UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

~~FORM 10-Q/A~~

~~(Amendment No. 1)~~

x 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, ~~2018~~2019

¨ [ ] 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)

~~EVIO, INC.~~Colorado		47-1890509
~~(Exact name of registrant as specified in its charter)~~

~~Colorado~~		~~47-1890509~~
(State of Incorporation)		(I.R.S. Employer Identification No.)

2340 W. Horizon Ridge Pkwy, Suite 120 Henderson, NV
~~62930 O. B. Riley Rd, Suite 300, Bend, OR~~		~~97703~~89052
(Address of principal executive offices)		(Zip Code)

~~(541) 633-4568~~(888) 544-3846

(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 [X] No ¨[ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 [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 [X]
		Emerging growth company	x	[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, there were 29,288,776 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.

xEVIO, INC.

FORM 10-Q

QUARTERLY PERIOD ENDED JUNE 30, 2019

~~Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.~~TABLE OF CONTENTS

~~Class~~ PART I — FINANCIAL INFORMATION			~~Outstanding as of August 14, 2018~~
~~Common stock, par value $0.0001 per share~~		~~20,098,235~~

~~EXPLANATORY NOTE~~

This amended Report on Form 10-Q includes XBRL tagging. Except for the XBRL tagging, no other changes have been made to this quarterly report. This Amendment to the Quarterly Report speaks as of the original filing date of the Quarterly Report, does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update in any way disclosures made in the original Quarterly report.

~~EVIO, INC.~~

~~FORM 10-Q~~

~~June 30, 2018~~

~~TABLE OF CONTENTS~~

~~PART I -- FINANCIAL INFORMATION~~

Item 1.	Consolidated Financial Statements (Unaudited)		3
	Consolidated Balance Sheets as of June 30, 2019 (Unaudited) and September 30, 2018	3
	Consolidated Statements of Operations for the Three and Nine Months Ended June 30, 2019 and 2018 (Unaudited)	4
	Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2019 and 2018(Unaudited)	5
	Consolidated Statements of Stockholders Equity for the Three and Nine Months Ended June 30, 2019 and 2018 (Unaudited)	6
	Notes to Unaudited Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		25	29
	Critical Accounting Policies and Estimates	29
	Business of Registrant	30
	Results of Operations	31
	Liquidity and Capital Resources	34
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		33	37
Item 4.	Control and Procedures		33	37

PART II --— OTHER INFORMATION

Item 1.	Legal Proceedings		34	38
Item 1A.	Risk Factors		34	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		34	38
Item 3.	Defaults Upon Senior Securities		34	38
Item 4.	Mine Safety Disclosures		34	38
Item 5.	Other Information		34	38
Item 6.	Exhibits		35	38

2
~~Table of Contents~~

PART I — FINANCIAL INFORMATION

~~PART I -- FINANCIAL INFORMATION~~

ITEM 1 ~~– FINANCIAL~~–FINANCIAL STATEMENTS

EVIO, INC.

CONSOLIDATED BALANCE SHEETS

June 30,
2018

September 30,
2017

(unaudited)

ASSETS

Current assets

Cash

$ 1,254,443

$ 121,013

Accounts receivable, net of allowance of $128,237 and $74,782, respectively

300,215

229,564

Prepaid expenses

8,569

169,557

Other current assets

122,225

7,438

Note receivable, current portion

100,000

100,000

Total current assets

1,785,452

627,572

Property and equipment, net of accumulated depreciation of $457,629 and $213,447, respectively

1,871,229

547,073

Security deposits

580,506

92,892

Note receivable, net of current portion

1,200,000

1,200,000

Deposits, related party

180,000

-

Intangible assets, net of accumulated amortization, net of accumulated amortization of $369,828 and $189,475, respectively

1,808,877

592,260

Goodwill

6,343,593

2,958,137

Total assets

$ 13,769,657

$ 6,017,934

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Accounts payable and accrued liabilities

$ 825,445

$ 773,053

Client deposits

117,268

119,281

Deferred revenue

30,573

40,800

Interest payable

379,332

133,697

Capital lease obligation, current

153,555

37,990

Derivative liability

1,579,258

294,637

Convertible notes payable, net of discounts of $0 and $208,680, respectively

500,000

1,212,720

Loans payable, current, net of discounts of $74 and $127,662, respectively

1,011,986

1,503,545

Loans payable, related party, current

255,915

312,855

Total current liabilities

4,853,332

4,428,578

Convertible debentures payable, net of discounts of $5,682,529 and $0, respectively

