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,December 31, 2019
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.) | |
Henderson, NV |
89052 | |
(Address of principal executive offices) | (Zip Code) |
(888) 544-3846(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 Web site,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 November 14, 2019,September 3, 2020, there were 29,288,77689,142,473 shares of common stock outstanding, 0 shares of Series A Preferred Stock, 5,000,000 shares of Series B Preferred Stock convertible at any time into 5,000,000 shares of common stock, 500,000 shares of Series C Preferred Stock convertible at any time into 2,500,000 shares of common stock, 514,500 shares of Series D Preferred Stock convertible at any time into 1,286,250 shares of common stock.outstanding.
EVIO, INC.
FORM 10-Q
QUARTERLY PERIOD ENDED JUNE 30,DECEMBER 31, 2019
TABLE OF CONTENTS
2 |
PART I — FINANCIAL INFORMATION
ITEM 1 –FINANCIAL STATEMENTSEVIO, INC.
Consolidated Balance Sheets
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2019 AND SEPTEMBER 30, 2018
(UNAUDITED)
December 31, | September 30, | |||||||||||||||
2019 | 2019 | |||||||||||||||
June 30, 2019 | September 30, 2018 | |||||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 61,064 | $ | 81,736 | $ | 125,554 | $ | 110,325 | ||||||||
Accounts receivable, net of allowance of $164,617 and $414,475 | 331,346 | 234,178 | ||||||||||||||
Accounts receivable, net | 193,808 | 133,022 | ||||||||||||||
Prepaid expenses | 63,135 | 45,940 | 163,771 | 190,460 | ||||||||||||
Other current assets | 56,975 | 146,816 | 11,818 | 9,689 | ||||||||||||
Note receivable, current portion | 538,904 | 100,000 | 538,904 | 538,904 | ||||||||||||
Total current assets | 1,051,424 | 608,670 | 1,033,855 | 982,400 | ||||||||||||
Right of use assets | 2,580,812 | - | 2,307,150 | 2,543,976 | ||||||||||||
Capital assets, net of accumulated depreciation of $324,257 and $123,854 | 1,485,254 | 411,241 | ||||||||||||||
Assets not in service | - | 455,540 | ||||||||||||||
Capital assets, net | 1,305,028 | 1,383,828 | ||||||||||||||
Land | 212,550 | 212,550 | 212,550 | 212,550 | ||||||||||||
Property and equipment, net of accumulated depreciation of $897,441 and $520,437 | 3,221,601 | 3,525,772 | ||||||||||||||
Property and equipment, net | 3,028,017 | 3,080,426 | ||||||||||||||
Security deposits | 195,897 | 159,632 | 178,260 | 178,918 | ||||||||||||
Note receivable | - | 1,200,000 | ||||||||||||||
Prepaid expenses | 120,993 | 63,582 | ||||||||||||||
Intangible assets, net of accumulated amortization of $603,485 and $318,816 | 1,386,424 | 1,680,569 | ||||||||||||||
Goodwill | 6,008,526 | 6,037,404 | ||||||||||||||
Prepaid expenses, net | 989 | 4,061 | ||||||||||||||
Total assets | $ | 16,263,481 | $ | 14,354,960 | $ | 8,065,849 | $ | 8,386,159 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable and accrued liabilities | $ | 2,813,635 | $ | 1,546,617 | $ | 4,369,145 | $ | 3,811,237 | ||||||||
Client deposits | 156,964 | 363,211 | 51,666 | 108,418 | ||||||||||||
Interest payable | 952,563 | 416,459 | 1,430,573 | 1,387,642 | ||||||||||||
Capital lease obligation, current | 981,875 | 677,030 | 963,316 | 957,673 | ||||||||||||
Derivative liability | 1,120,966 | 1,181,2781 | 2,125,702 | 2,545,735 | ||||||||||||
Convertible notes payable, net of discounts of $792,040 and $753,557, respectively | 3,310,592 | 1,678,265 | ||||||||||||||
Loans payable, current, net of discounts $0 and $119,000, respectively | 786,931 | 643,927 | ||||||||||||||
Convertible notes payable, net of discounts | 3,051,499 | 3,695,484 | ||||||||||||||
Loans payable, net of discounts, current | 785,931 | 762,476 | ||||||||||||||
Total current liabilities | 10,123,526 | 6,506,787 | 12,777,832 | 13,268,665 | ||||||||||||
Convertible debentures, net of discounts of $3,484,269 and $4,043,836, respectively | 1,716,955 | 1,153,164 | ||||||||||||||
Convertible debentures, net of loan discounts | 2,403,970 | 1,734,890 | ||||||||||||||
Lease liabilities | 2,630,353 | - | 2,356,425 | 2,594,726 | ||||||||||||
Capital lease obligation, net of current | 439,714 | 148,433 | ||||||||||||||
Loans payable, net of current | 642,018 | 1,193,781 | ||||||||||||||
Convertible loans payable, related party, net of current | - | 61,263 | ||||||||||||||
Loans payable, related party, net of current and discounts of $39,302 and $51,971 | 1,562,322 | 1,348,793 | ||||||||||||||
Capital lease obligation, net | 307,346 | 381,786 | ||||||||||||||
Loans payable, net | 726,733 | 657,603 | ||||||||||||||
Loans payable, related party, net | 1,575,950 | 1,560,849 | ||||||||||||||
Total liabilities | 17,114,888 | 10,412,221 | 20,148,256 | 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, 2019 and September 30, 2018 | 500 | 500 | ||||||||||||||
Series C convertible preferred stock, $0.0001 par value. 500,000 authorized; 500,000 shares issued and outstanding at June 30, 2019 and September 30, 2018 | 50 | 50 | ||||||||||||||
Series D convertible preferred stock, $0.0001 par value. 1,000,000 authorized; 349,500 and 552,500 shares issued and outstanding at June 30, 2019 and September 30, 2018 | 35 | 55 | ||||||||||||||
Common stock, $0.0001 par value. 1,000,000,000 authorized; 27,839,340 and 23,255,409 shares issued and outstanding at June 30, 2019 and September 30, 2018 | 2,784 | 2,326 | ||||||||||||||
Subscription Receivable | - | - | ||||||||||||||
Series B convertible preferred stock, $0.0001 par value. 5,000,000 authorized; 5,000,000 shares issued and outstanding at December 31, 2019 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 December 31, 2019 and September 30, 2019, respectively | 50 | 50 | ||||||||||||||
Series D convertible preferred stock, $0.0001 par value. 1,000,000,000 authorized; 349,500 and 349,500 shares issued and outstanding at December 31, 2019 and September 30, 2019, respectively | 34 | 34 | ||||||||||||||
Common stock, $0.0001 par value. 1,000,000,000 authorized; 54,192,080 and 29,314,419 shares issued and outstanding at December 31, 2019 and September 30, 2019, respectively | 5,419 | 2,931 | ||||||||||||||
Stock subscriptions receivable | - | - | ||||||||||||||
Additional paid-in capital | 24,576,290 | 21,495,621 | 28,531,100 | 26,498,076 | ||||||||||||
Retained earnings (accumulated deficit) | (26,858,124 | ) | (19,226,462 | ) | (40,089,990 | ) | (37,775,183 | ) | ||||||||
Accumulated other comprehensive income | (296,936 | ) | (263,985 | ) | (354,320 | ) | (353,090 | ) | ||||||||
Total stockholders’ equity | (2,575,401 | ) | 2,008,105 | (11,907,207 | ) | (11,626,682 | ) | |||||||||
Noncontrolling interest | 1,723,994 | 1,934,634 | (175,199 | ) | (185,678 | ) | ||||||||||
Total equity | (851,407 | ) | 3,942,739 | (12,082,406 | ) | (11,812,360 | ) | |||||||||
Total liabilities and stockholders’ equity | $ | 16,263,481 | $ | 14,354,960 | ||||||||||||
Total liabilities and equity | $ | 8,065,850 | $ | 8,386,159 |
The accompanying notes are an integral part of the consolidated financial statements.
3 |
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
Three Month Ended June 30, | Nine Months Ended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Revenues | ||||||||||||||||
Testing revenue | $ | 1,098,310 | $ | 595,701 | $ | 3,020,727 | $ | 2,172,061 | ||||||||
Consulting revenue | 3,000 | 38,637 | 3,000 | 141,453 | ||||||||||||
Total revenues | 1,101,310 | 634,338 | 3,023,727 | 2,313,514 | ||||||||||||
Cost of revenue | ||||||||||||||||
Testing services | 823,540 | 754,647 | 2,672,706 | 2,115,487 | ||||||||||||
Consulting services | - | 4,729 | - | 93,721 | ||||||||||||
Depreciation and amortization | 289,523 | 70,075 | 901,827 | 154,894 | ||||||||||||
Total cost of revenue | 1,113,063 | 829,451 | 3,574,532 | 2,364,102 | ||||||||||||
Gross margin | (11,753 | ) | (195,113 | ) | (550,806 | ) | (50,588 | ) | ||||||||
Operating expenses: | ||||||||||||||||
Selling, general and administrative | 1,486,539 | 1,989,753 | 4,206,841 | 5,023,122 | ||||||||||||
Depreciation and amortization | 62,291 | 125,500 | 178,273 | 266,656 | ||||||||||||
Total operating expenses | 1,548,830 | 2,115,253 | 4,385,114 | 5,289,778 | ||||||||||||
Income (loss) from operations | (1,560,583 | ) | (2,310,366 | ) | (4,935,920 | ) | (5,340,366 | ) | ||||||||
Other income (expense) | ||||||||||||||||
Interest income (expense), net | (592,089 | ) | (1,510,076 | ) | (3,049,386 | ) | (2,897,264 | ) | ||||||||
Other income (expense) | (178,549 | ) | - | (276,066 | ) | - | ||||||||||
Gain (loss) on settlement of debt | - | - | - | (56,093 | ) | |||||||||||
Gain (loss) on change in fair market value of derivative liabilities | 981,421 | 363,352 | 424,774 | 2,157,443 | ||||||||||||
Total other income (expense) | 210,783 | (1,146,724 | ) | (2,900,678 | ) | (795,914 | ) | |||||||||
Income (loss) before income taxes | (1,349,800 | ) | (3,457,090 | ) | (7,836,598 | ) | (6,136,280 | ) | ||||||||
Provision for income taxes (benefit) | 2,735 | 5,704 | - | |||||||||||||
Net income (loss) | (1,352,535 | ) | (3,457,090 | ) | (7,842,302 | ) | (6,136,280 | ) | ||||||||
Net income (loss) attributable to noncontrolling interest | (49,257 | ) | (257,101 | ) | (210,640 | ) | (269,897 | ) | ||||||||
Net income (loss) attributable to EVIO, Inc. shareholders | $ | (1,303,278 | ) | $ | (3,199,989 | ) | $ | (7,631,662 | ) | $ | (5,866,383 | ) | ||||
Basic and diluted earnings (loss) per common share | (0.05 | ) | (0.18 | ) | $ | (0.29 | ) | $ | (0.39 | ) | ||||||
Weighted-average number of common shares outstanding: | ||||||||||||||||
Basic and diluted | 27,764,476 | 18,067,853 | 26,218,351 | 15,030,353 | ||||||||||||
Comprehensive loss: | ||||||||||||||||
Net income (loss) | $ | (1,352,535 | ) | $ | (3,457,090 | ) | $ | (7,842,302 | ) | $ | (6,136,280 | ) | ||||
Foreign currency translation adjustment | 82,610 | (32,951 | ) | - | ||||||||||||
Comprehensive income (loss) | $ | (1,269,925 | ) | $ | (3,457,090 | ) | $ | (7,875,253 | ) | $ | (6,136,280 | ) |
Three Months Ended December 31, | Three Months Ended December 31, | |||||||
2019 | 2018 | |||||||
Revenues | ||||||||
Testing revenue | $ | 1,332,956 | $ | 1,187,238 | ||||
Consulting revenue | - | - | ||||||
Total revenues | 1,332,956 | 1,187,238 | ||||||
Cost of revenue | ||||||||
Testing services | 946,760 | 1,013,980 | ||||||
Consulting services | - | - | ||||||
Depreciation and amortization | 255,554 | 290,448 | ||||||
Total cost of revenue | 1,202,314 | 1,304,428 | ||||||
Gross margin | 130,642 | (117,190 | ) | |||||
Operating expenses: | ||||||||
Selling, general and administrative | 1,267,924 | 1,496,640 | ||||||
Depreciation and amortization | 28,230 | 58,866 | ||||||
Total operating expenses | 1,296,154 | 1,555,506 | ||||||
Income (loss) from operations | (1,165,512 | ) | (1,672,696 | ) | ||||
Other income (expense) | ||||||||
Interest income (expense), net | (1,562,871 | ) | (1,764,878 | ) | ||||
Other income (expense) | 4,021 | (64,095 | ) | |||||
Gain (loss) on settlement of debt | - | - | ||||||
Impairment charge | - | - | ||||||
Gain (loss) on change in fair market value of derivative liabilities | 420,033 | 852,628 | ||||||
Total other income (expense) | (1,138,817 | ) | (976,345 | ) | ||||
Income (loss) before income taxes | (2,304,329 | ) | (2,649,041 | ) | ||||
Provision for income taxes (benefit) | - | 2,356 | ||||||
Net income (loss) | (2,304,329 | ) | (2,651,397 | ) | ||||
Net income (loss) attributable to noncontrolling interest | 10,479 | (54,738 | ) | |||||
Net income (loss) attributable to EVIO, Inc. shareholders | $ | (2,314,808 | ) | $ | (2,596,659 | ) | ||
Basic and diluted earnings (loss) per common share | $ | (0.07 | ) | $ | (0.10 | ) | ||
Weighted-average number of common shares outstanding: | ||||||||
Basic and diluted | 33,979,456 | 24,753,397 | ||||||
Comprehensive loss: | ||||||||
Net income (loss) | $ | (2,304,329 | ) | $ | (2,651,397 | ) | ||
Foreign curreny translation adjustment | (1,230 | ) | (179,822 | ) | ||||
Comprehensive income (loss) | $ | (2,305,559 | ) | $ | (2,831,219 | ) |
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
4 |
Nine Months Ended June 30, | ||||||||
2019 | 2018 | |||||||
Cash flows from operating activities of continuing operations: | ||||||||
Net income (loss) | $ | (7,842,302 | ) | $ | (6,126,280 | ) | ||
Amortization of debt discount | 2,241,279 | 2,561,024 | ||||||
Common stock issued in exchange for fees and services | 342,910 | 450,016 | ||||||
Depreciation and amortization | 1,080,100 | 421,550 | ||||||
Loss on disposal of assets | 64,095 | - | ||||||
Loss on settlement of accounts payable | - | 3,750 | ||||||
Loss on settlement of debt | - | 52,343 | ||||||
Provision for doubtful accounts | 49,835 | 53,454 | ||||||
Stock based compensation | 576,124 | 1,644,386 | ||||||
Unrealized (gain) loss on derivative liability | (424,774 | ) | (2,157,443 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (144,052 | ) | (54,989 | ) | ||||
Prepaid expenses | (74,605 | ) | 165,787 | |||||
Other current assets | 89,842 | (71,400 | ) | |||||
Security deposits | (35,646 | ) | (467,614 | ) | ||||
