10-Q 1 form10q.htm

 

 

 

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

 

PART I — FINANCIAL INFORMATION  
     
Item 1. Consolidated Financial Statements (Unaudited)  
  Consolidated Balance Sheets as of June 30, 2020 (Unaudited) and September 30, 2019 3
  Consolidated Statements of Operations for the Three Months Ended June 30, 2020, and 2019 (Unaudited) 4
  Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2020, and 2019 (Unaudited) 5
  Consolidated Statements of Stockholders Equity for the Three Months June 30, 2020, and 2019 (Unaudited) 6
  Notes to Unaudited Consolidated Financial Statements 8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 29
  Critical Accounting Policies and Estimates 30
  Results of Operations 30
  Liquidity and Capital Resources 31
Item 3. Quantitative and Qualitative Disclosures About Market Risk 32
Item 4. Control and Procedures 32
     
PART II — OTHER INFORMATION  
     
Item 1. Legal Proceedings 32
Item 1A. Risk Factors 33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 33
Item 3. Defaults Upon Senior Securities 33
Item 4. Mine Safety Disclosures 33
Item 5. Other Information 33
Item 6. Exhibits 33

 

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.

 

11

 

 

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.

 

12

 

 

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.

 

13

 

 

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 
Assembled Workforce   -    50,750 
Intellectual Property   -    342,610 
Total   -    1,977,661 
Accumulated amortization   -    (1,977,661)
Net value  $-   $- 

 

The Company had fully amortized all intangible assets during the fiscal year ended September 30, 2019.

 

Note 6 – Concentration of Credit Risk

 

Instruments that potentially subject the Company to concentration of credit risk consist principally of cash deposits, notes receivable and accounts receivable. As of June 30, 2020, the Company did not hold cash at any financial institution in excess of the amount insured by the Federal Deposit Insurance Corporation (“FDIC”) of up to $250,000.

 

14

 

 

As of June 30, 2020, the Company had total accounts receivable net of allowances of $146,443. Five clients comprised a total of 21% of this balance as follows:

 

   Balance   Percent of Total 
Customer 1  $20,321    6%
Customer 2   14,923    5%
Customer 3   12,000    4%
Customer 4   11,955    3%
Customer 5   11,284    3%
All others   250,945    79%
Total   317,108    100%
Allowance for doubtful accounts   (170,666)     
Net accounts receivable  $146,443      

 

As of September 30, 2019, the Company had total accounts receivable, net of allowances, of $133,022. Five separate clients comprised a total of 41% of this balance as follows:

 

   Balance   Percent of Total 
Customer 1  $48,606    14%
Customer 2   33,572    10%
Customer 3   20,336    6%
Customer 4   20,321    6%
Customer 5   20,208    6%
All others   246,456    59%
Total   348,955    100%
Allowance for doubtful accounts   (215,933)     
Net accounts receivable  $133,022      

 

Note 7 – Property and Equipment

 

Property and equipment are carried at cost. Expenditures for maintenance and repairs are expensed in the period incurred. Renewals and betterments that materially extend the life of the assets are capitalized. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income for the period.

 

Depreciation is computed for financial statement purposes on a straight-line basis over estimated useful lives of the related assets and the modified accelerated cost recovery system for federal income tax purposes. The estimated useful lives of depreciable assets are:

 

   Estimated
   Useful Lives
Building  39 years
Laboratory and Computer Equipment  5 years
Furniture and Fixtures  7 years
Software  3 years
Domains  15 years

 

15

 

 

The Company’s property and equipment consisted of the following as of June 30, 2020, and September 30, 2019:

 

   June 30, 2020   September 30, 2019 
Assets Not-In-Service  $    $-
Capital Assets   1,786,949    1,800,347 
Land   212,550    212,550 
Buildings & Real Estate   941,857    941,857 
Furniture and Equipment   152,933    152,933 
Laboratory Equipment   2,223,244    2,188,828 
Software   82,899    78,996 
Computers   31,939      
Leasehold Improvements   696,325    697,333 
Vehicles   183,589    83,915 
Total   6,312,285    6,188,777 
Accumulated depreciation   (2,339,541)   (1,511,973)
Net value  $3,972,744   $4,676,804 

 

Note 8 – Related Party Transactions

 

During the periods ended June 30, 2020 and September 30, 2019 the Company received loans from its Chief Operating Officer totaling $40,014 and $194,820, respectively, and made repayments totaling $0 and $1,040, respectively. There was $181,676 and $143,780 due as of June 30, 2020, and September 30, 2019, respectively, and are included in the accompanying consolidated balance sheets as a current portion of notes payable to related parties. The loans carry a 0% interest rate and are due on demand.

 

During the periods ended June 30, 2020 and September 30, 2019 the Company received loans from its Chief Executive Officer totaling $14,000 and $75,000, respectively, and made repayments totaling $5,750 and $19,200, respectively. There was $64,050 and $55,800 due as of June 30, 2020, and September 30, 2019, respectively, and are included in the accompanying consolidated balance sheets as a current portion of notes payable to related parties. The loans carry a 0% interest rate and are due on demand.

 

During the periods ended June 30, 2020, and September 30, 2019, the Company made payments to Sara Lausmann, associated with the asset purchase of Oregon Analytical Services, LLC, totaling $2,000 and $0, respectively. There was $566,289 and $568,299 of principal due as of June 30, 2020 and September 30, 2019, respectively. The note carries interest at a rate of 5% per annum and had accrued interest totaling $122,095 and $107,899 due as of June 30, 2020, and September 30, 2019, respectively.

 

During the periods ended June 30, 2020, and September 30, 2019, the Company made payments to Anthony Smith, our Chief Science Officer, associated with the purchase of 80% of Smith Scientific Industries, totaling $63,662 and $55,090, respectively. There was $117,247 and $180,910 of principal due as of June 30, 2020 and September 31, 2019, respectively. The note carries interest at a rate of 5% per annum and had accrued interest totaling $43,290 and $41,600 due as of June 30, 2020, and September 30, 2019, respectively.

 

During the periods ended June 30, 2020, and September 30, 2019, the Company made repayments to Henry Grimmett, prior Company Director (retired April 2018), on an outstanding loan from member assumed by the Company, totaling a note payable of Greenhaus Analytical Services, LLC, totaling $0 and $3,859, respectively. There was $113,554 and $113,554 of principal due as of June 30, 2020 and September 30, 2019, respectively. The note bears interest at 0% per annum and requires repayments of $25,000 quarterly.