900,471

-

Capital lease obligation, net of current portion

276,866

52,777

Loans payable, net of current portion

46,448

59,832

Convertible loans payable, related party, net of current portion, net of discounts of $26,660 and $0, respectively

58,340

-

Loans payable, related party, net of current portion, net of discounts of $30,465 and $42,044, respectively

1,083,530

1,251,306

Total liabilities

7,218,987

5,792,493

Stockholders' equity

Series A Convertible Preferred Stock, Par Value $0.0001; 1,850,000 authorized; 0 shares issued and outstanding at June 30, 2018 and September 30, 2017, respectively

-

-

Series B Convertible Preferred Stock, Par Value $0.0001; 5,000,000 authorized; 5,000,000 shares issued and outstanding at June 30, 2018 and September 30, 2017, respectively

500

500

Series C Convertible Preferred Stock, Par Value $0.0001; 500,000 authorized; 500,000 shares issued and outstanding at June 30, 2018 and September 30, 2017, respectively

50

50

Series D Convertible Preferred Stock, Par Value $.0001; 1,000,000 authorized; 552,500 and 832,500 shares issued and outstanding at June 30, 2018 and September 30, 2017, respectively

55

83

Common Stock, Par Value $.0001, 1,000,000,000 authorized; 19,719,903 and 10,732,922 issued and outstanding at June 30, 2018 and September 30, 2017, respectively

1,972

1,073

Additional Paid In Capital

18,073,657

7,657,982

Other Comprehensive Income

(317,132 )

-

Accumulated Deficit

(13,458,754 )

(7,592,371 )
Total stockholders' equity

4,300,348

67,317

Non-controlling interest

2,250,322

158,124

Total equity

6,550,670

225,441

Total liabilities and stockholders' equity

$ 13,769,657

$ 6,017,934

CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2019 AND SEPTEMBER 30, 2018

(UNAUDITED)

	June 30, 2019			September 30, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	61,064		$	81,736
Accounts receivable, net of allowance of $164,617 and $414,475		331,346			234,178
Prepaid expenses		63,135			45,940
Other current assets		56,975			146,816
Note receivable, current portion		538,904			100,000
Total current assets		1,051,424			608,670
Right of use assets		2,580,812			-
Capital assets, net of accumulated depreciation of $324,257 and $123,854		1,485,254			411,241
Assets not in service		-			455,540
Land		212,550			212,550
Property and equipment, net of accumulated depreciation of $897,441 and $520,437		3,221,601			3,525,772
Security deposits		195,897			159,632
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
Total assets	$	16,263,481		$	14,354,960

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	2,813,635		$	1,546,617
Client deposits		156,964			363,211
Interest payable		952,563			416,459
Capital lease obligation, current		981,875			677,030
Derivative liability		1,120,966			1,181,2781
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
Total current liabilities		10,123,526			6,506,787
Convertible debentures, net of discounts of $3,484,269 and $4,043,836, respectively		1,716,955			1,153,164
Lease liabilities		2,630,353			-
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
Total liabilities		17,114,888			10,412,221

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		-			-
Additional paid-in capital		24,576,290			21,495,621
Retained earnings (accumulated deficit)		(26,858,124	)		(19,226,462	)
Accumulated other comprehensive income		(296,936	)		(263,985	)
Total stockholders’ equity		(2,575,401	)		2,008,105
Noncontrolling interest		1,723,994			1,934,634
Total equity		(851,407	)		3,942,739
Total liabilities and stockholders’ equity	$	16,263,481		$	14,354,960

The accompanying notes are an integral part of the consolidated financial statements.

EVIO, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (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	)

The accompanying notes are an integral part of the consolidated financial statements.

EVIO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	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.

EVIO, INC.

Consolidated Statements of Changes in Stockholders’ Equity (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

The accompanying notes are an integral part of the consolidated financial statements.

EVIO, INC.

Consolidated Statements of Changes in 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	)

The accompanying notes are an integral part of ~~these unaudited~~the consolidated financial statements.

EVIO, INC.

Consolidated Statements of Changes in 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.

~~Table of Contents~~

EVIO, INC.