Operating lease right of use assets | 49,541 | - | ||||||
Accounts payable and accrued liabilities | 1,281,150 | (323,907 | ) | |||||
Customer deposits and deferred revenues | (206,113 | ) | (17,313 | ) | ||||
Deposits, related party | - | (180,000 | ) | |||||
Interest payable | 595,752 | 323,165 | ||||||
Net cash provided by (used in) operating activities | (2,356,864 | ) | (3,733,471 | ) | ||||
Cash flows from investing activities: | ||||||||
Cash consideration for acquisition of business | - | (1,574,541 | ) | |||||
Notes receivable | 761,096 | - | ||||||
Purchase of fixed assets | (853,644 | ) | (883,512 | ) | ||||
Net cash provided by (used in) investing activities | (92,548 | ) | (2,458,053 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of common stock, net of issuance costs | 592,000 | 2,041,501 | ||||||
Proceeds from issuance of common stock purchase warrants, net of issuance costs | - | 7,999 | ||||||
Proceeds from issuance of convertible debentures | 374,000 | 6,136,120 | ||||||
Proceeds from issuance of convertible notes, net of issuance costs | 1,078,732 | 250,000 | ||||||
Proceeds from loans payable | 2,718 | - | ||||||
Proceeds from related party advances | 144,193 | - | ||||||
Proceeds (repayments) of capital leases | 274,553 | (58,103 | ) | |||||
Repayments of loans payable | (30,476 | ) | (612,531 | ) | ||||
Repayments of related party loans payable | (11,906 | ) | (246,526 | ) | ||||
Net cash provided by (used in) financing activities | 2,423,814 | 7,518,460 | ||||||
Effect of exchange rates on cash and cash equivalents | 4,927 | (193,506 | ) | |||||
Net increase (decrease) in cash and cash equivalents | (20,671 | ) | 1,133,430 | |||||
Cash and cash equivalents at beginning of period | 81,735 | 121,013 | ||||||
Cash and cash equivalents at end of period | $ | 61,064 | $ | 1,254,443 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for interest | - | 171,722 | ||||||
Cash paid for income taxes | - | - | ||||||
Supplemental disclosure of non-cash investing and financing activities: | ||||||||
Conversion of convertible note and accrued interest into common stock | 708,089 | 2,272,373 | ||||||
Reclassification of derivative liability to additional paid in capital | - | 2,342,112 | ||||||
Settlement of account payable for common stock | - | 18,750 | ||||||
Common stock issued for settlement of note payable | 15,000 | 162,000 | ||||||
Common stock issued for settlement of related party note payable | - | 62,500 | ||||||
Conversion of Series D Preferred stock to common stock | - | 70 | ||||||
Debt discount recorded on convertible notes and debentures payable upon initial measurement of derivative liability | 364,462 | 5,784,175 | ||||||
Debt discounts recorded for beneficial conversion features on convertible debentures and notes payable | 846,985 | - | ||||||
Debt discounts recorded for original issue discounts on convertible debentures | - | 472,480 | ||||||
Equipment financed through capital leases | 323,383 | 385,208 | ||||||
Issuance of convertible notes payable and other obligations in connection with the acquisition of a business | 1,100,000 | |||||||
Sale and assumption of note payable and accrued interest | 556,658 | - |
The accompanying notes are an integral part of the consolidated financial statements.
Consolidated Statements of Changes in Stockholders’ EquityCash Flows (Unaudited)
For the Three and Nine Months Ended June 30, 2019 and 2018.
Series B Preferred Stock | Series C Preferred Stock | Series D Preferred Stock | Common Stock | Stock Subscriptions | Additional Paid-in | Retained | Accumulated Other Comprehensive | Stockholders' | Noncontrolling | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Value | Shares | Value | Shares | Value | Shares | Value | Receivable | Capital | Earnings | Income | Equity | Interest | Equity | ||||||||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2018 | 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 | 130 | - | 1,533,372 | - | - | 1,533,502 | - | 1,533,502 | |||||||||||||||||||||||||||||||||||||||||||||
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, 2018 | 5,000,000 | $ | 500 | 500,000 | $ | 50 | 552,500 | $ | 55 | 19,719,903 | $ | 1,972 | $ | - | $ | 18,073,657 | $ | (13,458,754 | ) | $ | (317,132 | ) | $ | 4,300,348 | $ | 2,250,322 | $ | 6,550,670 |
Three Months Ended December 31, | Three Months Ended December 31, | |||||||
2019 | 2018 | |||||||
Cash flows from operating activities of continuing operations: | ||||||||
Net income (loss) | $ | (2,304,329 | ) | $ | (2,651,397 | ) | ||
Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
Amortization of debt discount | 1,244,194 | 1,519,971 | ||||||
Common stock issued in exchange for fees and services | 16,730 | 143,823 | ||||||
Default penalties and other covenant adjustments on convertible debentures | 62,500 | - | ||||||
Depreciation and amortization | 283,784 | 349,424 | ||||||
Loss on disposal of assets | 2,979 | 64,095 | ||||||
Provision for doubtful accounts | (1,670 | ) | 18,310 | |||||
Stock based compensation | 360,958 | 205,797 | ||||||
Unrealized (gain) loss on derivative liability | (420,033 | ) | (852,628 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (56,828 | ) | (39,437 | ) | ||||
Prepaid expenses | 29,762 | (64,142 | ) | |||||
Other current assets | (2,129 | ) | (32,422 | ) | ||||
Security deposits | 1,000 | (4,470 | ) | |||||
Operating lease right of use assets | (1,475 | ) | 47,123 | |||||
Accounts payable and accrued liabilities | 747,859 | 918,795 | ||||||
Customer deposits and deferred revenues | (56,752 | ) | (126,688 | ) | ||||
Interest payable | 215,107 | 256,126 | ||||||
Net cash provided by (used in) operating activities | 121,657 | (247,720 | ) | |||||
Cash flows from investing activities: | ||||||||
Purchase of fixed assets | (33,124 | ) | (554,731 | ) | ||||
Net cash provided by (used in) financing activities | (33,124 | ) | (554,731 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of common stock, net of issuance costs | - | 103,000 | ||||||
Proceeds from issuance of convertible debentures | - | 910,413 | ||||||
Proceeds from issuance of convertible notes, net of issuance costs | 204,407 | - | ||||||
Proceeds from related party advances | 33,587 | 53,325 | ||||||
Repayments of capital leases | (81,399 | ) | (61,379 | ) | ||||
Repayments of convertible debentures | - | (61,595 | ) | |||||
Repayments of loans payable | (12,840 | ) | (7,947 | ) | ||||
Repayments of related party loans payable | (31,951 | ) | (1,941 | ) | ||||
Net cash provided by (used in) financing activities | 111,804 | 933,876 | ||||||
Effect of exchange rates on cash and cash equivalents | (185,108 | ) | (3,076 | ) | ||||
Net increase (decrease) in cash and cash equivalents | 15,229 | 128,349 | ||||||
Cash and cash equivalents at beginning of period | 110,325 | 81,735 | ||||||
Cash and cash equivalents at end of period | $ | 125,554 | $ | 210,084 | ||||
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 | $ | 1,414,004 | $ | 708,089 | ||||
Settlement of account payable for common stock | $ | 6,000 | $ | - | ||||
Debt discount recorded on convertible notes and debentures payable upon initial measurement of derivative liability | $ | - | $ | 350,039 | ||||
Debt discounts recorded for beneficial conversion features on convertible debentures and notes payable | $ | 175,320 | $ | - | ||||
Debt discounts recorded for original issue discounts on convertible debentures | $ | - | $ | 280,144 | ||||
Vehicles financed through notes payable | $ | 105,424 | $ | - | ||||
Equipment financed through capital leases | $ | - | $ | 308,613 |
The accompanying notes are an integral part of the consolidated financial statements.
5 |
Consolidated Statements of Changes in Stockholders'Stockholders’ Equity (Unaudited)
For the Three Months Ended June 30, 2019
Series B Preferred Stock | Series C Preferred Stock | Series D Preferred Stock | Common Stock | Subscriptions | Additional Paid-in | Retained | Accumulated Other Comprehensive | Total 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 | 349,500 | $ | 35 | 27,094,744 | $ | 2,709 | $ | (406,000 | ) | $ | 24,278,681 | $ | (25,554,846 | ) | $ | (379,546 | ) | $ | (2,058,417 | ) | $ | 1,773,251 | $ | (285,166 | ) | |||||||||||||||||||||||||||||
Net income (loss) | - | - | - | - | - | - | - | - | - | - | (1,303,278 | ) | - | (1,303,278 | ) | (49,257 | ) | (1,352,535 | ) | |||||||||||||||||||||||||||||||||||||||||
Change in foreign currency translation | - | - | - | - | - | - | - | - | - | - | - | 82,610 | 82,610 | - | 82,610 | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the conversion of Series D preferred stock | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
Cash Received from common stock subscriptions | - | - | - | - | - | - | 406,000 | - | - | 406,000 | - | 406,000 | ||||||||||||||||||||||||||||||||||||||||||||||||
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 | - | - | - | - | - | - | 25,000 | 3 | - | 12,872 | - | - | 12,875 | - | 12,875 | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in exchange for consulting, professional and other services provided | - | - | - | - | - | - | 688,017 | 69 | - | 149,682 | - | - | 149,751 | - | 149,751 | |||||||||||||||||||||||||||||||||||||||||||||
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 | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock purchase warrants in satisfaction of of interest payable | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock purchase warrants in satisfaction of debt issuances costs | - | - | - | - | - | - | - | - | - | (47,340 | ) | - | - | (47,340 | ) | - | (47,340 | ) | ||||||||||||||||||||||||||||||||||||||||||
Reclassifcation of derivative liability to additional paid-in capital | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
Recognition of beneficial conversion features related to convertible debt instruments | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
Stock based compensation related to employee stock options | - | - | - | - | - | - | - | - | - | 167,397 | - | - | 167,397 | - | 167,397 | |||||||||||||||||||||||||||||||||||||||||||||
Acquisition of equity interests in subsidiaries | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2019 | 5,000,000 | $ | 500 | 500,000 | $ | 50 | 349,500 | $ | 35 | 27,839,340 | $ | 2,784 | $ | - | $ | 24,576,289 | $ | (26,858,124 | ) | $ | (296,936 | ) | $ | (2,575,402 | ) | $ | 1,723,994 | $ | (851,408 | ) |
Series B Preferred Stock | Series C Preferred Stock | Series D Preferred Stock | Common Stock | Additional Paid-in | Retained | Accumulated Other Comprehensive | Total 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) | - | - | - | - | - | - | - | - | - | (2,596,659 | ) | - | (2,596,659 | ) | (54,738 | ) | (2,651,397 | ) | ||||||||||||||||||||||||||||||||||||||
Change in foreign currency translation | - | - | - | - | - | - | - | - | - | - | (179,822 | ) | (179,822 | ) | - | (179,822 | ) | |||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the conversion of Series D preferred stock | - | - | - | - | (38,000 | ) | (4 | ) | 95,000 | 10 | (6 | ) | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with sales made under private offerings | - | - | - | - | - | - | 200,000 | 20 | 105,980 | - | - | 106,000 | - | 106,000 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock as compensation to employees, officers and/or directors | - | - | - | - | - | - | 50,000 | 5 | 35,870 | - | - | 35,875 | - | 35,875 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in exchange for consulting, professional and other services provided | - | - | - | - | - | - | 250,000 | 25 | 128,375 | - | - | 128,400 | - | 128,400 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the conversion of loans payable | - | - | - | - | - | - | 779,808 | 78 | 317,022 | - | - | 317,100 | - | 317,100 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the conversion of debentures | - | - | - | - | - | - | 669,362 | 66 | 387,934 | - | - | 388,000 | - | 388,000 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the conversion of interest payable | - | - | - | - | - | - | 10,163 | 1 | 2,987 | - | - | 2,988 | - | 2,988 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the conversion of interest payable | - | - | - | - | - | - | - | - | 12,423 | - | - | 12,423 | - | 12,423 | ||||||||||||||||||||||||||||||||||||||||||
Common stock options issued under employee equity incentive plan | - | - | - | - | - | - | - | - | 169,922 | - | - | 169,922 | - | 169,922 | ||||||||||||||||||||||||||||||||||||||||||
Recognition of beneficial conversion features related to convertible debt instruments | - | - | - | - | - | - | - | - | 280,144 | - | - | 280,144 | - | 280,144 | ||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2018 | 5,000,000 | $ | 500 | 500,000 | $ | 50 | 514,500 | $ | 51 | 25,309,744 | $ | 2,531 | $ | 22,936,272 | $ | (21,823,121 | ) | $ | (443,807 | ) | $ | 672,476 | $ | 1,879,896 | $ | 2,552,372 |
The accompanying notes are an integral part of the consolidated financial statements.