 

During the periods ended June 30, 2020, and September 30, 2019, the Company made no payments to Henry Grimmett, prior Company Director (retired April 2018), associated with the acquisition of Greenhaus Analytical Services, LLC. The Company entered into a $340,000 note payable as part of its acquisition of Greenhaus Analytical Services, LLC. The note carries interest at a rate of 6% per annum and matures on October 16, 2020. During the quarter ended June 30, 2020, a third party purchased the remaining balance of the $170,000 note. During the year ended September 30, 2019, a third party purchased $170,000 of the note from Henry Grimmett, refer to Note 10, Convertible Notes; Noteholder 14. There was $0 and $170,000 of principal due as of June 30, 2020 and September 30, 2019, respectively. Unamortized debt discount of $0 and $25,563 as of June 30, 2020 and September 30, 2019, respectively and $0 and $59,412 of accrued interest due as of June 30, 2020 and September 30, 2019, respectively.

 

16

 

 

During the periods ended June 30, 2020 and September 30, 2019, the Company received loans from a related party associate with Keystone Labs totaling $30,796 and $191,515, respectively, and made repayments totaling $19,248 and $9,034, respectively. There was $355,070 and $354,050 due as of June 30, 2020 and September 30, 2019, respectively. Amounts have been adjusted for USD. The advances are non-interest bearing and due on demand and is included in the accompanying consolidated balance sheets as a current portion of notes payable to related parties.

 

Note 9 – STOCKHOLDERS’ EQUITY

 

Series A Convertible Preferred Stock

 

The Company has -0- shares of Series A Convertible Stock issued and outstanding as of June 30, 2020, and September 30, 2019.

 

Series B Convertible Preferred Stock

 

The Company designated 5,000,000 shares of Series B Convertible Preferred Stock (“Series B Preferred Stock”) with a par value of $0.0001 per share. The Company has 5,000,000 shares of Series B Convertible Stock issued and outstanding as of June 30, 2020, and September 30, 2019. These shares converted to common stock at a rate of 1 common share per each share of Series B Convertible Preferred Stock.

 

Series C Convertible Preferred Stock

 

The Company designated 500,000 shares of Series C Convertible Preferred Stock (“Series C Preferred Stock”) with a par value of $0.0001 per share. There were 500,000 shares of Series C Convertible Stock issued and outstanding as of June 30, 2020, and September 30, 2019. These shares converted to common stock at a rate of 5 common shares per each share of Series C Convertible Preferred Stock.

 

Series D Convertible Preferred Stock

 

The Company designated 1,000,000 shares of Series D Convertible Preferred Stock (“Series D Preferred Stock”) with a par value of $0.0001 per share. These shares converted to common stock at a rate of 2.5 common shares per each share of Series D Convertible Preferred Stock.

 

During the Year Ended September 30, 2019, the Company received conversion notices from Series D Preferred Stockholders resulting in a total of 532,500 shares of common stock being issued for the conversion of 213,000 shares of Series D Preferred Stock.

 

There were 349,500 shares of Series D Convertible Stock issued and outstanding as of June 30, 2020, and September 30, 2019, respectively.

 

Common Stock

 

During the three months ended June 30, 2020, the Company issued the following common shares:

 

Number of

Shares issued

   Description  $   Value 
 500,000   Issuance of shares in exchange for consulting, professional and services   5,000 
 5,000,000   Shares issued for acquisition of equity interests in subsidiaries   105,000 
 10,000,000   Issuance of shares in connection with the conversion of debentures   100,000 
           
 Total    15,500,000      $210,000 

 

17

 

 

During the year ended September 30, 2019, the Company issued 1,038,017 common shares valued at $336,891 for services; 1,415,000 common shares for cash proceeds of $586,000; 287,500 common shares valued at $397,980 as compensation to employees; 31,579 common shares for the settlement of $15,000 of accounts payable; 2,054,887 common shares for the settlement of $687,200 of convertible notes payable; 10,163 for the conversion of $25,110 of convertible accrued interest; 20,000 common shares for issuance of a stock purchase agreement valued at $11,760; 669,362 common shares for the settlement of $388,000 debenture conversions, and 532,500 common shares for the conversion of Preferred Series D stock. All conversions of outstanding principal and accrued interest on convertible notes payable were done so at contractual terms.

 

There were 94,217,473 and 29,314,419 shares of common stock issued and outstanding at June 30, 2020, and September 30, 2019

 

Note 10 – LOANS PAYABLE

 

The Company had the following loans payable outstanding as of June 30, 2020, and September 30, 2019:

 

   June 30, 2020   September 30, 2019 
         
On March 16, 2018, the Company executed notes payable for the purchase of three vehicles. The notes carry interest at 6.637% annually and mature on March 31, 2023.   38,269    47,551 
           
On June 28, 2018, the Company executed a note payable for $650,000 for the purchase of the building at 14775 SW 74th Ave, Tigard, OR. The note carries interest at 8% annually and is due on June 28, 2021.   603,470    622,523 
           
On July 5, 2018, the Company executed a note payable for $750,000 for the asset purchase of MRX Labs. The note carries interest at 8% annually and is due on January 5, 2019. (This note is in default as of 7/5/2019, which resulted in a 5% penalty on outstanding amount.)   750,000    750,000 
           
On October 20, 2019, the Company executed notes payable for the purchase of four vehicles. The notes carry interest at 5.990% annually and mature on December 31, 2023.   98,844    - 
Total loans payable   1,490,583    1,420,079 
Less: current portion of loans payable   788,006    762,476 
           
Long-term portion of loans payable  $702,577   $657,603 

 

As of June 30, 2020 and September 30, 2019, the Company accrued interest of $119,342 and $74,301 respectively

 

Note 11 – Convertible NOTES PAYABLE

 

The Company has entered into convertible notes payable that convert to common stock of the Company at variable conversion prices. As further discussed in Note 13 – Derivative Liability, the Company analyzed the conversion features of the agreements for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.

 

18

 

 

The following table summarizes all convertible notes outstanding as of June 30, 2020:

 

Holder  Issue Date  Due Date  Principal   Unamortized
Debt Discount
   Carrying Value   Accrued Interest 
                       