Consolidated Statements of Changes in Stockholders' Equity (Unaudited)

For the Nine Months Ended June 30, 2019

EVIO, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

Three months ended June 30,

Nine months ended June 30,

2018

2017

2018

2017

Revenues

Testing services

$ 595,701

$ 767,873

$ 2,172,061

$ 2,081,877

Consulting services

38,637

9,345

141,453

196,520

Total revenue

634,338

777,218

2,313,514

2,278,397

Cost of revenue

Testing services

754,647

592,273

2,115,487

1,717,997

Consulting services

4,729

33,373

93,721

65,378

Depreciation and amortization

70,075

28,618

154,894

74,968

Total cost of revenue

829,451

654,264

2,364,102

1,858,343

Gross margin

(195,113 )

122,954

(50,588 )

420,054

Operating expenses

Selling, general and administrative

1,989,753

582,113

5,023,122

1,478,007

Depreciation and amortization

125,500

40,413

266,656

114,793

Total operating expenses

2,115,253

622,526

5,289,778

1,592,800

Loss from operations

(2,310,366 )

(499,572 )

(5,340,366 )

(1,172,746 )

Other income (expense)

Interest expense, net of interest income

(1,510,076 )

(227,879 )

(2,897,264 )

(649,288 )
Other income

-

105

-

105

Loss on settlement of debt and account payable

-

-

(56,093 )

-

Gain (loss) on change in fair market value of derivative liabilities

363,349

156,892

2,157,443

(34,386 )
Total other income (expense)

(1,146,727 )

(70,882 )

(795,914 )

(683,569 )

Net loss

$ (3,457,093 )

$ (570,454 )

$ (6,136,280 )

$ (1,856,315 )
Gain (loss) attributable to non-controlling interest

(257,101 )

(14,453 )

(269,897 )

(5,163 )
Net loss attributable to EVIO, Inc.

$ (3,199,992 )

$ (556,001 )

$ (5,866,383 )

$ (1,851,152 )

Basic and diluted loss per common share

$ (0.19 )

$ (0.06 )

$ (0.41 )

$ (0.20 )

Weighted average common shares outstanding

18,067,853

9,762,199

15,030,353

9,356,613

	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 ~~these unaudited~~the consolidated financial statements.

4
~~Table of Contents~~

EVIO, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three months ended June 30,

Nine months ended June 30,

2018

2017

2018

2017

Net loss

$ (3,199,992 )

$ (556,001 )

$ (5,866,383 )

$ (1,851,152 )

Other comprehensive income

Foreign currency translation adjustment

(317,132 )

-

(317,132 )

-

Total other comprehensive income

(317,132 )

-

(317,132 )

-

Comprehensive loss

$ (3,517,124 )

$ (556,001 )

$ (6,183,515 )

$ (1,851,152 )

~~The accompanying notes are an integral part of these unaudited consolidated financial statements.~~

5
~~Table of Contents~~

EVIO, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine months ended June 30,

2018

2017

Cash flows from operating activities

Net loss

$ (6,136,280 )

$ (1,856,315 )
Adjustments to reconcile net loss to net cash used in operating activities:

Stock based compensation

1,644,386

358,794

Common stock issued for services

450,016

-

Loss on settlement of debt

52,343

-

Loss on settlement of account payable

3,750

-

(Gain) loss on derivative liability

(2,157,443 )

34,386

Amortization of debt discount

2,561,024

549,581

Depreciation and amortization expense

421,550

189,761

Bad debt expense

53,454

-

Reduction of security deposit for rent expense

-

2,095

Changes in operating assets and liabilities:

Accounts receivable

(54,989 )

(114,643 )
Prepaid expenses

165,787

28,858

Other current asset

(71,400 )

40,000

Security deposits

(467,614 )

(75,186 )
Accounts payable and accrued liabilities

(323,907 )

274,051

Interest payable

323,165

84,359

Deferred revenue

(15,300 )

-

Deposits, related party

(180,000 )

-

Customer deposits

(2,013 )

55,127

Net cash used in operating activities

(3,733,471 )

(429,132 )

Cash flows from investing activities

Net cash paid in acquisitions of subsidiaries

(1,574,541 )

(6,930 )
Purchase of equipment

(883,512 )

(48,726 )
Net cash used in investing activities

(2,438,053 )

(55,656 )

Cash flows from financing activities

Repayments of capital leases

(58,103 )