6 |
EVIO, INC.
Consolidated Statements of Changes in Stockholders'Stockholders’ Equity (Unaudited)
For the Nine Months Ended June 30, 2018
Series B Preferred Stock | Series C Preferred Stock | Series D Preferred Stock | Common Stock | Stock Subscriptions | AdditionaL Paid-in | Retained | Accumulated Other Comprehensive | Total Stockholders' | Noncontrolling | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Value | Shares | Value | Shares | Value | Shares | Value | Receivable | Capital | Earnings | Income | Equity | Interest | Equity | ||||||||||||||||||||||||||||||||||||||||||||||
Balance, September 30, 2017 | 5,000,000 | $ | 500 | 500,000 | $ | 50 | 832,500 | $ | 83 | 10,732,922 | $ | 1,073 | $ | - | # | $ | 7,657,982 | $ | (7,592,371 | ) | $ | - | $ | 67,317 | $ | 158,124 | $ | 225,441 | ||||||||||||||||||||||||||||||||
Net income (loss) | - | - | - | - | - | - | - | - | - | - | (5,866,383 | ) | - | (5,866,383 | ) | (269,897 | ) | (6,136,280 | ) | |||||||||||||||||||||||||||||||||||||||||
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 | - | - | - | - | (280,000 | ) | (28 | ) | 700,000 | 70 | - | (42 | ) | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with sales made under private offerings | - | - | - | - | - | - | 2,561,392 | 257 | - | 2,041,115 | - | - | 2,041,372 | - | 2,041,372 | |||||||||||||||||||||||||||||||||||||||||||||
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 | - | - | - | - | - | - | 200,000 | 20 | - | 439,987 | - | - | 440,007 | - | 440,007 | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in exchange for consulting, professional and other services provided | - | - | - | - | - | - | 269,750 | 27 | - | 290,187 | - | - | 290,214 | - | 290,214 | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in satisfaction of debt issuances costs | - | - | - | - | - | - | 620,271 | 62 | - | 1,389,345 | - | - | 1,389,407 | - | 1,389,407 | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the settlement of accounts payable | - | - | - | - | - | - | 37,500 | 4 | - | 18,746 | - | - | 18,750 | - | 18,750 | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the settlement of notes payable | - | - | - | - | - | - | 324,000 | 32 | - | 161,968 | - | - | 162,000 | - | 162,000 | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the conversion of loans payable | - | - | - | - | - | - | 3,990,883 | 399 | - | 2,196,389 | - | - | 2,196,788 | - | 2,196,788 | |||||||||||||||||||||||||||||||||||||||||||||
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 | - | - | - | - | - | - | 125,000 | 13 | - | 62,487 | - | - | 62,500 | - | 62,500 | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the conversion of interest payable | - | - | - | - | - | - | 144,852 | 14 | - | 75,352 | - | - | 75,366 | - | 75,366 | |||||||||||||||||||||||||||||||||||||||||||||
Common stock options issued under employee equity incentive plan | - | - | - | - | - | - | - | - | - | 1,390,031 | - | - | 1,390,031 | - | 1,390,031 | |||||||||||||||||||||||||||||||||||||||||||||
Reclassifcation of derivative liability to additional paid-in capital | - | - | - | - | - | - | - | - | - | 2,342,112 | - | - | 2,342,112 | - | 2,342,112 | |||||||||||||||||||||||||||||||||||||||||||||
Recognition of beneficial conversion features related to convertible debt instruments | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
Acquisition of equity interests in subsidiaries | - | - | - | - | - | - | - | - | - | - | - | - | - | 2,362,095 | 2,362,095 | |||||||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2018 | 5,000,000 | $ | 500 | 500,000 | $ | 50 | 552,500 | $ | 55 | 19,719,903 | $ | 1,972 | $ | - | $ | 18,073,657 | $ | (13,458,754 | ) | $ | (317,132 | ) | $ | 4,300,348 | $ | 2,250,322 | $ | 6,550,670 |
The accompanying notes are an integral part of the consolidated financial statements.
Preferred Stock | Preferred Stock | Preferred Stock | Common Stock | Additional Paid-in | Retained | Accumulated Other Comprehensive | Total Stockholders’ | Noncontrolling | Total | |||||||||||||||||||||||||||||||||||||||||||||||
Shares | Value | Shares | Value | Shares | Value | Shares | Value | Capital | Earnings | Income | Equity | Interest | Equity | |||||||||||||||||||||||||||||||||||||||||||
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) | - | - | - | - | - | - | - | - | - | (2,314,808 | ) | - | (2,314,808 | ) | 10,479 | (2,304,329 | ) | |||||||||||||||||||||||||||||||||||||||
Change in foreign currency translation | - | - | - | - | - | - | - | - | - | - | (1,230 | ) | (1,230 | ) | - | (1,230 | ) | |||||||||||||||||||||||||||||||||||||||
Issuance of common stock as compensation to employees, officers and/or directors | - | - | - | - | - | - | 422,500 | 42 | 234,335 | - | - | 234,377 | - | 234,377 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in exchange for consulting, professional and other services provided | - | - | - | - | - | - | 359,212 | 36 | 16,694 | - | - | 16,730 | - | 16,730 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in satisfaction of debt issuances costs | - | - | - | - | - | - | 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 conversion of debentures | - | - | - | - | - | - | 18,317,481 | 1,832 | 1,239,950 | - | - | 1,241,782 | - | 1,241,782 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the conversion of interest payable | - | - | - | - | - | - | 3,466,353 | 346 | 171,876 | - | - | 172,222 | - | 172,222 | ||||||||||||||||||||||||||||||||||||||||||
Recognition of beneficial conversion features related to convertible debt instruments | - | - | - | - | - | - | - | - | 175,320 | - | - | 175,320 | - | 175,320 | ||||||||||||||||||||||||||||||||||||||||||
Stock based compensation related to employee stock options | - | - | - | - | - | - | - | - | 126,581 | - | - | 126,581 | - | 126,581 | ||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2019 | 5,000,000 | $ | 500 | 500,000 | $ | 50 | 339,500 | $ | 34 | 54,192,080 | $ | 5,419 | $ | 28,531,100 | $ | (40,089,991 | ) | $ | (354,320 | ) | $ | (11,907,208 | ) | $ | (175,199 | ) | $ | (12,082,407 | ) |
EVIO, INC.
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
For the Nine Months Ended June 30, 2019
Series B Preferred Stock | Series C Preferred Stock | Series D Preferred Stock | Common Stock | Stock Subscriptions | AdditionaL Paid-in | Retained | Accumulated Other Comprehensive | Total Stockholders' | Noncontrolling | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Value | Shares | Value | Shares | Value | Shares | Value | Receivable | 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) | - | - | - | - | - | - | - | - | - | - | (7,631,662 | ) | - | (7,631,662 | ) | (210,640 | ) | (7,842,302 | ) | |||||||||||||||||||||||||||||||||||||||||
Change in foreign currency translation | - | - | - | - | - | - | - | - | - | - | - | (32,951 | ) | (32,951 | ) | - | (32,951 | ) | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with the conversion of Series D preferred stock | - | - | - | - | (203,000 | ) | (20 | ) | 507,500 | 50 | - | (30 | ) | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with sales made under private offerings | - | - | - | - | - | - | 1,415,000 | 142 | - | 591,858 | - | - | 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 | - | - | - | - | - | - | 112,500 | 11 | - | 68,239 | - | - | 68,250 | - | 68,250 | |||||||||||||||||||||||||||||||||||||||||||||
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 | - | - | - | - | - | - | 779,808 | 78 | - | 317,022 | - | - | 317,100 | - | 317,100 | |||||||||||||||||||||||||||||||||||||||||||||
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 | - | 2,987 | - | - | 2,988 | - | 2,988 | |||||||||||||||||||||||||||||||||||||||||||||
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 | - | - | - | - | - | - | - | - | - | 846,985 | - | - | 846,985 | - | 846,985 | |||||||||||||||||||||||||||||||||||||||||||||
Stock based compensation related to employee stock options | - | - | - | - | - | - | - | - | - | 507,873 | - | - | 507,873 | - | 507,873 | |||||||||||||||||||||||||||||||||||||||||||||
Acquisition of equity interests in subsidiaries | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2019 | 5,000,000 | $ | 500 | 500,000 | $ | 50 | 349,500 | $ | 35 | 27,839,340 | $ | 2,784 | $ | - | $ | 24,576,290 | $ | (26,858,124 | ) | $ | (296,936 | ) | $ | (2,575,401 | ) | $ | 1,723,994 | $ | (851,407 | ) |
The accompanying notes are an integral part of the consolidated financial statements.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTSNotes To Unaudited Consolidated Financial Statements
JUNE 30,For The Three Month Periods Ended December 31, 2019, And 2018
NOTE 1 – ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
EVIO, Inc., a Colorado corporation and its subsidiaries (“the Company”, “EVIO”, “EVIO Labs”, “we”, “us”, or “our”) provide analytical testing and advisory services to the developingemerging 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 hemp industries.on February 23, 1983, the name was changed to Quantech Electronics Corp. The Company operates bothwas 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 owned and licensed laboratories through-out North America. Our laboratories provide testing for both cannabis and hemp products at all our labs.headquarters are located in Henderson, Nevada.
Oregon: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 operates two OLCC licensed and ORELAP accredited laboratories in Oregon. EVIO Labs Portland, located in Tigard, OR, is 100%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 EVIO. EVIO Labs Medford, located in Central Point, OR is 80% owned bythe 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.
California: TheOn September 17, 2015, EVIO entered into a share exchange agreement with CR Labs, Inc., an Oregon Corporation, pursuant to which the Company operates one BCC licensed and ISO 17025 accredited laboratory in Berkeley serving bothacquired 80% of the cannabis and hemp markets in the state and the hemp market nationwide. EVIO owns 90%outstanding common stock of this company.CR Labs, Inc.
Massachusetts: The Company is completingEVIO Inc. was formed on April 4, 2016, to become the relocation and re-accreditation of ourholding company for all laboratory in the state.operations.
Florida: The Company licenses its brand to Kaycha Holdings, which operates two ISO 17025 accredited laboratories in the state. Subsequent to the quarter ended, Kaycha Labs Florida is no longer operating under the EVIO Labs brand,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 license agreement is still in effect.assets of Oregon Analytical Services, LLC, inclusive of client lists, equipment, trade names, and personnel.
Colorado: The Company licenses its brandOn June 1, 2016, EVIO Inc. entered into a share purchase agreement to Kaycha Holdings, which operates one ISO 17025 accredited laboratorypurchase 80% of the outstanding common stock of Smith Scientific Industries, Inc. d/b/a Kenevir Research in the state.Medford, OR.
Canada: 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 operates one Health Canada licensed, GMP certified laboratory, in Edmonton, Alberta.entered into a Membership Interest Purchase Agreement with Viridis Analytics MA, LLC which was closed on August 1, 2018.
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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, ownsInc. 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 this company.the outstanding shares of Keystone Labs which was closed on the same date.
BasisManagement’s Representation of PresentationInterim 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 December 31, 2019, and 2018, 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 |
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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 BasedStock-Based Compensation
In accordance with ASC No. 718, Compensation – StockCompensation-Stock Compensation (“ASC 718”), the Company measures the cost of stock based Compensationstock-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 basedStock-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.
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Accounts Receivable and Allowance for Doubtful Accounts
The Company providesAccounts 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 $154,836 and $215,593 for the possibility that some of its present trade accounts receivable may not be collectible. By establishing an Allowance for Doubtful Accounts, the company is ensuring the net realizable value of its trade accounts receivable are not overstated in the financial statements.periods ended December 31, 2019, and September 30, 2019, respectively.