Noteholder #1  04/24/18  04/24/19   500,000    -    500,000    - 
Noteholder #2  07/01/19  09/30/19   675,930    -    675,930    61,154 
Noteholder #3  08/01/18  01/01/19   396,000    -    396,000    100,253 
Noteholder #3  10/02/18  01/01/19   264,000    -    264,000    53,846 
Noteholder #5  09/17/18  09/17/19   -    -    -    10,260 
Noteholder #6  11/15/18  11/15/19   -    -    -    15,564 
Noteholder #6  02/04/19  02/04/20   230,000    -    230,000    26,938 
Noteholder #6  08/08/19  08/08/20   33,092    (1,282)   31,810    2,372 
Noteholder #6  11/04/19  11/04/20   33,516    (11,630)   21,886    1,756 
Noteholder #6  12/23/19  12/23/20   137,375    (66,060)   71,315    5,721 
Noteholder #6  01/21/20  02/21/21   52,500    (2,500)   50,000    2,532 
Noteholder #6  02/04/20  02/04/20   265,637    -    265,637    14,774 
Noteholder #7  12/27/18  12/27/19   20,000    -    20,000    3,695 
Noteholder #7  02/05/19  02/05/20   131,250    -    131,250    14,613 
Noteholder #7  02/11/19  02/11/20   131,250    -    131,250    14,325 
Noteholder #7  03/15/19  03/15/20   70,913    -    70,913    7,352 
Noteholder #7  08/08/19  08/08/20   33,092    (1,282)   31,810    2,372 
Noteholder #7  11/04/19  11/04/20   33,516    (11,630)   21,886    1,756 
Noteholder #7  01/03/20  01/03/21   137,375         137,375    5,480 
Noteholder #7  01/21/20  02/22/21   52,500    (2,500)   50,000    2,532 
Noteholder #7  02/04/20  02/04/20   265,637    -    265,637    14,774 
Noteholder #10  03/15/19  03/15/20   70,913    -    70,913    7,352 
Noteholder #11  08/30/19  05/30/20   110,000         110,000    7,353 
Noteholder #11  04/30/20  04/03/21   66,000    (41,900)   24,100    1,591 
Noteholder #12  01/15/20  04/14/21   100,000    0    100,000    1,372 
Noteholder #13  01/24/20  01/23/21   50,000         50,000    - 
                           
         $3,860,496   $(138,784)  $3,721,712   $379,737 

 

The following table summarizes all convertible notes outstanding as of September 30, 2019:

 

Holder  Issue Date  Due Date  Principal   Unamortized
Debt Discount
   Carrying Value   Accrued Interest 
                       
Noteholder #1  04/24/18  04/24/19   500,000    -    500,000    - 
Noteholder #2  07/01/19  09/30/19   825,930    -    825,930    18,983 
Noteholder #3  08/01/18  01/01/19   396,000    -    396,000    76,471 
Noteholder #3  10/02/18  01/01/19   264,000    -    264,000    40,634 
Noteholder #4  09/06/18  09/06/19   145,000    -    145,000    15,575 
Noteholder #5  09/17/18  09/17/19   82,500    -    82,500    8,586 
Noteholder #6  11/15/18  11/15/19   222,600    (28,054)   194,546    15,564 
Noteholder #6  01/14/19  01/14/20   131,250    (46,027)   85,223    7,364 
Noteholder #6  02/04/19  02/04/20   265,000    (92,205)   172,795    13,824 
Noteholder #6  03/15/19  03/15/20   70,913    -    70,913    3,093 
Noteholder #6  08/08/19  08/08/20   33,092    (10,291)   22,801    384 
Noteholder #7  12/27/18  12/27/19   105,000    (25,603)   79,397    18,204 
Noteholder #7  02/05/19  02/05/20   131,250    (48,185)   83,065    6,616 
Noteholder #7  03/15/19  03/15/20   70,913    -    70,913    3,093 
Noteholder #7  08/08/19  08/08/20   33,092    (10,291)   22,801    384 
Noteholder #8  02/08/19  02/08/20   783,724    (208,357)   575,367    89,627 
Noteholder #9  03/15/19  03/15/20   70,913    -    70,913    3,093 
Noteholder #10  03/15/19  03/15/20   70,913    -    70,913    3,093 
Noteholder #11  08/29/19  05/29/20   100,000    (150,146)   (50,146)   964 
Noteholder #11  08/30/19  05/30/20   110,000    (97,555)   12,445    747 
                           
         $4,412,090   $(716,714)  $3,695,376   $326,145 

 

19

 

 

Noteholder #1

 

On April 24, 2018, the Company entered into a convertible note payable totaling $500,000 in exchange for 100% of the assets of Leaf Detective LLC. The note bears no interest, matures on April 24, 2019, and automatically converted to common stock at $1.25 per share on the maturity date. In the event the average lowest trading price of the Company’s common stock during the five days prior to maturity is less than $1.25 per share, the Company will pay the noteholder the difference between $1.25 and the average lowest trading price during the preceding five days per share converted in cash. On or about April 30, 2020, Michele Malaret and Gordon Griswold filed, filed a breach of contract in the original principal amount of $500,000, with the Superior Court of California, County of Humboldt. The Company currently recognizes the full liability on its balance sheet. There is no interest due associated with the note.

 

Noteholder #2

 

On July 2, 2018, the Company sold and issued a convertible promissory note to an unrelated party for the principal amount of $220,000 of which $20,000 was an original issue discount resulting in cash proceeds to the Company of $200,000 pursuant to the terms of a securities purchase agreement. The note, together with accrued interest at the annual rate of 8%, was due on October 1, 2018. The principal amount of the note and any accrued interest thereon are convertible at the option of the holder into common shares of the Company at any time at a conversion price of $0.60 per share. This note was replaced on July 1, 2019.

 

On September 13, 2018, the Company entered into an exchange agreement with an unrelated party for the principal amount $585,000, of which the loan payable to Palliatech, dated August 1, 2017, outstanding and principal of $549,652 would be assumed by the new note holder, with the difference of $35,348 to be treated as an original issue discount. The new convertible note payable carries an interest rate of 0% per annum is convertible into common stock of the Company at the option of the noteholder immediately at 80% of the lowest volume-weighted average price of the Company’s common stock in the preceding 20 trading days. This note was replaced on July 1, 2019.

 

On July 1, 2019, the two previous notes were replaced for the aggregate principal amount of $825,890. This included a default penalty of $150,000 for non-payment of the prior two notes. The note, together with accrued interest at the annual rate of 8%, is due on September 30, 2019. The note is convertible into common stock of the Company at the option of the noteholder at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days. There was $675,930 of principal and $61,154 of accrued interest on June 30, 2020.

 

Noteholder #3

 

On August 1, 2018, the Company sold and issued a convertible promissory note to an unrelated party for the principal amount of $330,000 of which $30,000 was an original issue discount resulting in cash proceeds to the Company of $300,000 pursuant to the terms of a securities purchase agreement. The note, together with accrued interest at the annual rate of 8%, was due on October 1, 2018. The principal amount of the note and any accrued interest thereon are convertible at the option of the holder into common shares of the Company at any time the lower of a conversion price of $0.50 per share or at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days. On September 30, 2019, a fee for payment default of $66,000 was added to the principal. There was $396,000 of principal and $100,253 of accrued interest due on June 30, 2020.