(10,152 )
Proceeds from issuance of convertible debenture

6,136,120

-

Proceeds from exercise of common stock warrants

7,999

-

Proceeds from issuance of common stock

2,041,501

70,000

Proceeds from the issuance of series D preferred stock

-

114,500

Proceeds from convertible notes, net of original issue discounts and fees

250,000

640,000

Payment on loan payable

(612,531 )

(56,396 )
Proceeds from notes payable - related party

-

80,100

Payments on notes payable - related party

(246,526 )

(260,767 )
Net cash provided by financing activities

7,518,460

577,285

Effect of foreign currency translation adjustment

(193,506 )

-

Net cash increase for period

1,133,430

92,497

Cash balance, beginning of period

121,013

57,486

Cash balance, end of period

$ 1,254,443

$ 149,983

Supplemental disclosure of cash flow information:

Cash paid for interest

$ 171,722

$ 15,348

Cash paid for income tax

$ -

$ -

Supplemental disclosure of non-cash investing and financing activities:

Conversion of convertible note and accrued interest into common stock

$ 2,272,373

$ 501,292

Reclassification of derivative liability to additional paid in capital

$ 2,342,112

$ 1,188,126

Settlement of account payable for common stock

$ 18,750

$ -

Common stock issued for settlement of note payable

$ 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

$ 5,784,175

$ 641,637

Debt discounts recorded for original issue discounts on convertible debentures

$ 472,480

$ -

Vehicles financed through notes payable

$ -

$ 75,165

Equipment financed through capital leases

$ 385,208

$ 105,120

Conversion of Series A Preferred stock to common stock

$ -

$ 4,388

Acquisition of C3 Labs through issuance of note payable and convertible note payable

$ 600,000

$ -

Acquisition of Leaf Detective through issuance of convertible note payable

$ 500,000

$ -

Acquisition of Greenstyle Consulting assets through issuance of preferred shares, cash and note payable

$ -

$ 260,000

Acquisition of GreehHaus through issuance of preferred shares and note payable

$ -

$ 800,000

~~The accompanying notes are an integral part of these unaudited consolidated financial statements.~~

6
~~Table of Contents~~

EVIO, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, ~~2018~~2019

NOTE 1 – ~~NATURE~~ORGANIZATION, BASIS OF ~~ACTIVITIES~~PRESENTATION AND ~~CONTINUANCE OF BUSINESS~~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 ~~emerging~~developing legalized cannabis ~~industry. On August 29, 2014, Signal Bay Research completed a reverse merger with a shell company, Quantech Electronics,~~ and ~~in September 2014, changed its name~~hemp industries. The Company operates both corporate owned and ~~assumed its operations as Signal Bay.~~licensed laboratories through-out North America. Our laboratories provide testing for both cannabis and hemp products at all our labs.

~~As a part of~~Oregon: The Company operates two OLCC licensed and ~~prior to~~ORELAP accredited laboratories in Oregon. EVIO Labs Portland, located in Tigard, OR, is 100% owned by EVIO. EVIO Labs Medford, located in Central Point, OR is 80% owned by EVIO.

California: The Company operates one BCC licensed and ISO 17025 accredited laboratory in Berkeley serving both the ~~consummation of~~cannabis and hemp markets in the ~~reverse merger, William Waldrop~~state 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~~hemp market nationwide. EVIO owns 90% of this share purchase, Mr. Waldrop and Ms. Glauser became the officers and directors of the Company. In September 2014, the Company changed its name to Signal Bay, Inc. and then to EVIO, INC. in September 2017.company.

~~EVIO, Inc. has selected September 30 as its fiscal year end.~~Massachusetts: The Company is ~~domiciled~~completing the relocation and re-accreditation of our laboratory in the ~~State of Colorado, and its corporate headquarters are located in Bend, Oregon.~~state.

~~Signal Bay Services was formed on January 25, 2015, as~~Florida: The Company licenses its brand to Kaycha Holdings, which operates two ISO 17025 accredited laboratories in the ~~management services division of EVIO.~~state. Subsequent to the quarter ended, Kaycha Labs Florida is no longer operating under the EVIO Labs brand, the license agreement is still in effect.

~~On September 17, 2015,~~Colorado: The Company licenses its brand to Kaycha Holdings, which operates one ISO 17025 accredited laboratory in the ~~Company 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.~~state.