For the purpose of the allowance calculation, receivables will be aged as Current, 1-30 days past due, 31-60 days past due, 61-90 days past due and over 91 days past due. The Company calculates an allowance quarterly of estimated non-collectability for all accounts receivable based on the following formula criteria.
The Company categorizes delinquent accounts receivable are customers with balances older than 60 days at the time of review. Delinquent accounts receivable are escalated to advanced recovery efforts including obtaining services of third-party debt collectors. Significant delinquent accounts with balances older than 360 days will be written off with CEO or COO approval.
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 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.
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 26,218,35133,979,456 and 15,030,35313,266,226 potentially dilutive common shares outstanding as of June 30,December 31, 2019 and 2018, respectively. Because of the net losses incurred during the Nine Months Ended June 30,three months ended December 31, 2019, and 2018, 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 February 2016, the FASB issued ASU 2016-02,Leases (Topic 842). ASU 2016-02 requires lessees to recognize assets and liabilities for most leases. ASU 2016-02 is effective for public entity financial statements for annual periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted, including adoption in an interim period. ASU 2016-02 was further clarified and amended within ASU 2018-01, ASU 2018-10, ASU 2018-11 and ASU 2018-20 which included provisions that would provide us with the option to adopt the provisions of the new guidance using a modified retrospective transition approach, without adjusting the comparative periods presented. The Company is currently evaluating ASU 2016-02 and its impact on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment”. The amendments in this update simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. This update is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 31, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing after January 1, 2017. The Company notes that this guidance applies to its reporting requirements and will implement the new guidance accordingly in performing goodwill impairment testing; however, the Company does not believe this update will have a material impact on the consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” which revises the definition of a business. This update is effective for annual periods beginning after December 15, 2017, including interim periods within those years. Early adoption is permitted. The Company notes that this guidance will impact its acquisitions beginning January 1, 2018. Management believes recently issued accounting pronouncements will have no impact on the financial statements of the Company.
In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718) which simplifies certain aspects of the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic 718, Compensation-Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. Certain areas of the simplification apply only to nonpublic entities. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. The amendments of the ASU are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this standard on our consolidated financial statements.
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In August 2018, the SEC issued Final Rule Release No. 33-10532, Disclosure Update, and Simplification. Under the final rule Company’s must now analyze changes in stockholders’ equity in the form of a reconciliation, for the current and comparative year-to-date, with subtotals for each interim period.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our financial statements upon adoptionadoption.
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 through 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 | |
● | Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. |
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The Company’s financial instruments consist principally cash, accounts payable, and accrued liabilities. The carrying values of these financial instruments approximate their fair value due to their short maturities. The carrying amount of the Company’s debt approximates fair value because the interest rates on these instruments approximate the interest rate on debt with similar terms available to the Company.
The Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities from Equity” and ASC 815, “Derivatives and Hedging”. Derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives. The effects of interactions between embedded derivatives are calculated and accounted for in arriving at the overall fair value of the financial instruments. In addition,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,December 31, 2019:
Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||
Derivative financial instruments | $ | - | $ | - | $ | 1,120,966 | $ | 1,120,966 | $ | - | $ | - | $ | 2,125,702 | $ | 2,125,702 |
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, 2018:2019:
Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||
Derivative financial instruments | $ | - | $ | - | $ | 1,181,278 | $ | 1,181,278 | $ | - | $ | - | $ | 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 whichthat 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 $2,667,715,$2,307,150, net of accumulated amortization, and a corresponding lease liability of $2,828,361 at the October 1, 2018, date of adoption.$2,356,425. Accounting for finance leases is substantially unchanged.
Operating leases are included in operating lease ROU assets, operating lease obligations, current, and operating lease obligations, long term on the condensed consolidated balance sheets. Finance leases are included in property and equipment, finance lease obligations, short term, and finance lease obligations, long term, on the condensed consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make scheduled lease payments. ROU assets and liabilities are recognized on the lease commencement date based on the present value of lease payments over the lease term. The present value of lease payments is calculated using the incremental borrowing rate at lease commencement, which takes into consideration recent debt issuances as well as other applicable market data available.
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Amortization of lease assets is included in general and administrative expenses. The future minimum lease payments of lease liabilities as of June 30,December 31, 2019, are as follows:
Year ended June 30, | Operating Leases | Financing Leases | ||||||||||||||
2019 | 791,260 | $ | 435,093 | |||||||||||||
For the years ended September 30, | Operating Leases | Financing Leases | ||||||||||||||
2020 | 932,082 | 432,177 | 970,425 | 433,087 | ||||||||||||
2021 | 649,795 | 459,420 | 697,436 | 514,152 | ||||||||||||
2022 | 519,422 | 234,776 | 549,390 | 183,020 | ||||||||||||
2023 | 323,356 | 204,812 | 347,745 | 206,674 | ||||||||||||
Thereafter | 27,911 | 4,977 | ||||||||||||||
2024 and thereafter | 27,911 | 5,022 | ||||||||||||||
Total lease payments | 3,243,826 | 1,771,255 | 2,592,907 | 1,341,955 | ||||||||||||
Less: Payments Made | (613,473 | ) | (349,666 | ) | (236,482 | ) | (71,333 | ) | ||||||||
Total Lease Liabilities | $ | 2,630,353 | $ | 1,421,589 | $ | 2,356,425 | 1,270,622 |
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,December 31, 2019, and September 30, 20182019 consist of:
June 30, 2019 | September 30, 2018 | December 31, 2019 | September 30, 2019 | |||||||||||||
Customer list | $ | 860,044 | $ | 865,672 | $ | - | $ | 854,014 | ||||||||
License | 503,000 | 503,000 | - | 503,000 | ||||||||||||
Favorable lease | 3,100 | 3,100 | - | 3,100 | ||||||||||||
Domains & Websites | 49,606 | 49,690 | - | 49,516 | ||||||||||||
Non-compete agreements | 183,513 | 184,563 | - | 182,388 | ||||||||||||
Assembled Workforce | 50,750 | 50,750 | - | 50,750 | ||||||||||||
Patent | 11,334 | - | ||||||||||||||
Intellectual Property | 328,563 | 342,610 | - | 342,610 | ||||||||||||
Total | 1,970,162 | 1,999,385 | - | 1,977,661 | ||||||||||||
Accumulated amortization | (603,486 | ) | (318,815 | ) | - | (1,977,661 | ) | |||||||||
Net value | $ | 1,386,424 | $ | 1,680,570 | $ | - | $ | - |
The Company estimates amortization to be recorded on existinghad fully amortized all intangible assets throughduring the fiscal year ended September 30, 2030 to be:2019.
Amortization | ||||
2019 | $ | 103,231 | ||
2020 | 350,149 | |||
2021 | 310,340 | |||
2022 | 241,161 | |||
2023 | 200,070 | |||
2024 | 126,359 | |||
2025 | 44,979 | |||
2026 | 2,317 | |||
2027 | 2,317 | |||
2028 | 2,317 | |||
2029 | 2,317 | |||
2030 | 868 | |||
Total | $ | 1,386,424 |
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,December 31, 2019, 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.
Customer ConcentrationsNo individual client represents greater than 10% of the annual revenue.
During the Nine Months Ended June 30,three months ended December 31, 2019, and December 31, 2018, there waswere no customers that represented over 10% of the Company’s revenues. During the Nine Months Ended June 30, 2018, no customer represented over 10% of the Company’s revenues.
14 |
As of JuneDecember 31, 2019, the Company had total accounts receivable net of allowances of $13,808. Five clients comprised a total of 36% of this balance as follows:
Balance | Percent of Total | |||||||
Customer 1 | $ | 48,606 | 14 | % | ||||
Customer 2 | 20,336 | 6 | % | |||||
Customer 3 | 20,321 | 6 | % | |||||
Customer 4 | 18,746 | 5 | % | |||||
Customer 5 | 18,622 | 5 | % | |||||
All others | 222,014 | 64 | % | |||||
Total | 348,645 | 100 | % | |||||
Allowance for doubtful accounts | (154,836 | ) | ||||||
Net accounts receivable | $ | 193,809 |
As of September 30, 2019, the Company had total accounts receivable, net of allowances, of $331,346. Three$133,022. Five separate clients comprised a total of 27%41% of this balance as follows:
Balance | Percent of Total | |||||||
Customer 1 | $ | 57,067 | 12 | % | ||||
Customer 2 | 42,625 | 9 | % | |||||
Customer 3 | 28,121 | 6 | % | |||||
All others | 368,150 | 74 | % | |||||
Total | 495,963 | 100 | % | |||||
Allowance for doubtful accounts | (164,617 | ) | ||||||
Net accounts receivable | $ | 331,346 |
As of September 30, 2018, the Company had total accounts receivable, net of allowances, of $251,655. Three separate clients comprised a total of 36% of this balance as follows:
Balance | Percent of Total | |||||||
Customer 1 | $ | 180,000 | 27 | % | ||||
Customer 2 | 34,268 | 5 | % | |||||
Customer 3 | 27,317 | 4 | % | |||||
All others | 427,680 | 64 | % | |||||
Total | 669,265 | 100 | % | |||||
Allowance for doubtful accounts | (417,610 | ) | ||||||
Net accounts receivable | $ | 251,655 |
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,December 31, 2019, and September 30, 2018:2019:
June 30, 2019 | September 30, 2018 | December 31, 2019 | September 30, 2019 | |||||||||||||
Assets Not-In-Service | $ | - | $ | 455,540 | $ | $ | - | |||||||||
Capital Assets | 1,809,511 | 535,095 | 1,815,416 | 1,800,347 | ||||||||||||
Land | 212,550 | 212,550 | 212,550 | 212,550 | ||||||||||||
Buildings & Real Estate | 941,857 | 937,450 | 941,857 | 941,857 | ||||||||||||
Furniture and Equipment | 183,557 | 189,459 | 152,933 | 152,933 | ||||||||||||
Laboratory Equipment | 2,145,958 | 2,468,141 | 2,217,485 | 2,188,828 | ||||||||||||
Software | 79,057 | 63,913 | 79,653 | 78,996 | ||||||||||||
Computers | 35,086 | |||||||||||||||
Leasehold Improvements | 684,698 | 303,331 | 704,627 | 697,333 | ||||||||||||
Vehicles | 83,915 | 83,915 | 183,589 | 83,915 | ||||||||||||
Total | 6,141,103 | 5,249,394 | 6,343,196 | 6,188,777 | ||||||||||||
Accumulated depreciation | (1,221,698 | ) | (644,291 | ) | (1,797,597 | ) | (1,511,973 | ) | ||||||||
Net value | $ | 4,919,405 | $ | 4,605,103 | $ | 4,545,599 | $ | 4,676,804 |
Note 8 – Related Party Transactions
During the Nine Months Ended Juneperiods ended December 31, 2019 and September 30, 2019 the Company received loans from its Chief Operating Officer totaling $15,000$3,283 and $194,820, respectively, and made repayments totaling $5,400 and $1,040, leaving a balancerespectively. There was $141,662 and $143,780 due as of June 30, 2019 of $13,960. The advances are non-interest bearing and due on demand. There was $13,960 and $0 due as of June 30,December 31, 2019, and September 30, 20182019, respectively, and isare 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 Nine Months Ended Juneperiods ended December 30, 2019 and September 30, 2019 the Company received loans from its Chief Executive Officer totaling $0 and $75,000, respectively, and made repayments totaling $0 and $19,200, respectively. There was $55,800 and $55,800 due as of December 31, 2019, 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 December 31, 2019, and September 30, 2019, the Company made payments to Sara Lausmann, associated with the asset purchase of Oregon Analytical Services, LLC, totaling $12,000.$2,000 and $0, respectively. There was $568,299$566,289 and $580,299$568,299 of principal due as of June 30,December 31, 2019 and September 30, 2018,2019, respectively. The note carries interest at a rate of 5% per annum and had accrued interest totaling $100,737$115,036 and $79,295$107,899 due as of June 30,December 31, 2019, and September 30, 2018,2019, respectively.
During the Nine Months Ended Juneperiods ended December 31, 2019, and September 30, 2019, the Company made $25,500 in payments to Anthony Smith, our Chief Science Officer, associated with the purchase of 80% of Smith Scientific Industries.Industries, totaling $24,551 and $55,090, respectively. There was $210,500$156,359 and $236,000$180,910 of principal due as of June 30,December 31, 2019 and September 30, 2018,31, 2019, respectively. The note carries interest at a rate of 5% per annum and had accrued interest totaling $39,320$40,122 and $30,960$41,600 due as of June 30,December 31, 2019, and September 30, 2018,2019, respectively.
During the Nine Months Ended Juneperiods ended December 31, 2019, 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 $3,858.85.$0 and $3,859, respectively. There was $113,554 and $117,412$113,554 of principal due as of June 30,December 31, 2019 and September 30, 2018,2019, respectively. The note bears interest at 0% per annum and requires repayments of $25,000 quarterly.
