularly review collectability and establish an allowance for uncollectible amounts as necessary based on our experience with historical collectability. Management recognized an allowance for uncollectible amounts, of $170,666 and $215,593 for the periods ended June 30, 2020, and September 30, 2019, respectively.
Foreign Currency Translation
The functional currency of the Company’s subsidiary in Canada is the Canadian Dollar. The subsidiary’s assets and liabilities have been translated to U.S. Dollars using the exchange rates in effect at the balance sheet dates. Statements of operations amounts have been translated using the average exchange rate for each period. Resulting gains or losses from translating foreign currency financial statements are recorded as other comprehensive income (loss).
Fair Value of Financial Instruments
The Company has adopted the guidance under ASC Topic 820 for financial instruments measured on fair value on a recurring basis. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.
Net Income (Loss) Per Share
Basic loss per share is computed by dividing net income, or loss, by the weighted average number of shares of common stock outstanding for the period. Diluted earnings (loss) per share is computed by dividing net income, or loss, by the weighted average number of shares of common stock outstanding for the period. There were 94,142,473 and 26,160,911 potentially dilutive common shares outstanding as of June 30, 2020 and 2019, respectively. Because of the net losses incurred during the three months ended June 30, 2020, and 2019, the impacts of dilutive instruments would have been anti-dilutive for the period presented and have been excluded from the diluted loss per share calculations.
Recently Issued Accounting Pronouncements
In January 2017, the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment”. The amendments in this update simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. This update is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 31, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing after January 1, 2017. The Company notes that this guidance applies to its reporting requirements and will implement the new guidance accordingly in performing goodwill impairment testing; however, the Company does not believe this update will have a material impact on the consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” which revises the definition of a business. This update is effective for annual periods beginning after December 15, 2017, including interim periods within those years. Early adoption is permitted. The Company notes that this guidance will impact its acquisitions beginning January 1, 2018. Management believes recently issued accounting pronouncements will have no impact on the financial statements of the Company.
In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718) which simplifies certain aspects of the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic 718, Compensation-Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. Certain areas of the simplification apply only to nonpublic entities. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. The amendments of the ASU are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this standard on our consolidated financial statements.
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In August 2018, the SEC issued Final Rule Release No. 33-10532, Disclosure Update, and Simplification. Under the final rule Company’s must now analyze changes in stockholders’ equity in the form of a reconciliation, for the current and comparative year-to-date, with subtotals for each interim period.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our financial statements upon adoption.
Note 2 – Going concern
The Company’s financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company has negative working capital, recurring losses, and does not have an established source of revenues sufficient to cover its operating costs. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plan described in the preceding paragraph and eventually attain profitable operations. The accompanying financial statements do not include any adjustments that may be necessary if the Company is unable to continue as a going concern.
In the coming year, the Company’s foreseeable cash requirements will relate to the continual development of the operations of its business, maintaining its good standing and making the requisite filings with the Securities and Exchange Commission, and the payment of expenses associated with operations and business developments. The Company may experience a cash shortfall and be required to raise additional capital.
Historically, it has mostly relied upon convertible debentures, convertible promissory notes, internally generated funds such as shareholder loans and advances to finance its operations and growth. Management may raise additional capital by retaining net earnings or through future public or private offerings of the Company’s stock or loans from private investors, although there can be no assurance that it will be able to obtain such financing. Additionally, due to the onset of COVID-19 obtaining financing may be more difficult to obtain currently compared to historic levels. The Company’s failure to do so could have a material and adverse effect upon it and its shareholders.
Note 3 – FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has adopted the guidance under ASC Topic 820 for financial instruments measured on a fair value on a recurring basis. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.
ASC Topic 820 establishes a fair value hierarchy, giving the highest priority to quoted prices in active markets and the lowest priority to unobservable data and requires disclosures for assets and liabilities measured at fair value based on their level in the hierarchy. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:
● | Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. |
● | Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. |
● | Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. |
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The Company’s financial instruments consist principally cash, accounts payable, and accrued liabilities. The carrying values of these financial instruments approximate their fair value due to their short maturities. The carrying amount of the Company’s debt approximates fair value because the interest rates on these instruments approximate the interest rate on debt with similar terms available to the Company.
The Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities from Equity” and ASC 815, “Derivatives and Hedging”. Derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives. The effects of interactions between embedded derivatives are calculated and accounted for in arriving at the overall fair value of the financial instruments. Also, the fair value of freestanding derivative instruments such as warrant and option derivatives are valued using the Black-Scholes simulation model.
The Company’s derivative liabilities were adjusted to fair market value at the end of each reporting period, using Level 3 inputs.
The following table sets forth by level with the fair value hierarchy the Company’s financial assets and liabilities measured at fair value on June 30, 2020:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Liabilities | ||||||||||||||||
Derivative financial instruments | $ | - | $ | - | $ | 2,134,395 | $ | 2,134,395 |
The following table sets forth by level with the fair value hierarchy the Company’s financial assets and liabilities measured at fair value on September 30, 2019:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Liabilities | ||||||||||||||||
Derivative financial instruments | $ | - | $ | - | $ | 2,545,735 | $ | 2,545,735 |
Note 4 –leases
The Company determines if an arrangement is a lease at inception and has lease agreements for warehouses, office facilities, and equipment. These commitments have remaining non-cancelable lease terms, with lease expirations that range from 2020 to 2024.
As a result of the adoption of ASC 842, certain real estate and equipment operating leases have been recorded on the balance sheet with a lease liability and right-of-use asset (“ROU”). Application of this standard resulted in the recognition of ROU assets of $1,832,856, net of accumulated amortization, and a corresponding lease liability of $1,886,722. Accounting for finance leases is substantially unchanged.
Operating leases are included in operating lease ROU assets, operating lease obligations, current, and operating lease obligations, long term on the condensed consolidated balance sheets. Finance leases are included in property and equipment, finance lease obligations, short term, and finance lease obligations, long term, on the condensed consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make scheduled lease payments. ROU assets and liabilities are recognized on the lease commencement date based on the present value of lease payments over the lease term. The present value of lease payments is calculated using the incremental borrowing rate at lease commencement, which takes into consideration recent debt issuances as well as other applicable market data available.
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Amortization of lease assets is included in general and administrative expenses. The future minimum lease payments of lease liabilities as of June 30, 2020, are as follows:
For the years ended September 30, | Operating Leases | Financing Leases | ||||||
2020 | 972,244 | 430,591 | ||||||
2021 | 697,436 | 514,152 | ||||||
2022 | 549,390 | 183,020 | ||||||
2023 | 347,745 | 206,674 | ||||||
2024 and thereafter | 27,911 | 5,022 | ||||||
Total lease payments | 2,594,726 | 1,339,450 | ||||||
Less: Payments Made | (708,004 | ) | (307,783 | ) | ||||
Total Lease Liabilities | $ | 1,886,722 | 1,031,667 |
Note 5 – INTANGIBLE ASSETS
The Company’s intangible assets consist of customer lists, testing licenses, favorable leases, and websites. The components of intangible assets as of June 30, 2020, and September 30, 2019 consist of:
June 30, 2020 | September 30, 2019 | |||||||
Customer list | $ | - | $ | 854,014 | ||||
License | - | 503,000 | ||||||
Favorable lease | - | 3,100 | ||||||
Domains & Websites | - | 49,516 | ||||||
Non-compete agreements | - | 182,388 | &n |