 

20

 

 

On October 2, 2018, the Company sold and issued a convertible promissory note to an unrelated party for the principal amount of $220,000 of which $20,000 was an original issue discount resulting in cash proceeds to the Company of $200,000 pursuant to the terms of a securities purchase agreement. The note, together with accrued interest at the annual rate of 8%, is due on January 1, 2019. The principal amount of the note and any accrued interest thereon are convertible at the option of the holder into common shares of the Company at any time at a conversion price of $0.50 per share or a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days. On September 30, 2019, a fee for payment default of $44,000 was added to the principal. There was $264,000 of principal and $53,846 of accrued interest on June 30, 2020.

 

Noteholder #4

 

On September 6, 2018, the Company sold and issued a convertible promissory note to an unrelated party for the principal amount of $125,000 of which $15,000 was an original issue discount resulting in cash proceeds to the Company of $110,000 pursuant to the terms of a securities purchase agreement. The note, together with accrued interest at the annual rate of 10%, was due on September 6, 2019. The principal amount of the note and any accrued interest thereon are convertible at the option of the holder into common shares of the Company at any time at the lower of a conversion price of $0.50 per share or at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days. On July 5, 2019, a fee for payment default of $20,000 was added to the principal. There was no note principal or accrued interest due on June 30, 2020.

 

Noteholder #5

 

On September 6, 2018, the Company sold and issued a convertible promissory note to an unrelated party for the principal amount of $62,500 of which $6,250 was an original issue discount resulting in cash proceeds to the Company of $56,250 pursuant to the terms of a securities purchase agreement. The note, together with accrued interest at the annual rate of 10%, is due on September 6, 2019. The principal amount of the note and any accrued interest thereon are convertible at the option of the holder into common shares of the Company at any time at the lower of a conversion price of $0.50 per share or at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days. On July 5, 2019, a fee for payment default of $20,000 was added to the principal. There was $0 of principal and $10,260 of accrued interest due on June 30, 2020.

 

Noteholder #6

 

On November 15, 2018, the Company sold and issued a convertible promissory note to an unrelated party for the principal amount of $222,600 of which $12,600 was an original issue discount resulting in cash proceeds to the Company of $210,000 pursuant to the terms of a securities purchase agreement. The note, together with accrued interest at the annual rate of 8%, is due on November 15, 2019. The principal amount of the note and any accrued interest thereon are convertible at the option of the holder into common shares of the Company at any time at the lower of a conversion price of $0.50 per share or at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days. There was $0 of principal and $15,564 of accrued interest due on June 30, 2020.

 

On February 4, 2019, the Company entered into a convertible note payable with an unrelated party for $265,000 of which $15,000 was an original issue discount and $10,000 in third party fees resulting in net cash proceeds to the Company of $240,000. The convertible note payable carries interest at a rate of 8% per annum, is due on February 4, 2020, and is convertible into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days. There was $230,000 of principal and $26,938 accrued interest due on June 30, 2020.

 

21

 

 

On August 8, 2019, the Company entered into a convertible note agreement with an unrelated party for $33,092 of which $1,576 in third party fees resulting in net cash proceeds to the Company of $31,516. The convertible note payable carries interest at a rate of 8% per annum, is due on August 8, 2020, and is convertible into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days. There was $33,092 of principal and $2,372 of accrued interest due on June 30, 2020.

 

On November 4, 2019, the Company entered into a convertible note agreement with an unrelated party for $33,516 of which $2,000 in third party fees resulting in net cash proceeds to the Company of $31,516. The convertible note payable carries interest at a rate of 8% per annum, is due on November 4, 2020, and is convertible into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days. There was $33,092 of principal and $1,756 of accrued interest due on June 30, 2020.

 

On December 23, 2019, the Company entered into a convertible note agreement with an unrelated party for $137,375 of which $16,375 in third party fees resulting in net cash proceeds to the Company of $121,000. The convertible note payable carries interest at a rate of 8% per annum, is due on December 23, 2020, and is convertible into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days. There was $137,375 of principal and $5,721 of accrued interest due on June 30, 2020.

 

On January 21, 2020, the Company entered into a convertible note agreement with an unrelated party for $52,500 of which $2,500 in third party fees resulting in net cash proceeds to the Company of $50,000. The convertible note payable carries interest at a rate of 8% per annum, is due on January 21, 2021, and is convertible into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days. There was $52,500 of principal and $2,532 of accrued interest due on June 30, 2020.

 

On February 4, 2020, the Company entered into an exchange agreement with an unrelated party for $265,637, of which the loan payable to Noteholder 8, dated February 8, 2019, outstanding and principal would be assumed by the new note holder. The new convertible note payable carries an interest rate of 8% per annum is due on February 8, 2020, and is convertible into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days. There was $265,637 of principal and $14,774 of accrued interest due on June 30, 2020.

 

Noteholder #7

 

On December 27, 2018, the Company sold and issued a Convertible Promissory to an unrelated party for the principal amount of $105,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, is due on December 27, 2019, and is convertible into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days. There was $20,000 of principal and $3,695 of accrued interest due on June 30, 2020.

 

On February 5, 2019, the Company entered into a convertible note payable with an unrelated party for $131,250 of which included $6,250 in third party fees resulting in net cash proceeds to the Company of $125,000. The convertible note payable carries interest at a rate of 8% per annum, is due on February 5, 2020, and is convertible into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days. There was $131,250 of principal and $14,613 of accrued interest due on June 30, 2020.

 

On February 11, 2019, the Company entered into a convertible note payable with an unrelated party for $131,250 of which included $6,250 in third party fees resulting in net cash proceeds to the Company of $125,000. The convertible note payable carries interest at a rate of 8% per annum, is due on January 14, 2020, and is convertible into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days. There was $131,250 of principal and $14,325 of accrued interest due on June 30, 2020.

 

On March 15, 2019, the Company entered into an exchange agreement with an unrelated party for $70,913, of which the loan payable to Noteholder 2, dated July 2, 2018, outstanding and principal would be assumed by the new note holder. The new convertible note payable carries an interest rate of 8% per annum is due on March 15, 2020, and is convertible into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days. There was $70,913 of principal and $7,352 of accrued interest due on June 30, 2020.

 

On August 8, 2019, the Company entered into a convertible note agreement with an unrelated party for $33,092 of which $1,576 in third party fees resulting in net cash proceeds to the Company of $31,516. The convertible note payable carries interest at a rate of 8% per annum, is due on August 8, 2020, and is convertible into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days. There was $33,092 of principal and $2,372 of accrued interest due on June 30, 2020.

 

On November 4, 2019, the Company entered into a convertible note agreement with an unrelated party for $33,516 of which $2,000 in third party fees resulting in net cash proceeds to the Company of $31,516. The convertible note payable carries interest at a rate of 8% per annum, is due on November 4, 2020, and is convertible into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days. There was $33,092 of principal and $1,756 of accrued interest due on June 30, 2020.