During the Nine Months Ended Juneperiods ended December 31, 2019, 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 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 $340,000$170,000 and $170,000 of principal due as of June 30,December 31, 2019 and September 30, 2018.2019, respectively. Unamortized debt discount of $32,967$20,159 and $51,971$25,563 as of June 30,December 31, 2019 and September 30, 2018,2019, respectively and $55,164$31,982 and $39,905$59,412 of accrued interest due as of June 30,December 31, 2019 and September 30, 2018,2019, respectively.
16 |
During the Nine Months Ended Juneperiods ended December 31, 2019 and September 30, 2019, the Company received $178,894loans from a related party associate with Keystone Labs totaling $30,796 and $191,515 and made repaymentrepayments totaling $19,248 of $7,007, leaving balances$9,034. There was $372,538 and $354,050 due of $329,079 and $153,177 as of June 30,December 31, 2019 and September 30, 2018,2019, 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 0-0- shares of Series A Convertible Stock issued and outstanding as of June 30,December 31, 2019, and 2018.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,December 31, 2019, and 2018.September 30, 2019. These shares converted to common stock at a rate of 1 common share per each sharesshare 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,December 31, 2019, and 2018.September 30, 2019. These shares converted to common stock at a rate of 5 common shares per each sharesshare 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 sharesshare of Series D Convertible Preferred Stock.
During the Nine MonthsYear Ended JuneSeptember 30, 2019, the Company received conversion notices from Series D Preferred Stockholders resulting in a total of 507,500532,500 shares of common stock being issued for the conversion of 203,000 shares of Series D Preferred Stock.
During the Nine Months Ended June 30, 2018, the Company received conversion notices from Series D Preferred Stockholders resulting in a total of 700,000 shares of common stock being issued for the conversion of 280,000213,000 shares of Series D Preferred Stock.
There were 349,500 and 552,500 shares of Series D Convertible Stock issued and outstanding as Juneof December 31, 2019, and September 30, 2019, and June 30, 2018, respectively.
Common Stock
During the Nine Months Ended Junethree months ended December 31, 2019, the Company issued the following common shares:
Number of Shares issued | Description | $ Value | ||||||
422,500 | Issuance of shares as compensation to employees, officers/directors | 234,377 | ||||||
359,212 | Issuance of shares in exchange for consulting, professional and services | 16,730 | ||||||
2,285,449 | Shares issued in satisfaction of debt issuance costs | 62,500 | ||||||
26,666 | Shares issued in settlement of accounts payable | 6,000 | ||||||
18,317,481 | Issuance of shares in connection with the conversion of debentures | 1,241,782 | ||||||
3,466,353 | Issuance of shares in connection with the conversion of interest payable | 172,222 | ||||||
Total 24,877,661 | $ | 1,733,611 |
17 |
During the year ended September 30, 2019, the Company issued 1,038,017 common shares valued at $331,151$336,891 for services;services; 1,415,000 common shares for cash proceeds of $592,000; 112,500$586,000; 287,500 common shares valued at $68,250 under its employee equity incentive plan; 779,808$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 $317,100$25,110 of outstanding principal on convertible notes payable;accrued interest; 20,000 common shares for issuance of a stock purchase agreement valued at $11,760; 669,362 common shares for the conversionsettlement of $388,000 of convertible debentures; 10,163 common shares for conversion of interest payable of $2,988; 507,500debenture conversions, and 532,500 common shares for the conversion of Preferred Series D stock, and 20,000 common shares valued at $11,760 for debt issue costs.stock. All conversions of outstanding principal and accrued interest on convertible notes payable were done so at contractual terms.
During the Nine Months Ended June 30, 2018, the Company issued 269,750 common shares valued at $290,216 for services; 700,000 common shares for the conversion of 280,000 shares of Series D Preferred Stock; 2,561,392 common shares for cash proceeds of $2,041,501; 200,000 common shares valued at $440,021 under its employee equity incentive plan; 37,500 common shares for the settlement of $18,750 of accounts payable; 3,990,883 common shares for the conversion of $2,197,000 of outstanding principal on convertible notes payable; 144,852 for the conversion of $75,373 of convertible accrued interest; 324,000 common shares for the settlement of non-convertible debt and interest totaling $162,000; 125,000 common shares for the settlement of non-convertible related party debt totaling $62,500 and 670,271 common shares valued at $1,414,907 for debt issue costs from a capital raise. All conversions of outstanding principal and accrued interest on convertible notes payable were done so at contractual terms
There were 27,839,34054,192,080 and 19,719,90329,314,419 shares of common stock issued and outstanding at JuneDecember 31, 2019, and September 30, 2019 and June 30, 2018, respectively.
Note 10 – LOANS PAYABLE
The Company had the following loans payable outstanding as of June 30,December 31, 2019, and September 30, 2018:2019:
June 30, 2019 | September 30, 2018 | |||||||
On March 16, 2017, 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. | 50,338 | 60,477 | ||||||
On September 6, 2017, the Company entered into a note payable totaling $1,000,000 for the purchase of an outstanding note receivable. The note carries interest at 8% annually and is due on July 6, 2018. | - | 500,000 | ||||||
On June 28, 2018, the Company executed a note payable for $650,000 for the purchase of the building at 14775 SW 74thAve, Tigard, OR. The note carries interest at 8% annually and is due on June 28, 2021. | 628,611 | 646,231 | ||||||
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. | 750,000 | 750,000 | ||||||
1,428,949 | 1,956,708 | |||||||
Less: unamortized original issue discounts | - | (119,000 | ) | |||||
Total loans payable | 1,428,949 | 1,837,708 | ||||||
Less: current portion of loans payable | 786,931 | 643,627 | ||||||
Long-term portion of loans payable | $ | 642,018 | $ | 1,193,781 |
December 31, 2019 | 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. | 44,082 | 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. | 616,302 | 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. | 102,280 | - | ||||||
Total loans payable | 1,512,664 | 1,420,079 | ||||||
Less: current portion of loans payable | 785,931 | 762,476 | ||||||
Long-term portion of loans payable | $ | 726,733 | $ | 657,603 |
As of June 30,December 31, 2019 and September 30, 2018,2019, the Company accrued interest of $59,178$89,425 and $47,767$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 inNote 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,December 31, 2019:
Holder | Issue Date | Due Date | Principal | Unamortized Debt Discount | Carrying Value | Accrued Interest | ||||||||||||||
Noteholder 3 | 7/2/18 | 10/1/18 | 220,000 | - | 220,000 | 17,504 | ||||||||||||||
Noteholder 4 | 8/1/18 | 1/1/19 | 330,000 | - | 330,000 | 24,085 | ||||||||||||||
Noteholder 5 | 8/29/18 | 2/28/19 | 222,222 | - | 222,222 | 9,285 | ||||||||||||||
Noteholder 6 | 9/6/18 | 9/6/19 | 125,000 | (16,203 | ) | 108,797 | 10,171 | |||||||||||||
Noteholder 3 | 9/13/18 | 3/11/19 | 435,000 | - | 435,000 | - | ||||||||||||||
Noteholder 7 | 9/17/18 | 9/17/19 | 62,500 | (12,234 | ) | 50,266 | 4,897 | |||||||||||||
Noteholder 4 | 10/2/18 | 1/1/19 | 220,000 | - | 220,000 | 13,067 | ||||||||||||||
Noteholder 8 | 11/15/18 | 11/15/19 | 222,600 | (82,147 | ) | 140,453 | 11,075 | |||||||||||||
Noteholder 9 | 12/27/18 | 12/27/19 | 105,000 | (52,068 | ) | 52,932 | 4,235 | |||||||||||||
Noteholder 9 | 1/14/19 | 1/14/20 | 131,250 | (78,836 | ) | 52,414 | 4,804 | |||||||||||||
Noteholder 8 | 2/04/19 | 2/04/20 | 265,000 | (158,100 | ) | 106,900 | 8,480 | |||||||||||||
Noteholder 9 | 2/05/19 | 2/05/20 | 131,250 | (81,267 | ) | 49,983 | 4,171 | |||||||||||||
Noteholder 11 | 2/08/19 | 2/08/20 | 580,537 | (42,562 | ) | 537,974 | 22,585 | |||||||||||||
Noteholder 8 | 3/15/19 | 3/15/20 | 70,913 | - | 70,913 | 1,663 | ||||||||||||||
Noteholder 9 | 3/15/19 | 3/15/20 | 70,913 | - | 70,913 | 1,663 | ||||||||||||||
Noteholder 12 | 3/15/19 | 3/15/20 | 70,913 | - | 70,913 | 1,663 | ||||||||||||||
Noteholder 13 | 3/15/19 | 3/15/20 | 70,913 | - | 70,913 | 1,663 | ||||||||||||||
Noteholder 10 | 4/24/18 | 4/24/19 | 500,000 | - | 500,000 | - | ||||||||||||||
$ | 3,834,010 | $ | (523,418 | ) | $ | 3,310,592 | $ | 153,526 |
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 | 34,191 | ||||||||||||||
Noteholder #3 | 08/01/18 | 01/01/19 | 396,000 | - | 396,000 | 84,457 | ||||||||||||||
Noteholder #3 | 10/02/18 | 01/01/19 | 264,000 | - | 264,000 | 45,070 | ||||||||||||||
Noteholder #5 | 09/17/18 | 09/17/19 | 5,371 | - | 5,371 | 10,260 | ||||||||||||||
Noteholder #6 | 11/15/18 | 11/15/19 | - | - | - | 15,564 | ||||||||||||||
Noteholder #6 | 01/14/19 | 01/14/20 | 131,250 | (12,945 | ) | 118,305 | 10,010 | |||||||||||||
Noteholder #6 | 02/04/19 | 02/04/20 | 230,000 | (22,055 | ) | 207,945 | 19,159 | |||||||||||||
Noteholder #6 | 08/08/19 | 08/08/20 | 33,092 | (7,266 | ) | 25,826 | 1,052 | |||||||||||||
Noteholder #6 | 11/04/19 | 11/04/20 | 33,516 | (16,018 | ) | 17,498 | 419 | |||||||||||||
Noteholder #6 | 12/23/19 | 12/23/20 | 137,375 | (134,372 | ) | 3,003 | 241 | |||||||||||||
Noteholder #7 | 12/27/18 | 12/27/19 | 20,000 | - | 20,000 | 2,898 | ||||||||||||||
Noteholder #7 | 02/05/19 | 02/05/20 | 131,250 | (15,103 | ) | 116,147 | 9,262 | |||||||||||||
Noteholder #7 | 03/15/19 | 03/15/20 | 70,913 | - | 70,913 | 4,523 | ||||||||||||||
Noteholder #7 | 08/08/19 | 08/08/20 | 33,092 | (7,266 | ) | 25,826 | 1,052 | |||||||||||||
Noteholder #7 | 11/04/19 | 11/04/20 | 33,516 | (16,018 | ) | 17,498 | 419 | |||||||||||||
Noteholder #8 | 02/08/19 | 02/08/20 | 498,498 | (31,554 | ) | 466,944 | 30,962 | |||||||||||||
Noteholder #10 | 03/15/19 | 03/15/20 | 70,913 | - | 70,913 | 4,523 | ||||||||||||||
Noteholder #11 | 08/30/19 | 05/30/20 | 110,000 | (60,620 | ) | 49,380 | 2,965 | |||||||||||||
$ | 3,374,716 | $ | (323,217 | ) | $ | 3,051,499 | $ | 277,027 |
The following table summarizes all convertible notes outstanding as of September 30, 2018:2019:
Holder | Issue Date | Due Date | Principal | Unamortized Debt Discount | Carrying Value | Accrued Interest | ||||||||||||||
Noteholder 2 | 7/2/18 | 10/1/18 | 220,000 | (220 | ) | 219,780 | 4,340 | |||||||||||||
Noteholder 3 | 7/2/18 | 10/1/18 | 220,000 | (220 | ) | 219,780 | 4,340 | |||||||||||||
Noteholder 4 | 8/1/18 | 10/1/18 | 330,000 | (492 | ) | 329,508 | - | |||||||||||||
Noteholder 1 | 8/14/18 | 8/14/19 | 167,100 | (13,591 | ) | 153,509 | 2,839 | |||||||||||||
Noteholder 5 | 8/29/18 | 2/28/19 | 222,222 | (78,670 | ) | 143,552 | - | |||||||||||||
Noteholder 6 | 9/6/18 | 9/6/19 | 125,000 | (89,921 | ) | 35,079 | - | |||||||||||||
Noteholder 3 | 9/13/18 | 3/11/19 | 585,000 | (513,062 | ) | 71,938 | - | |||||||||||||
Noteholder 7 | 9/17/18 | 9/17/19 | 62,500 | (57,381 | ) | 5,119 | - | |||||||||||||
Noteholder 10 | 4/24/18 | 4/24/19 | 500,000 | 0 | 500,000 | - | ||||||||||||||
$ | 2,431,822 | $ | (753,557 | ) | $ | 1,678,265 | $ | 11,519 |
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 |
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Noteholder 1#1
On August 14, 2017,April 24, 2018, the Company soldentered 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 issued a Convertible Promissory Noteautomatically converted to an unrelated party, for the principal amount of $275,600 of which $15,600 was an original issue discount and $10,000 was paid directly to third parties resulting in cash proceeds to the Company of $250,000 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 August 14, 2018. The Note is convertible into the Company’s common stock commencing 180 days fromat $1.25 per share on the date of issuance at a conversion price equal to 75% ofmaturity date. In the event the average lowest tradetrading price of the Company’s common stock forduring the fifteenfive days prior trading days includingto maturity is less than $1.25 per share, the date of conversion. DuringCompany will pay the year ended September 30, 2018,noteholder the holder elected to convert $167,100 of principal due in exchange for 479,848 shares of common stockdifference between $1.25 and the holder elected to convert $2,988average 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 in exchange for 10,163 shares of common stock. There was $0 and $167,100 of principal and $0 and $2,839 of accrued interest due at June 30, 2019 and September 30, 2018, respectively.associated with the note.
Noteholder 2#2
On July 2, 2018, the Company sold and issued a Convertible Promissory to an unrelated party for the principal amount of $220,000 of which $20,000 was an original issue discount and $17,000 was paid directly to third parties resulting in cash proceeds to the Company of $183,000 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 October 1, 2018. The principal amount of theconvertible promissory 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. There was $0 and $220,000 of principal and $13,116 and $0 of accrued interest due June 30, 2019 and September 30, 2018, respectively. This note was purchased by Noteholders 8, 9, 12 & 13.
Noteholder 3
On July 2, 2018, the Company sold and issued a Convertible Promissory 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 of even date therewith.securities purchase agreement. The Note, together with accrued interest at the annual rate of 8%, is 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. There was $220,000 and $220,000 of principal and $17,504 and $4,340 of accrued interest due June 30, 2019 and September 30, 2018, respectively.
On September 17, 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 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. There was $435,000 of principal and $0 accrued interest due on both June 30, 2019 and September 30, 2018.
Noteholder 4
On August 1, 2018, the Company sold and issued a Convertible Promissory 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 of even date therewith. 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 $330,000 and $330,000$675,930 of principal and $24,085$34,191 of accrued interest on December 31, 2019.
Noteholder #3
On August 1, 2018, the Company sold and $10,994issued 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 $84,457 of accrued interest due at June 30, 2019 and September 30, 2018, respectively.on December 31, 2019.
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On October 2, 2018, the Company sold and issued a Convertible Promissoryconvertible 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 of even date therewith.securities purchase agreement. The Note,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 $0.60$0.50 per share.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 $220,000$264,000 of principal and $13,067$45,070 of accrued interest due at June 30,on December 31, 2019.
Noteholder 5
On August 29, 2018, the Company sold and issued a Convertible Promissory to an unrelated party for the principal amount of $222,222 of which $22,222 was an original issue discount and $5,500 was paid directly to third parties resulting in cash proceeds to the Company of $194,500 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 5%, is due on February 28, 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 $0.70 per share. There was $222,222 and $222,222 of principal and $11,075 and $0 of accrued interest due at June 30, 2019 and September 30, 2018, respectively. The holder has issued a notice of default on this promissory note.
Noteholder 6#4
On September 6, 2018, the Company sold and issued a Convertible Promissoryconvertible promissory note to an unrelated party for the principal amount of $125,000 of which $15,000 was an original issue discount parties resulting in cash proceeds to the Company of $110,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith.securities purchase agreement. The Note,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.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 $125,000 and $125,000 ofno note principal and $10,171 and $0 ofor accrued interest due at June 30, 2019 and September 30, 2018, respectively.on December 31, 2019.
Noteholder 7#5
On September 6, 2018, the Company sold and issued a Convertible Promissoryconvertible 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 of even date therewith.securities purchase agreement. The Note,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.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 $62,500 and $62,500$5,371 of principal and $4,897 and $0$10,260 of accrued interest due at June 30, 2019 and September 30, 2018, respectively.on December 31, 2019.
Noteholder 8#6
On November 15, 2018, the Company sold and issued a Convertible Promissoryconvertible 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 of even date therewith.securities purchase agreement. The Note,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 $0.55$0.50 per share.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 $222,600$00 of principal and $11,075$15,564 of accrued interest due on December 31, 2019.
On January 14, 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 June 30,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 $10,010 of accrued interest due on December 31, 2019.
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 $265,000$230,000 of principal and $8,480$19,159 accrued interest due on December 31, 2019.
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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 December 31, 2019.
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 $1,052 of accrued interest due on December 31, 2019.
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 June 30,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 $2,898 of accrued interest due on December 31, 2019.
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 $9,262 of accrued interest due on December 31, 2019.
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 $1,663$4,523 of accrued interest due at June 30, 2019.
Noteholder 9
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. The Note is convertible into the Company’s common stock commencing 180 days from the date of issuance at a conversion price equal to 65% of the lowest trade price of the Company’s common stock for the fifteen prior trading days including the date of conversion. There was $105,000 of principal and $4,235 of accrued interest due at June 30,31, 2019.
On January 14,August 8, 2019, the Company entered into a convertible note payableagreement with an unrelated party for $131,250$33,092 of which included $6,250$1,576 in third party fees resulting in net cash proceeds to the Company of $125,000.$31,516. The convertible note payable carries interest at a rate of 8% per annum, is due on January 14,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 $131,250$33,092 of principal and $4,804$1,052 of accrued interest due at June 30,on December 31, 2019.
Noteholder #8
On February 5,8, 2019, the Company entered into a convertible note payablean exchange agreement with an unrelated party for $131,250$580,537, of which included $6,250 in third party fees resulting in net cash proceedsthe loan payable to Palliatech, dated September 1, 2017, outstanding and principal would be assumed by the Company of $125,000.new note holder. The new convertible note payable carries an interest at a rate of 8%10% per annum, with one-year interest guaranteed, is due on February 5,8, 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%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. There was $131,250$498,498 of principal and $4,171$30,962 of accrued interest due at June 30,on December 31, 2019.
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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 $70,913 ofno note principal and $1,663 ofor accrued interest due at June 30,on December 31, 2019.
Noteholder 10
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. There was $500,000 principal and $0 interest due on both June 30, 2019 and September 30, 2018.
Noteholder 11
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. There was $580,537 of principal and $22,585 of accrued interest due at June 30, 2019.
Noteholder 12#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 $1,663$4,523 of accrued interest due at June 30,on December 31, 2019.
Noteholder 13#11
On March 15,August 30, 2019, the Company entered into an exchange agreementa convertible note payable with an unrelated party for $70,913,$110,000 which included $10,000 original issue discount resulting in net cash proceeds to the Company of which the loan payable to Noteholder 2, dated July 2, 2018, outstanding and principal would be assumed by the new note holder.$100,000. The new convertible note payable carries an interest at a rate of 8% per annum, is due on March 15,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 $70,913$110,000 of principal and $1,663$2,965 of accrued interest due on December 31, 2019.
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 June 30,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 December 31, 2019.
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 a period of 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 a period of two years.
During the fiscal year ended September 30, 2018, theThe 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.
During the nine month quarter ended June 30, 2019, the Company also issued nineteen additional debentures under the same terms for additional cash proceeds of $374,000. The additional debentures carry an additional 187,000 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.
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Associated with the issuance of the convertible debentures, the Company incurred cash-based issuance costs of $702,963, issued common shares valued at $1,414,907 and warrants to purchase additional shares of common stock valued at $1,265,385 for total debt issuance costs of $3,383,255. The debt issuance costs were recorded as a discount to the carrying value of the convertible debentures. The warrants associated with the debt issue costs were valued using a Black-Scholes model with the following assumptions:
The Company separately assessed the value of the detachable warrants and conversion features of the convertible debentures. The Company separately initially valued the detachable warrants issued with the convertible debentures at $3,351,160 using a Black-Scholes model with the following assumptions:
Additionally, the outstanding principal on convertible debentures totaling $6,957,000 may be converted into common stock of the Company at $0.60 per share for a total of 11,595,000 shares. Due to the variable conversion features of the outstanding convertible notes payable as discussed inNote 7 – Convertible Notes Payable, the Company cannot ascertain there will be adequate unissued authorized common shares to fulfill all share-based obligations. As a result, the warrants issued in connection with the convertible debentures are not afforded equity treatment and were recorded as a derivative liability upon initial measurement. The total initial measurement of warrants issued with the convertible debentures was $4,616,545 of which $4,465,131 was recorded as a debt discount and, when combined with debt issuance costs, represents a total debt discount of $6,583,000.
As of June 30, 2019 the Company has amortized $716,745 of the total outstanding debt discount leaving an unamortized debt discount of $3,466,045. The remaining debt discount will be amortized to interest expense over the expected life of the note. There was $5,183,000 of principal and accrued interest totaling $550,939 outstanding as of June 30, 2019.
Note 13 – Derivative Liability
As of June 30,December 31, 2019 and September 30, 2018,2019, Company had a derivative liability balance of $1,120,966$2,125,702 and $1,181,278$2,545,735 on the balance sheets and recorded a gainunrealized gains of $424,774$420,033 and $852,628 from derivative liability fair value adjustments during the ninethree months ended June 30, 2019.December 31, 2019 and 2018, 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 8 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 9 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 areis 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 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 8 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 $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,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 98 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 8 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.
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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 11,5, 2019, the Company issued a $131,250 convertible promissory note to an unrelated party that matures on February 11, 2020. Refer to Noteholder 9 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 3 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 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 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 $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.
At June 30,December 31, 2019, the Company marked-to-market the fair value of the derivative liabilities related to conversion features and determined an aggregate fair value of $835,762$2,125,050 and recorded a $208,198$238,869 gain from change in fair value for the ninethree months ended June 30,December 31, 2019. 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 123%144%, (2) risk-free interest rate of 1.92%1.59%, (3) exercise prices of $0.21$0.027 - $0.31,$0.034, and (4) expected lives of 0.380.10 – 0.621.00 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.
25 |
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,December 31, 2019, the Company marked-to-market the fair value of the derivative liabilities related to warrants and determined an aggregate fair value of $285,294$652 and recorded a $997,254$181,164 gain from change in fair value for the ninethree months ended June 30,December 31, 2019. The fair value of the derivatives was determined using a Black-Scholes option pricing model based on the following assumptions: (1) expected volatility of 123%144%, (2) risk-free interest rate of 1.92%1.59%, (3) exercise prices of $0.60 to $0.80, and (4) expected lives of 0.590.08 – 1.320.81 years.
The following table summarizes the change in derivative liabilities included in the balance sheet at June 30,December 31, 2019:
Fair Value of Derivative Liabilities: | ||||
Balance, September 30, 2018 | $ | 1,181,278 | ||
Initial measurement of derivative liabilities | 1,145,140 | |||
Change in fair market value | (1,205,452 | ) | ||
Write off due to conversion | - | |||
Balance, June 30, 2019 | $ | 1,120,966 |
Fair Value of Embedded Derivative Liabilities: | ||||
Balance, September 30, 2019 | $ | 2,545,735 | ||
Change in fair market value | (420,033 | ) | ||
Balance, December 31, 2019 | $ | 2,125,702 |
The following table summarizes the gain (loss) on derivative liability included in the income statement for the Nine Months Ended June 30,three months ended December 31, 2019 and 2018, respectively.