 

On January 3, 2020, the Company entered into a convertible note agreement with an unrelated party for $137,375 of which $16,375 in third party fees resulting in net cash proceeds to the Company of $121,000. The convertible note payable carries interest at a rate of 8% per annum, is due on December 23, 2020, and is convertible into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days. There was $137,375 of principal and $5,480 of accrued interest due on June 30, 2020.

 

On January 21, 2020, the Company entered into a convertible note agreement with an unrelated party for $52,500 of which $2,500 in third party fees resulting in net cash proceeds to the Company of $50,000. The convertible note payable carries interest at a rate of 8% per annum, is due on January 21, 2021, and is convertible into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days. There was $52,500 of principal and $2,532 of accrued interest due on June 30, 2020.

 

On February 4, 2020, the Company entered into an exchange agreement with an unrelated party for $265,637, of which the loan payable to Noteholder 8, dated February 8, 2019, outstanding and principal would be assumed by the new note holder. The new convertible note payable carries an interest rate of 8% per annum is due on February 8, 2020, and is convertible into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days. There was $265,637 of principal and $14,774 of accrued interest due on June 30, 2020.

 

Noteholder #8

 

On February 8, 2019, the Company entered into an exchange agreement with an unrelated party for $580,537, of which the loan payable to Palliatech, dated September 1, 2017, outstanding and principal would be assumed by the new note holder. The new convertible note payable carries an interest rate of 10% per annum, with one-year interest guaranteed, is due on February 8, 2020, and is convertible into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 30% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days. A principal non-pay default was applied in the amount of $203,188. This remaining balance of this note was purchased by Noteholder 6 & 7, on February 4, 2020. There was no note principal or accrued interest due on June 30, 2020.

 

22

 

 

Noteholder #9

 

On March 15, 2019, the Company entered into an exchange agreement with an unrelated party for $70,913, of which the loan payable to Noteholder 2, dated July 2, 2018, outstanding and principal would be assumed by the new note holder. The new convertible note payable carries an interest rate of 8% per annum is due on March 15, 2020, and is convertible into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days. There was no note principal or accrued interest due on June 30, 2020.

 

Noteholder #10

 

On March 15, 2019, the Company entered into an exchange agreement with an unrelated party for $70,913, of which the loan payable to Noteholder 2, dated July 2, 2018, outstanding and principal would be assumed by the new note holder. The new convertible note payable carries an interest rate of 8% per annum is due on March 15, 2020, and is convertible into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days. There was $70,913 of principal and $7,352 of accrued interest due on June 30, 2020.

 

Noteholder #11

 

On August 30, 2019, the Company entered into a convertible note payable with an unrelated party for $110,000 which included $10,000 original issue discount resulting in net cash proceeds to the Company of $100,000. The convertible note payable carries interest at a rate of 8% per annum, is due on May 30, 2020, and is convertible into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days. There was $110,000 of principal and $7,353 of accrued interest due on June 30, 2020.

 

On August 29, 2019, the Company entered into an exchange agreement with an unrelated party for $170,000, of which the loan payable to Henry Grimmett, dated October 16, 2016, outstanding and principal would be assumed by the new note holder. The new convertible note payable carries an interest rate of 8% per annum, is due on May 29, 2020, and is convertible into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days. There was $100,000 principal and $0 of accrued interest due on June 30, 2020.

 

On April 3, 2020, the Company entered into a convertible note payable with an unrelated party for $66,000 which included $6,000 original issue discount resulting in net cash proceeds to the Company of $60,000. The convertible note payable carries interest at a rate of 10% per annum, is due on April 3, 2021, and is convertible into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days. There was $66,000 of principal and $1,591 of accrued interest due on June 30, 2020.

 

Noteholder #12

 

On January 15, 2020, the Company entered into a convertible note payable with an unrelated party for $100,000. The convertible note payable carries interest at a rate of 0% per annum, is due on January 23, 2021, and is convertible into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 20% discount from the lowest trading price of the Company’s common stock in the preceding 5 trading days. There was $100,000 of principal and $1,372 of accrued interest due on June 30, 2020.

 

Noteholder #13

 

On January 24, 2020, the Company entered into a convertible note payable with an unrelated party for $50,000. The convertible note payable carries interest at a rate of 0% per annum, is due on January 23, 2021, and is convertible into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 20% discount from the lowest trading price of the Company’s common stock in the preceding 5 trading days. There was $50,000 of principal and $0 of accrued interest due on June 30, 2020.

 

NOTE 12 – CONVERTIBLE DEBENTURES

 

On January 29, 2018, the Company issued a total of 5,973 units of 8% unsecured convertible debentures. Each unit consists of one convertible debenture with a principal face value of $1,000 and 250 warrants. The gross proceeds were $5,973,000. Each warrant entitles the holder thereof to purchase one additional common share of the Company at an exercise price of $0.80 per warrant for 24 months. The convertible debentures have a maturity date of 36 months from issuance. Simple interest will be paid at a rate of 8% per annum in arrears until maturity or until conversion. The principal amount of the debentures and any accrued interest thereon are convertible at the option of the holder into common shares of the Company at any time at a conversion price of $0.60 per share.

 

In addition to the warrants associated with the convertible debentures, the Company issued an additional 597,300 warrants to purchase common stock of the Company as offering costs representing an equivalent of 6% of the fully converted debentures. The warrants are exercisable at $0.60 per share for two years.

 

The Company also issued three separate debentures under the same terms for additional cash proceeds of $610,000. The additional debentures carry an additional 152,500 warrants to purchase additional common shares of the Company at $0.80 per share. Additionally, the outstanding principal and interest may be converted to common stock of the Company at $0.60 per share.

 

23

 

 

Note 13 – Derivative Liability

 

As of June 30, 2020 and September 30, 2019, Company had a derivative liability balance of $2,134,395 and $2,545,735 on the balance sheets and recorded an unrealized gain of $411,340 and an unrealized loss of $556,647 from derivative liability fair value adjustments during the nine months ended June 30, 2020 and 2019, respectively.

 

On November 15, 2018, the Company issued a $222,600 convertible promissory note to an unrelated party that matures on November 15, 2019. Refer to Noteholder 6 under “Note 12 – Convertible Debentures” for more information. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15, Derivatives and Hedging and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.

 

The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the issuance date of the note was $220,463 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $184,957 which was up to the face value of the convertible note with the excess fair value at an initial measurement of $35,506 being recognized as a loss on derivative fair value measurement.

 

On December 27, 2018, the Company issued a $105,000 convertible promissory note to an unrelated party that matures on December 27, 2019. Refer to Noteholder 7 under “Note 12 – Convertible Debentures” for more information. The Company analyzed the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes is subject to a variable conversion rate.

 

The aggregate fair value of the derivative at the issuance date of the note was $98,091 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $38,365 which was up to the face value of the convertible note with the excess fair value at an initial measurement of $59,725 being recognized as a loss on derivative fair value measurement.

 

On January 14, 2019, the Company issued a $131,250 convertible promissory note to an unrelated party that matures on February 5, 2020. Refer to Noteholder 6 under “Note 12 – Convertible Debentures” for more information. The Company analyzed the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate.

 

The aggregate fair value of the derivative at the issuance date of the note was $144,752 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $14,423 which was up to the face value of the convertible note with the excess fair value at an initial measurement of $130,329 being recognized as a loss on derivative fair value measurement

 

On February 4, 2019, the Company issued a $265,000 convertible promissory note to an unrelated party that matures on February 4, 2020. Refer to Noteholder 6 under “Note 12 – Convertible Debentures” for more information. The Company analyzed the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate.

 

24

 

 

The aggregate fair value of the derivative at the issuance date of the note was $322,521 which was recorded as a derivative liability on the balance sheet. The Company recognized a loss of $322,521 on derivative fair value measurement.

 

On February 5, 2019, the Company issued a $131,250 convertible promissory note to an unrelated party that matures on February 11, 2020. Refer to Noteholder 7 under “Note 12 – Convertible Debentures” for more information. The Company analyzed the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate.

 

The aggregate fair value of the derivative at the issuance date of the note was $228,916 which was recorded as a derivative liability on the balance sheet. The Company recognized a loss of $228,916 on derivative fair value measurement.

 

On July 1, 2019, the Company issued a $825,930 convertible promissory note to an unrelated party that matures on September 30, 2019. Refer to Noteholder 2 under “Note 12 – Convertible Debentures” for more information. The Company analyzed the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate.

 

The aggregate fair value of the derivative at the issuance date of the note was $1,807,875 which was recorded as a derivative liability on the balance sheet. The Company recognized a loss of $1,807,875 on derivative fair value measurement.

 

On August 8, 2019, the Company issued a $33,092 convertible promissory note to an unrelated party that matures on August 8, 2020. Refer to Noteholder 6 under “Note 12 – Convertible Debentures” for more information. The Company analyzed the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate.

 

The aggregate fair value of the derivative at the issuance date of the note was $34,341 which was recorded as a derivative liability on the balance sheet. The Company recognized a loss of $34,341 on derivative fair value measurement.

 

On August 8, 2019, the Company issued a $33,092 convertible promissory note to an unrelated party that matures on August 8, 2020. Refer to Noteholder 7 under “Note 12 – Convertible Debentures” for more information. The Company analyzed the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate.

 

The aggregate fair value of the derivative at the issuance date of the note was $34,341 which was recorded as a derivative liability on the balance sheet. The Company recognized a loss of $34,341 on derivative fair value measurement.

 

On August 29, 2019, the Company issued a $170,000 convertible promissory note to an unrelated party that matures on May 29, 2020. Refer to Noteholder 14 under “Note 12 – Convertible Debentures” for more information. The Company analyzed the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate.

 

The aggregate fair value of the derivative at the issuance date of the note was $143,951 which was recorded as a derivative liability on the balance sheet. The Company recognized a loss of $65,965 on derivative fair value measurement.

 

On August 30, 2019, the Company issued a $110,000 convertible promissory note to an unrelated party that matures on May 30, 2020. Refer to Noteholder 11 under “Note 12 – Convertible Debentures” for more information. The Company analyzed the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate.

 

The aggregate fair value of the derivative at the issuance date of the note was $109,936 which was recorded as a derivative liability on the balance sheet. The Company recognized a loss of $79,183 on derivative fair value measurement.

 

On November 4, 2019, the Company issued a $33,516 convertible promissory note to an unrelated party that matures on November 4, 2020. Refer to Noteholder 6 under “Note 12 – Convertible Debentures” for more information. The Company analyzed the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate.

 

The aggregate fair value of the derivative at six months from issuance date of the note was $33,516 which was recorded as a derivative liability on the balance sheet. The Company recognized a loss of $17,021 on derivative fair value measurement.

 

On November 4, 2019, the Company issued a $33,516 convertible promissory note to an unrelated party that matures on November 4, 2020. Refer to Noteholder 7 under “Note 12 – Convertible Debentures” for more information. The Company analyzed the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate.

 

The aggregate fair value of the derivative at six months from issuance date of the note was $33,516 which was recorded as a derivative liability on the balance sheet. The Company recognized a loss of $17,021 on derivative fair value measurement.

 

On December 23, 2019, the Company issued a $137,375 convertible promissory note to an unrelated party that matures on December 23, 2020. Refer to Noteholder 6 under “Note 12 – Convertible Debentures” for more information. The Company analyzed the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate.

 

The aggregate fair value of the derivative at six months from issuance date of the note was $204,554 which was recorded as a derivative liability on the balance sheet. The Company recognized a loss of $204,554 on derivative fair value measurement.

 

On April 3, 2020, the Company issued a $66,000 convertible promissory note to an unrelated party that matures on November 30, 2020. Refer to Noteholder 11 under “Note 12 – Convertible Debentures” for more information. The Company analyzed the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate.

 

The aggregate fair value of the derivative at the issuance date of the note was $78,115 which was recorded as a derivative liability on the balance sheet. The Company recognized a loss of $67,96 on derivative fair value measurement.

 

At June 30, 2020, the Company marked-to-market the fair value of the derivative liabilities related to conversion features and determined an aggregate fair value of $2,134,395 and recorded a $332,993 gain from change in fair value for the nine months ended June 30, 2020. The fair value of the embedded derivatives was determined using a Black-Scholes option pricing model based on the following assumptions: (1) expected volatility of 168%, (2) risk-free interest rate of 0.16%, (3) exercise prices of $0.011 - $0.019, and (4) expected lives of 0.11 – 0.50 of a year.

 

On October 2, 2018, the Company issued a total of $220,000 convertible debenture to an unrelated party that matures on January 1, 2019. The Company issued a total of 100,000 warrants to purchase additional shares of common stock of the Company in connection with the convertible debenture. The Company analyzed the issued warrants for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the warrants should be classified as a derivative because the Company is unable to ascertain there will be adequate unissued authorized shares of common stock to fulfill its obligations should the warrants be exercised. In accordance with AC 815, the Company has recorded a derivative liability related to the warrants.

 

The derivative for the warrants is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the issuance date of the warrants was $57,014 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $53,333 which was up to the face value of the convertible debentures with the excess fair value at an initial measurement of $3,681 being recognized as a loss on derivative fair value measurement.