June 30, | Three Months Ended December 31, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Day one loss due to derivatives on convertible debt | $ | (780,678 | ) | $ | (765,115 | ) | $ | - | (98,912 | ) | ||||||
Change in fair value of derivatives | 1,205,452 | 2,922,558 | 420,033 | 951,540 | ||||||||||||
Total derivative gain (loss) | $ | 424,774 | $ | 2,157,443 | $ | 420,033 | 852,628 |
NOTE 14 – STOCK OPTIONS AND WARRANTS
The following table summarizestables summarize all stock option and warrant activity for the Nine Months Ended June 30,three months ended December 31, 2019:
Shares | Weighted-Average Exercise Price Per Share | Shares | Weighted- Average Exercise Price Per Share | |||||||||||||
Outstanding, September 30, 2018 | 4,638,050 | $ | 0.784 | |||||||||||||
Outstanding, September 30, 2019 | 5,484,970 | 0.742 | ||||||||||||||
Granted | 646,920 | 0.610 | - | - | ||||||||||||
Exercised | - | - | - | |||||||||||||
Forfeited | - | - | - | - | ||||||||||||
Expired | - | - | - | - | ||||||||||||
Outstanding, June 30, 2019 | 5,284,970 | $ | 0.796 | |||||||||||||
Outstanding, December 31, 2019 | 5,484,970 | 0.742 |
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The following table discloses information regarding outstanding and exercisable options and warrants at June 30,December 31, 2019:
Outstanding | Exercisable | Outstanding | Exercisable | |||||||||||||||||||||||||||||||||||||||||
Exercise Prices | Exercise Prices | Number of Option Shares | Weighted Average Exercise Price | Weighted Average Remaining Life (Years) | Number of Option Shares | Weighted Average Exercise Price | Exercise Prices | Number of Option Shares | Weighted Average Exercise Price | Weighted Average Remaining Life (Years) | Number of Option Shares | Weighted Average Exercise Price | ||||||||||||||||||||||||||||||||
$ | 0.400 | 110,000 | $ | 0.400 | 2.13 | 110,000 | $ | 0.400 | 0.225 | 200,000 | $ | 0.225 | 4.46 | 200,000 | $ | 0.225 | ||||||||||||||||||||||||||||
$ | 0.420 | 330,000 | $ | 0.420 | 4.55 | 330,000 | $ | 0.420 | 0.400 | 110,000 | $ | 0.400 | 1.62 | 110,000 | $ | 0.400 | ||||||||||||||||||||||||||||
$ | 0.500 | 165,000 | $ | 0.500 | 2.20 | 162,500 | $ | 0.500 | 0.420 | 330,000 | $ | 0.420 | 4.05 | 330,000 | $ | 0.420 | ||||||||||||||||||||||||||||
$ | 0.600 | 627,220 | $ | 0.600 | 0.62 | 627,220 | $ | 0.600 | 0.500 | 165,000 | $ | 0.500 | 1.70 | 162,500 | $ | 0.500 | ||||||||||||||||||||||||||||
$ | 0.650 | 145,000 | $ | 0.650 | 3.32 | 36,250 | $ | 0.650 | 0.600 | 627,220 | $ | 0.600 | 0.11 | 627,220 | $ | 0.600 | ||||||||||||||||||||||||||||
$ | 0.800 | 3,482,750 | $ | 0.800 | 1.94 | 3,095,250 | $ | 0.800 | 0.650 | 145,000 | $ | 0.650 | 2.82 | 36,250 | $ | 0.650 | ||||||||||||||||||||||||||||
$ | 0.850 | 100,000 | $ | 0.850 | 3.80 | - | $ | 0.850 | 0.800 | 3,482,750 | $ | 0.800 | 1.43 | 3,095,250 | $ | 0.800 | ||||||||||||||||||||||||||||
$ | 1.050 | 25,000 | $ | 1.050 | 4.30 | - | $ | 1.050 | 0.850 | 100,000 | $ | 0.850 | 3.29 | - | $ | 0.850 | ||||||||||||||||||||||||||||
$ | 1.260 | 220,000 | $ | 1.260 | 3.01 | 110,000 | $ | 1.260 | 1.050 | 25,000 | $ | 1.050 | 3.79 | - | $ | 1.050 | ||||||||||||||||||||||||||||
$ | 1.300 | 10,000 | $ | 1.300 | 2.31 | 7,500 | $ | 1.300 | 1.260 | 220,000 | $ | 1.260 | 2.50 | 110,000 | $ | 1.260 | ||||||||||||||||||||||||||||
$ | 1.386 | 60,000 | $ | 1.386 | 3.01 | 30,000 | $ | 1.386 | 1.300 | 10,000 | $ | 1.300 | 1.80 | 7,500 | $ | 1.300 | ||||||||||||||||||||||||||||
$ | 1.666 | 10,000 | $ | 1.666 | 3.09 | 5,000 | 1.666 | 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 | 5,284,970 | $ | 0.783 | 2.82 | 4,513,720 | $ | 0.796 | Total | 5,484,970 | $ | 0.742 | 1.95 | 4,713,720 | $ | 0.718 |
In determining theCompensation related to stock-based compensation cost of the stock options granted, the fair value of each option grant has been estimated on the date of grant using the Black-Scholes option pricing model. The assumptions used in these calculations are summarized as follows:
The Company recognized stock option expense of $167,398was $126,581 and $206,108 during$169,922, respectively, for the three months ended June 30,December 31, 2019 and 2018, respectively. There was $696,960 of unrecognized stock-based compensation expense as of June 30, 2019.2018.
Note 15 – Subsequent Events
Common Stock Issuances
The Company made the following issuances of common stock subsequent to JuneSeptember 30, 2019:
● | ||
● | ||
● | 681,183 common shares issued for the conversion of debt conversion fees of $23,000 | |
● | ||
● | 385,000 common shares issued for vesting of restricted stock grants for officers and directors | |
● | ||
● | ||
● |
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Convertible Notes Payable
On August 8, 2019,January 13, 2020, the Company entered into a convertible note payable with an unrelated party for $33,092$52,500 which included $1,575$2,500 third party fees resulting in net cash proceeds to the Company of $31,517.$50,000. The convertible note payable carries interest at a rate of 8% per annum, is due on August 8, 2020January 13, 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.
On August 8, 2019,April 13, 2020, the Company entered into a convertible note payable with an unrelated party for $33,092$66,000 which included $1,575 third party fees$6,000 originator issuer discount resulting in net cash proceeds to the Company of $31,517.$60,000. The convertible note payable carries interest at a rate of 8%12% 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.
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 MayNovember 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.
Convertible Notes Payable – Exchanged Note
On August 29, 2019, the Company entered into an exchange agreement with an unrelated party for $199,203, 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.
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 May 9, 2019, Stephanie Head, a former part-time lab administrator for EVIO Labs Eugene, LLC, filed a wrongful termination lawsuit with the US District Court - District of Oregon, Eugene Division, Case No. 6:19-CV-00681, against EVIO Labs Eugene, LLC, EVIO, Inc., and Lori Glauser. ThisIn December 2018, EVIO Labs Eugene, LLC terminated Stephanie Head because she was not available to work full-time. In February 2019, Ms. Head filed a complaint to the Oregon Bureau of Labor & Industries (“BOLI”) with allegations that she was discriminated against and unlawfully terminated. In October 2019 BOLI found substantial evidence of unlawful employment on the basis of protected whistle-blowing, but found no substantial evidence of Ms. Head’s seven other allegations of unlawful employment practice. In April 2019, BOLI notified EVIO Labs Eugene, LLC that BOLI elected not to pursue the charges further and closed the file. On January 28, 2020, the case is stillwas settled for $35,000, $25,000 payable in process.cash, and $10,000 in EVIO Common Stock.
On August 29, 2018,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 issued FIRSTFIRE GLOBAL OPPORTUNITIES FUND,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, (“Creditor”)filed a Breach of Promissory Note in the original principal amount of $220,000.00 (the “Note”). The Company failed to timely pay certain sums under the Note$750,000, plus late fees and as a result of the Breach, on or about August 7, 2019, Creditor filed aComplaint - Breach of Promissory Note inpenalties, with the Circuit Court of the 17th Judicial CircuitState in and for BrowardOregon, in Multnomah County Florida. Since such filing, the Company and Creditor have entered into a Settlement Agreement and Stipulation, pursuant to which theagainst Greenhaus Analytical Labs, LLC. The Company has agreed to issueexpensed penalties and late fees and these items are included in the Creditor 1,000,000 sharesliabilities 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 common stock under 3(a)(10) ofbalance sheet. There is no interest due associated with the Securities Act of 1933 in settlement for all claims. The settlement was approved by the court on August 27, 2019. The shares were issued on September 6, 2019.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
You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto, included elsewhere in this report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to those differences include those discussed below and elsewhere in this report, particularly in the “Risk Factors” section.
Critical Accounting Policies and Estimates.Overview
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 estimatesWe operate as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources.
EVIO, Inc., a Colorado corporation and itsthrough our subsidiaries which 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 2017. 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.
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. CR Labs, Inc. ceased operations in December, 2018 and operations were consolidated into Greenhaus Analytical Labs at its new location in Tigard, OR.
EVIO Labs Oregon, Inc. was formed on April 4, 2016 to become the holding company for Oregon 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. EVIO Labs Eugene ceased operations in December, 2018 and operations were consolidated into Greenhaus Analytical Labs at its new location in Tigard, OR.
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. 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 August 1, 2017, the Company entered into a Membership Interest Purchase Agreement with Viridis Analytics MA, LLC.
On December 29, 2017, the Company entered into a Membership Purchase Agreement to purchase 60% of the outstanding shares of C3 Labs, LLC on January 1, 2018. In August 2018, the company exercised its option to increase its ownership to 90%.
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.
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 completed on July 5, 2018.
TheOur active subsidiaries as of EVIO, Inc.December 31, 2019, 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 | |||||||
In addition to the wholly ownedwholly-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.
Three Months Ended June 30, 2019 compared to Three Months Ended June 30, 2018
Revenues and Costs of Revenues
Three Months Ended June 30 | Percentage of Revenue | |||||||||||||||||||
2019 | 2018 | Change | 2019 | 2018 | ||||||||||||||||
Testing services | $ | 1,098,310 | $ | 595,701 | $ | 502,609 | 99.7 | % | 93.9 | % | ||||||||||
Consulting services | 3,000 | 38,637 | (35,637 | ) | 0.3 | % | 6.1 | % | ||||||||||||
Total revenue | 1,101,310 | 634,338 | 466,972 | 100.0 | % | 100.0 | % | |||||||||||||
Cost of revenue | ||||||||||||||||||||
Testing services | $ | 823,540 | $ | 754,647 | $ | 68.893 | 74.8 | % | 119.0 | % | ||||||||||
Consulting services | - | 4,729 | (4,729 | ) | 0.0 | % | 0.7 | % | ||||||||||||
Depreciation | 289,523 | 70,075 | 219,448 | 26.3 | % | 11.0 | % | |||||||||||||
Total cost of revenue | 1,113,063 | 829,451 | 283,612 | 101.1 | % | 130.8 | % | |||||||||||||
Gross margin | $ | (11,753 | ) | $ | (195,113 | ) | $ | 183,360 | -1.1 | % | -30.8 | % |
Revenues
For the three months ended June 30, 2019, we generated revenues of $1,098,310 compared to $595,701 for the three months ended June 30, 2018 an increase of $502,609 or 84%. The increase was due primarily to increased testing revenue, offset by a decrease in consulting revenue of $35,637.
Gross Profit
For the three months ended June 30, 2019, gross loss was $11,753 compared to a gross loss of $195,113 for the three months ended June 30, 2018 an decrease of $183,360. The increase was primarily attributed to increase in testing volume in both Oregon and California.
Operating Expenses
Three months ending June 30 | ||||||||||||||||||||
2019 | 2018 | Change | Percent of Revenue | |||||||||||||||||
Selling, general and administrative | $ | 1,486,539 | 1,989,753 | $ | (503,214 | ) | 135.0 | % | 313.7 | % | ||||||||||
Depreciation and amortization | 62,291 | 125,500 | (63,209 | ) | 5.7 | % | 19.8 | % | ||||||||||||
Total Operating Expenses | $ | 1,548,830 | $ | 2,115,253 | $ | (566,422 | ) | 140.7 | % | 333.5 | % |
For the three months ended June 30, 2019, Total Operating Expenses were $1,548,830 compared to $2,115,253 for the three months ended June 30, 2018, a decrease of $566,422. A majority of the decrease was attributed to a reduction in third party consulting and stock option expenses in the quarter ending June 30, 2019.
Operating Income (Loss)
For the three months ended June 30, 2019, loss from operations was $1,560,583, compared to $2,310,366 for the three months ended June 30, 2018 a decrease of $749,783 or 32%. The decrease in operating loss was attributed to an increase in revenue and off-set by an increase in cost of goods sold.
Other Income (Expense)
Three months ending June 30 | ||||||||||||||||||||
2019 | 2018 | Change | Percent of Revenue | |||||||||||||||||
Interest expense, net of interest income | $ | (592,089 | ) | (1,510,076 | ) | $ | 917,987 | -53.2 | % | -238.1 | % | |||||||||
Other income (expense) | (178,549 | ) | - | (178,549 | ) | -16.0 | % | - | ||||||||||||
Gain (loss) on change in fair market value of derivative liabilities | 981,421 | 363,352 | 618,069 | 88.1 | % | 57.3 | % | |||||||||||||
Total other income (expense) | $ | 210,783 | $ | (1,146,724 | ) | $ | 1,357,507 | 18.9 | % | -180.8 | % |
For the three months ended June 30, 2019, net other income was $210,783, compared to net other expense of $1,146,724 for the three months ended June 30, 2018. The increase in other income of $1,357,507, was a result of an increase in the fair market value of derivative liabilities and reduction of interest expense, offset by an increase in other expenses.
Net Loss
Three months ending June 30 | ||||||||||||||||||||
2019 | 2018 | Change | Percent of Revenue | |||||||||||||||||
Net income (loss) | (1,349,800 | ) | (3,457,090 | ) | 2,107,290 | -122.6 | % | -545.0 | % | |||||||||||
Provision for income taxes (benefit) | 2,735 | 2,735 | 0.2 | % | 0.0 | % | ||||||||||||||
Net income (loss) attributable to noncontrolling interest | (49,257 | ) | (257,101 | ) | 207,844 | -4.5 | % | -40.5 | % | |||||||||||
Net income (loss) attributable to EVIO, Inc. shareholders | $ | (1,303,278 | ) | $ | (3,199,989 | ) | $ | 1,909,210 | -118.3 | % | -504.5 | % |
Net loss during the three months ended June 30, 2019 was $1,349,800, compared to $3,457,090 during the three months ended June 30, 2018. The reduction of $2,107,290 in net loss is the result of an increase in gross margin and reduction in operating expenses and gain on change in fair market value of derivative liabilities.