 

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As discussed in “Note 12 – Convertible Debentures”, the Company issued a total of $374,000 of convertible debentures to unrelated parties that mature on dates ranging from October 17, 2020 to October 23, 2020. The Company issued a total of 187,000 warrants to purchase additional shares of common stock of the Company in connection with the convertible debentures. The Company analyzed the issued warrants for derivative accounting consideration and determined that the warrants should be classified as a derivative. The aggregate fair value of the derivative at the issuance date of the warrants was $73,383 which was recorded as a derivative liability on the balance sheet, for which the Company recorded an equivalent debt discount to the convertible debentures.

 

At June 30, 2020, the Company marked-to-market the fair value of the derivative liabilities related to warrants and determined an aggregate fair value of $44 and recorded a $181,772 gain from change in fair value for the six months ended June 30, 2020. The fair value of the derivatives was determined using a Black-Scholes option pricing model based on the following assumptions: (1) expected volatility of 168%, (2) risk-free interest rate of 0.16%, (3) exercise prices of $0.60 to $0.80, and (4) expected lives of 0.26 – 0.30 years.

 

The following table summarizes the change in derivative liabilities included in the balance sheet at June 30, 2020:

 

Fair Value of Embedded Derivative Liabilities:     
Balance, September 30, 2019  $2,545,735 
Change in fair market value   (411,340)
Balance, June 30, 2020  $2,134,395 

 

The following table summarizes the gain (loss) on derivative liability included in the income statement for the nine months ended June 30, 2020 and 2019, respectively.

 

   Nine Months Ended June 30, 
   2020   2019 
Day one loss due to derivatives on convertible debt  $(414,478)   (780,678)
Change in fair value of derivatives   825,818    1,225,743 
Total derivative gain (loss)  $411,340    445,065 

 

NOTE 14 – STOCK OPTIONS AND WARRANTS

 

The following tables summarize all stock option and warrant activity for the three months ended June 30, 2020:

 

   Shares  

Weighted-

Average

Exercise Price

Per Share

 
Outstanding, September 30, 2019   5,484,970    0.742 
Granted   -    - 
Exercised   -    - 
Forfeited   -    - 
Expired   -    - 
Outstanding, June 30, 2020   5,484,970    0.742 

 

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The following table discloses information regarding outstanding and exercisable options and warrants at June 30, 2020:

 

    Outstanding   Exercisable 
Exercise Prices   Number of Option Shares   Weighted Average
Exercise Price
   Weighted Average Remaining Life (Years)   Number of Option Shares   Weighted Average
Exercise Price
 
$0.225    200,000   $0.225    4.46    200,000   $0.225 
$0.400    110,000   $0.400    1.62    110,000   $0.400 
$0.420    330,000   $0.420    4.05    330,000   $0.420 
$0.500    165,000   $0.500    1.70    162,500   $0.500 
$0.600    627,220   $0.600    0.11    627,220   $0.600 
$0.650    145,000   $0.650    2.82    36,250   $0.650 
$0.800    3,482,750   $0.800    1.43    3,095,250   $0.800 
$0.850    100,000   $0.850    3.29    -   $0.850 
$1.050    25,000   $1.050    3.79    -   $1.050 
$1.260    220,000   $1.260    2.50    110,000   $1.260 
$1.300    10,000   $1.300    1.80    7,500   $1.300 
$1.386    60,000   $1.386    2.50    30,000   $1.386 
$1.666    10,000   $1.666    2.59    5,000   $1.666 
 Total    5,484,970   $0.742    1.95    4,713,720   $0.718 

 

Compensation related to stock-based compensation was $126,581 and $169,922, respectively, for the three months ended June 30, 2020 and 2019.

 

Note 15 – Subsequent Events

 

Common Stock Issuances

 

The Company made the following issuances of common stock subsequent to June 30, 2020:

 

None

 

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Legal Proceedings

 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

  

On February 6, 2020, MC CRE Investments, LLC landlord for the Palm Desert location, filed a Breach of Lease Agreement with the Superior Court of the State of California, County of Riverside. EVIO Labs Palm Desert has vacated the space and turned it back over to the landlord. The Company has expensed past due rents and late fees and these items are included in the liabilities in the balance sheet.

 

On or about March 5, 2020, Paul Tomaso, and Jonah Barber beneficiaries for MRX Labs, LLC, filed a Breach of Promissory Note in the original principal amount of $750,000, plus late fees and penalties, with the Circuit Court of the State in Oregon, in Multnomah County against Greenhaus Analytical Labs, LLC. The Company has expensed penalties and late fees and these items are included in the liabilities in the balance sheet.

 

On or about April 30, 2020, Michele Malaret and Gordon Griswold filed, filed a Breach of Contract in the original principal amount of $500,000, with the Superior Court of California, County of Humboldt. The Company currently recognizes the full liability on its balance sheet. There is no interest due associated with the note.

 

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ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Certain matters discussed herein are forward-looking statements. Such forward-looking statements contained herein involve risks and uncertainties, including statements as to:

 

  our future operating results;
  our business prospects;
  our contractual arrangements and relationships with third parties;
  the dependence of our future success on the general economy;
  our possible financings; and
  the adequacy of our cash resources and working capital.

 

These forward-looking statements can generally be identified as such because the context of the statement will include words such as we “believe,” “anticipate,” “expect,” “estimate” or words of similar meaning. Similarly, statements that describe our future plans, objectives, or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which are described in close proximity to such statements and which could cause actual results to differ materially from those anticipated as of the date of this report. Shareholders, potential investors, and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made as of the date of this report, and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Overview

 

We operate as a Colorado corporation and through our subsidiaries which provide analytical testing and advisory services to the emerging legalized cannabis industry.

 

Our active subsidiaries as of June 30, 2020, 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 

 

In addition to the wholly-owned subsidiaries, the Company has entered into license agreements with independent testing laboratories in Florida and Colorado. Under the terms of the agreements, the independent laboratories are granted non-transferable and non-exclusive rights to use the Company’s trademarks and trade name.

 

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.

 

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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 private offerings and 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 through loans from private investors, although there can be no assurance that it will be able to obtain such financing. The Company’s failure to do so could have a material and adverse effect upon it and its shareholders.

 

Critical Accounting Policies and Estimates.

 

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations section discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources.

 

RESULTS OF OPERATIONS

 

Three Months Ended June 30, 2020, compared to Three Months Ended June 30, 2019

 

COVID-19

 

On March 11, 2020, the World Health Organization (“WHO”) declared the COVID-19 outbreak to be a global pandemic. In addition to the devastating effects on human life, the pandemic is having a negative ripple effect on the global economy, leading to disruptions and volatility in the global financial markets. Most US states and many countries have issued policies intended to stop or slow the further spread of the disease.