Nine Months Ended June 30, 2019 compared to Nine Months Ended June 30, 2018
Revenues
Revenues and Costs of Revenues
Nine Months Ended June 30 | Percentage of Revenue | |||||||||||||||||||
2019 | 2018 | Change | 2019 | 2018 | ||||||||||||||||
Testing services | $ | 3,020,727 | $ | 2,172,061 | $ | 848,666 | 99.9 | % | 93.9 | % | ||||||||||
Consulting services | 3,000 | 141,453 | (138,453 | ) | 0.1 | % | 6.1 | % | ||||||||||||
Total revenue | 3,023,727 | 2,313,514 | 710,213 | 100 | % | 100 | % | |||||||||||||
Cost of revenue | ||||||||||||||||||||
Testing services | $ | 2,672,706 | $ | 2,115,487 | $ | 557,219 | 88.4 | % | 91.4 | % | ||||||||||
Consulting services | - | 93,721 | (93,721 | ) | 0.0 | % | 4.1 | % | ||||||||||||
Depreciation | 901,827 | 154,894 | 746,933 | 29.8 | % | 6.7 | % | |||||||||||||
Total cost of revenue | 3,574,533 | 2,364,102 | 1,210,431 | 118.2 | % | 102.2 | % | |||||||||||||
Gross margin (loss) | $ | (550,806 | ) | $ | (50,588 | ) | $ | (500,218 | ) | -18.2 | % | -2.2 | % |
For the nine months ended June 30, 2019, EVIO generated revenues of $3,020,727 compared to $2,172,061 for the nine months ended June 30, 2018 an increase of $848,666, or 39%. The increase was due to increase in testing revenues, primarily in California, offset by a decrease in consulting revenue of $138,453.
Gross Profit
For the nine months ended June 30, 2019, gross loss was $550,806 compared to gross loss of $50,588 for the nine months ended June 30, 2018 an increase of $500,218. The increased loss was primarily attributed to increase in operating costs in California including costs to implement and validate new methods to meet the needs of California’s pesticide, heavy metals, and microbial testing regulations. Additional costs were incurred related to the relocation of the Massachusetts laboratory.
Operating Expenses
Nine months ending June 30 | ||||||||||||||||||||
2019 | 2018 | Change | Percent of Revenue | |||||||||||||||||
Selling, general and administrative | $ | 4,206,841 | 5,023,122 | $ | (816,281 | ) | 139.1 | % | 217.1 | % | ||||||||||
Depreciation and amortization | 178,273 | 266,656 | (88,383 | ) | 5.9 | % | 11.5 | % | ||||||||||||
Total Operating Expenses | $ | 4,385,114 | $ | 5,289,778 | $ | (904,664 | ) | 145.0 | % | 228.6 | % |
For the nine months ended June 30, 2019, Total Operating Expenses was $4,385,114 compared to $5,289,778 for the nine months ended June 30, 2018 a decrease of $904,663. The reduction in Operating Expenses is primarily due a reduction in administrative expenses, specifically a reduction in stock-based compensation for services.
Operating Income (Loss)
For the nine months ended June 30, 2019, loss from operations was $4,935,920, compared to $5,340,366 for the nine months ended June 30, 2018 and decrease of $404,446. The decrease in operating loss was primarily due to reduction in operating expenses, offset by a reduction in gross margin.
Other Income (Expense)
Nine months ending June 30 | ||||||||||||||||||||
2019 | 2018 | Change | Percent of Revenue | |||||||||||||||||
Interest expense, net of interest income | $ | (3,049,386 | ) | (2,897,264 | ) | $ | (152,122 | ) | -100.4 | % | -125.2 | % | ||||||||
Other income (expense) | (276,066 | ) | - | (276,066 | ) | -9.1 | % | - | ||||||||||||
Gain (loss) on settlement of debt | (56,093 | ) | 56,093 | -2.4 | % | |||||||||||||||
Gain (loss) on change in fair market value of derivative liabilities | 424,774 | 2,157,443 | (1,732,669 | ) | 14.0 | % | 93.3 | % | ||||||||||||
Total other income (expense) | $ | (2,900,678 | ) | $ | (795,914 | ) | $ | (2,104,764 | ) | -95.5 | % | -34.4 | % |
For the nine months ended June 30, 2019, the net expense from other income (expense) was $2,900,678 compared to a loss of $795,914 for the nine months ended June 30, 2018. The increase in Other Expense of $2,104,764 was primarily due to a decrease in the loss on fair market value of derivatives and increase in interest expense.
Net Loss
Nine months ending June 30 | ||||||||||||||||||||
2019 | 2018 | Change | Percent of Revenue | |||||||||||||||||
Net income (loss) | (7,836,598 | ) | (6,136,280 | ) | (1,700,318 | ) | -259.2 | % | -265.2 | % | ||||||||||
Provision for income taxes (benefit) | 5,704 | 5,704 | 0.2 | % | 0.0 | % | ||||||||||||||
Net income (loss) attributable to noncontrolling interest | (210,640 | ) | (269,897 | ) | 59,257 | -7.0 | % | -11.7 | % | |||||||||||
Net income (loss) attributable to EVIO, Inc. shareholders | $ | (7,631,662 | ) | $ | (5,866,383 | ) | $ | (1,752,780 | ) | -252.4 | % | -253.6 | % |
Net loss during the nine months ended June 30, 2019 was $7,836,598 compared to $6,136,280 during the nine months ended June 30, 2018. The increase in net loss is the result of increase in interest and operating expenses and loss and decreased gain on change in fair market value of derivative liabilities offset by increases in gross margin.
Liquidity and Capital ResourcesGoing Concern
The followingCompany’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 summarygoing 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 cash flows provided by (used in) operating, investing,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 financing activities for the nine-month periods ended June 30, 2019adverse effect upon it and 2018:
2019 | 2018 | |||||||
Operating Activities | $ | (2,356,864 | ) | $ | (3,733,471 | ) | ||
Investing Activities | (92,548 | ) | (2,458,053 | ) | ||||
Financing Activities | 2,423,814 | 7,518,460 | ||||||
Effect of exchange rates on cash and cash equivalents | 4,927 | (193,506 | ) | |||||
Net increase (decrease) in cash | $ | (20,671 | ) | $ | 1,133,430 |
Operating Activities
During the nine months ended June 30, 2019, the Company used $2,356,864 in operating activities which consisted of a net loss of $7,842,302, non-cash losses of $3,929,569 and changes in working capital of $1,555,869.
During the nine months ended June 30, 2018, the Company used $3,733,471 in operating activities which consisted of a net loss of $6,136,280, non-cash losses of $3,029,080 and changes in working capital of ($626,271).
Investing Activities
During the nine months ended June 30, 2019, the Company used $92,548 in investing activities, which consisted of the purchase of equipment of $853,644 and the recovery of notes payable of $761,096.
During the nine months ended June 30, 2018, the Company used $2,458,053 in investing activities which consisted of $883,512 of cash used to purchase equipment and $1,574,541 of cash used in acquisitions.
Financing Activities
During the nine months ended June 30, 2019, the Company acquired $2,423,814 from financing activities. The Company received $374,000 from the issuance of convertible debentures, $1,078,732 from the issuance of convertible notes, $144,193 from related party advances, $592,000 from the sale of common stock, net proceeds of $274,553 on capital leases, repayments of $30,476 on loans payable and $11,906 on related party loans payable.
During the nine months ended June 30, 2018, the Company acquired $7,518,460 from financing activities. The Company received $6,136,120 from the issuance of convertible debentures, $250,000 from the issuance of convertible notes, $2,041,501 from the sale of common stock, $7,999 from issuance of common stock warrants, made repayments of $58,103 on capital leases, repayments of $612,531 on loans payable and $246,526 on related party loans payable.
Dividends
The Company has never declared dividends.its shareholders.
Critical Accounting Policies and Estimates.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.
Three Months Ended December 31, 2019, compared to Three Months Ended December 31, 2018
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 significant accounting policies are more fully describedbusiness, or our operations.
Revenues
For the three months ended December 31, 2019, we generated revenues of $1,332,956 compared to $1,187,238 for the three months ended December 30, 2018, an increase of $145,758 or approximately 12.3%. The increase was due primarily to increased testing sales in notesOregon, partially offset by decreased testing revenue in California. California revenues decreased due to ourincreased regulatory requirements which necessitated changes in instrumentation and associated methods for pesticide testing.
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Gross Profit
For the three months ended December 31, 2019, the gross profit margin was $130,642 compared to a gross loss of $(117,190) for the three months ended December 2018 an increase of $247,832. The increase was primarily attributed to increased revenue and decreased operating costs in Oregon and Massachusetts.
Operating Expenses
For the three months ended December 31, 2019, total operating expenses were $1,296,153 compared to $1,555,506 for the three months ended December 31, 2018, a decrease of $259,353. The decrease is primarily attributable to consolidated financial statements appearing elsewhereoperations in this Form 10-Q, we believe thatOregon, and lower operating expenses in Massachusetts.
Other (Expense)
For the following accounting policies arethree months ended December 30, 2019, other expense, net was $1,138,817, compared to other expense, net of $976,345 for the most criticalthree months ended December 31, 2018. The increase in other income, net of $162,472, was primarily attributable to aid youa decrease of interest expense of $202,007, offset by a reduction in fully understandingthe gain on the change in the fair market value of derivative liabilities of $432,595.
Net Loss
Net loss during the three months ended December 31, 2019, was $1,684,109, compared to a net loss of $2,596,659 during the three months ended December 31, 2018. The reduction of $912,550 in net loss is the result of an increase in gross margin, a reduction in operating expenses, and evaluating our reported financial resultsa reduction in other expenses, net.
Liquidity and affectCapital Resources
During the more significant judgments and estimates that wethree months ended December 2019, the Company provided $121,657 in cash from operating activities compared to cash used in operating activities of $(247,720) for the preparationthree months ended December 31, 2018. The improvement of our financial statements.$369,377 is primarily attributable to a reduction in operating losses in 2019.
During the three months ended December 31, 2019, the Company used $33,124 in investing activities compared to $554,731 used in investing activities during the same period ended December 31, 2018. The reduction of $521,607 is attributable to a decrease in the purchase of fixed assets
During the three months ended December 31, 2019, net cash from financing activities was $111,804 compared to $933,876 during the same three month period ended December 31, 2018. The decrease in the 2019 period is primarily attributable a decrease in proceeds from the sale convertible notes of $910,413 and the sale of common stock of $103,000 in the 2018 period; compared to the sale of $204,407 in convertible notes and $-0- in common stock, respectively, during the 2019 period.
Revenue RecognitionDividends
In 2018 the Company recognizes revenue under 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:
In 2017 the Company’s policy was that revenues and gains will be recognized in accordance with ASC Topic 605102, “Revenue Recognition.” Under ASC Topic 6051025, revenue earning activities are recognized upon the sale and delivery of its products and services.
The Company generates revenue from consulting services, licensing agreements and testing of cannabis and cannabis products for both medicinal and recreational 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 goods or 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 product or 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 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 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.
never declared dividends.
Critical Accounting Policies and Audit PlanEstimates.
In the next twelve months, we anticipate spending approximately $180,000 - $240,000 Our Critical Accounting Policies can be found in Note 1. ORGANIZATION, BASIS OF PRESENTATION, AND SIGNIFICANT ACCOUNTING POLICIES to pay for our accounting and audit requirements.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 Reportingfinancial reporting during the ninethree months ended June 30,December 31, 2019. 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.
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 May 9, 2019, Stephanie Head, a former part-time lab administrator for EVIO Labs Eugene, LLC, filed a wrongful termination lawsuit with the US District Court - District of Oregon, Eugene Division, Case No. 6:19-CV-00681, against EVIO Labs Eugene, LLC, EVIO, Inc., and Lori Glauser. ThisIn December 2018, EVIO Labs Eugene, LLC terminated Stephanie Head because she was not available to work full-time. In February 2019, Ms. Head filed complaint to Oregon Bureau of Labor & Industries (“BOLI”) with allegations that she was discriminated against and unlawfully terminated. In October, 2019 BOLI found substantial evidence of unlawful employment on the basis of protected whistle-blowing, but found no substantial evidence of Ms. Head’s seven other allegations of unlawful employment practice. In April 2019, BOLI notified EVIO Labs Eugene, LLC that BOLI elected not to pursue the charges further and closed the file. On January 28, 2020, the case is stillwas settled for $35,000, $25,000 payable in process.cash, and $10,000 in EVIO Common Stock.
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On August 29, 2018,2019, the Company issued FIRSTFIRE GLOBAL OPPORTUNITIES FUND, LLC (“Creditor”) a Promissory Note in the original principal amount of $220,000.00 (the “Note”). The Company failed to timely pay certain sums under the Note and, as a result of the Breach, on or about August 7, 2019, Creditor filed aComplaint - Breach of Promissory Note in the Circuit Court of the 17th17th Judicial Circuit in and for Broward County, Florida. Since such filing, the Company and Creditor have entered into a Settlement Agreement and Stipulation, pursuant to which the Company has agreed to issue the Creditor 1,000,000 shares of its common stock under 3(a)(10) of the Securities Act of 1933 in settlement for all claims. The settlement was approved by the court on August 27, 2019. The shares were issued on September 6, 2019.
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.
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.
There was no other information during the quarter ended June 30,December 31, 2019, which was not previously disclosed in our filings during that period.
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 November 15, 2019.September 8, 2020.
EVIO, INC. | ||
By: | /s/ William Waldrop | |
William Waldrop | ||
Chief Executive 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 November 15, 2019.September 8, 2020.
By: | /s/ William Waldrop | |
William Waldrop | ||
Director & Principal Executive Officer | ||
By: | /s/ Lori Glauser | |
Lori Glauser | ||
Director | ||
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