 

COVID-19 and the US’s response to the pandemic are significantly affecting the economy. There are no comparable events that provide guidance as to the effect the COVID-19 pandemic may have, and, as a result, the ultimate effect of the pandemic is highly uncertain and subject to change. We do not yet know the full extent of the effects on the economy, the markets we serve, our business, or our operations.

 

Revenues

 

For the three months ended June 30, 2020, we generated revenues of $603,192 compared to $1,098,310 for the three months ended June 30, 2019, an increase of $(495,118) or approximately -45%. The decrease was due primarily to decreased testing sales in Oregon and California.

 

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Gross Profit

 

For the three months ended June 30, 2020, the gross loss was $(140,075) compared to a gross loss of $(11,753) for the three months ended June 30, 2019 resulting in an increase in losses of $128,322. The increase in losses was primarily attributed to decreased sales in Oregon and decreased operating costs across all labs.

 

Operating Expenses

 

For the three months ended June 30, 2020, total operating expenses were $165,780 compared to $1,566,830 for the three months ended June 30, 2019, a decrease of $1,401,050. The decrease is primarily attributed to a decrease in sales, general and administrative expenses.

 

Other (Expense)

 

For the three months ended June 30, 2020, other expense, net was $1,095,507, compared to other income, net of $210,783 for the three months ended June 30, 2019. The decrease in other income, net of $1,306,290 was primarily attributable to a decrease in the change in the fair market value of derivative liabilities of $756,638 and an increase in interest expense of $368,396 due to an increase in convertible debt.

 

Net Loss

 

Net loss during the three months ended June 30, 2020, was $1,401,362, compared to a net loss of $1,370,535 during the three months ended June 30, 2019. The increase of $30,827 in net loss is the result of a decrease in gross margin and a increase in other expenses, net.

 

Liquidity and Capital Resources

 

During the nine months ended June 30, 2020, the Company used $757,777 in cash from operating activities compared to cash used in operating activities of $2,356,864 for the six months ended June 30, 2019. The improvement of $1,599,087 is primarily attributable to a reduction in operating losses as compared to 2019.

 

During the nine months ended June 30, 2020, the Company used $39,206 in investing activities compared to $92,548 used in investing activities during the same period ended June 30, 2019. The reduction of $53,342 is attributable to a decrease in the purchase of fixed assets

 

During the nine months ended June 30, 2020, net cash from financing activities was $734,823 compared to $2,423,814 during the same nine month period ended June 30, 2019. The decrease in the 2019 period is primarily attributable a decrease in proceeds from the issuance of common stock, convertible debentures, and convertible notes, while the company increased its repayments of capital leases and loans.

 

Dividends

 

The Company has never declared dividends.

 

Critical Accounting Policies and Estimates.

 

Our Critical Accounting Policies can be found in Note 1. ORGANIZATION, BASIS OF PRESENTATION, AND SIGNIFICANT ACCOUNTING POLICIES to our consolidated financial statements.

 

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Our Website.

 

Our website can be found at www.eviolabs.com.

 

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The Company, as a smaller reporting company, as defined by Rule 229.10(f)(1), is not required to provide the information required by this Item.

 

ITEM 4 – CONTROLS AND PROCEDURES

 

(a) Evaluation of Disclosure Controls and Procedures

 

Our principal executive and principal financial officers have evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a – 15(e) and 15d – 15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods required under the SEC’s rules and forms and that the information is gathered and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure.

 

Our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report for the reasons disclosed in our annual report on Form 10-K.

 

This quarterly report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to Rule 308(b) of Regulation S-K, which permits the Company to provide only management’s report in this Quarterly Report.

 

(b) Changes in Internal Control over Financial Reporting

 

There were no changes in Internal Controls over financial reporting during the three months ended June 30, 2020. Upon hiring additional financial staff, EVIO will prepare written policies and procedures for accounting and financial reporting to establish a formal process to close our books monthly on an accrual basis and account for all transactions, including equity transactions, and prepare, review, and submit SEC filings in a timely manner.

 

PART II — OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

 

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On February 6, 2020, MC CRE Investments, LLC landlord for the Palm Desert location, filed a Breach of Lease Agreement with the Superior Court of the State of California, County of Riverside. EVIO Labs Palm Desert has vacated the space and turned it back over to the landlord. The Company has expensed past due rents and late fees and these items are included in the liabilities in the balance sheet.

 

On or about March 5, 2020, Paul Tomaso, and Jonah Barber beneficiaries for MRX Labs, LLC, filed a Breach of Promissory Note in the original principal amount of $750,000, plus late fees and penalties, with the Circuit Court of the State in Oregon, in Multnomah County against Greenhaus Analytical Labs, LLC. The Company has expensed penalties and late fees and these items are included in the liabilities in the balance sheet.

 

On or about April 30, 2020, Michele Malaret and Gordon Griswold filed, filed a Breach of Contract in the original principal amount of $500,000, with the Superior Court of California, County of Humboldt. The Company currently recognizes the full liability on its balance sheet. There is no interest due associated with the note.

 

ITEM 1A. RISK FACTORS

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

 

The above statement notwithstanding, shareholders and prospective investors should be aware that certain risks exist with respect to the Company and its business, including those risk factors contained in our most recent Registration Statements on Form S-1 and Form 10, as amended. These risks include, among others: limited assets, lack of significant revenues, and only losses since inception, industry risks, dependence on third party manufacturers/suppliers and the need for additional capital. The Company’s management is aware of these risks and has established the minimum controls and procedures to ensure adequate risk assessment and execution to reduce loss exposure.

 

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

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not Applicable.

 

ITEM 5. OTHER INFORMATION

 

There was no other information during the quarter ended June 30, 2020, which was not previously disclosed in our filings during that period.

 

ITEM 6. EXHIBITS

 

31.1   Certifications pursuant to Section 302 of Sarbanes Oxley Act of 2002
31.2   Certifications pursuant to Section 302 of Sarbanes Oxley Act of 2002
32.1   Certifications pursuant to Section 906 of Sarbanes Oxley Act of 2002
32.2   Certifications pursuant to Section 906 of Sarbanes Oxley Act of 2002
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema
101.CAL   XBRL Taxonomy Extension Calculation Linkbase
101.DEF   XBRL Taxonomy Extension Definition Linkbase
101.LAB   XBRL Taxonomy Extension Label Linkbase
101.PRE   XBRL Taxonomy Extension Presentation Linkbase

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on September 9, 2020.

 

  EVIO, INC.
     
  By: /s/ William Waldrop
    William Waldrop
    Chief Executive Officer, Interim Chief Financial Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on September 9, 2020.

 

  By: /s/ William Waldrop
    William Waldrop
    Director & Principal Executive Officer
     
  By: /s/ Lori Glauser
    Lori Glauser
    Director

 

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