Canada: The Company operates one Health Canada licensed, GMP certified laboratory, in Edmonton, Alberta. EVIO ~~Labs OR Inc. was formed on April 4, 2016 to become the holding company for all laboratory operations in Oregon.~~owns 50% of this company.

EVIO Labs Eugene, LLC was formed on May 23, 2016, as a wholly owned subsidiary of EVIO Inc. Subsequently on May 24, 2016, EVIO Labs Eugene acquired all of the assets of Oregon Analytical Services, LLC, inclusive of client lists, equipment, trade names and personnel.

~~On June 1, 2016, the Company entered into a share purchase agreement to purchase 80% of the outstanding common stock of Smith Scientific Industries, Inc. d/b/a Kenevir Research in Medford, OR.~~

On October 19, 2016, the Company entered into a Membership Interest Purchase Agreement to purchase 100% of the ownership of GreenHaus Analytical Labs, LLC (“GreenHaus”). GreenHaus is a full-service cannabis testing laboratory.

On October 26, 2016, the Company entered in to an Asset Purchase Agreement with Green Style Consulting, LLC which was closed on November 1, 2016 (“GreenStyle”). GreenStyle is a full-service cannabis testing laboratory.

The Company entered in to a Membership Interest Purchase Agreement with Viridis Analytics MA, LLC (“Viridis”) which was closed on August 1, 2017. Viridis is a full-service cannabis testing laboratory.

On December 29, 2017, the Company entered in to a Membership Purchase Agreement to purchase 60% of the outstanding interests of C3 Labs, LLC which was closed on January 1, 2018 (“C3”). C3 is a full-service cannabis testing laboratory. See ~~Note 10 – Acquisitions~~.

On April 29, 2018, the Company entered in to an Asset Purchase Agreement with Leaf Detective, LLC (“Leaf Detective”) to purchase all of the assets of Leaf Detective which was closed on the same date. Leaf Detective is a full-service cannabis testing laboratory. See ~~Note 10 – Acquisitions~~.

On May 2, 2018, the Company entered in to a Stock Purchase Agreement with Keystone Labs, Inc. (“Keystone”) to purchase 50% of the outstanding interests of Keystone which was closed on the same date. Keystone is a full-service cannabis testing laboratory operating in Canada. See ~~Note 10 – Acquisitions~~.

~~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.

7
~~Table of Contents~~

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 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 internally generated funds such as shareholder loans and advances to finance its operations and growth. Management may raise additional capital by retaining net earnings or through future public or private offerings of the Company’s stock or through loans from private investors, although there can be no assurance that it will be able to obtain such financing. The Company’s failure to do so could have a material and adverse effect upon it and its shareholders.

~~NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES~~

Basis of Presentation

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.

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 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.

Allowance for Doubtful Accounts

The Company provides 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.

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.

Receivables Aging	Allowance
Current		2.5	%
1 – 30 Days past due		5.0	%
31 – 60 Days past due		10.0	%
61 – 90 Days past due		75.0	%
Over 91 Days past due		98.0	%

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

~~Level 1 - applies~~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 ~~assets~~transfer a liability (an exit price) in the principal 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~~most advantageous market for the asset or liability, ~~such as quoted prices for similar assets or liabilities~~ in ~~active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant~~an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs ~~are observable or can be derived principally from, or corroborated by, observable market data.~~and minimize the use of unobservable inputs.

~~Level 3 - applies to assets~~Net Income (Loss) Per Share

Basic loss per share is computed by dividing net income, or ~~liabilities~~loss, by the weighted average number of shares of common stock outstanding for ~~which there are unobservable inputs to~~ the ~~valuation methodology that are significant to~~period. Diluted earnings (loss) per share is computed by dividing net income, or loss, by the ~~measurement~~weighted average number of shares of common stock outstanding for the period. There were 26,218,351 and 15,030,353 potentially dilutive common shares outstanding as of June 30, 2019 and 2018, respectively. Because of the ~~fair value~~net losses incurred during the Nine Months Ended June 30, 2019 and 2018, the impacts of dilutive instruments would have been anti-dilutive for the ~~assets or liabilities.~~period presented and have been excluded from the diluted loss per share calculations.

The Company’s financial instruments consist principally of cash, accounts payable, and accrued liabilities. Pursuant to ASC 820 and 825, the fair value of cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.Accounting Pronouncements

~~The following table sets forth by level with~~In February 2016, the ~~fair value hierarchy the Company’s financial~~FASB issued ASU 2016-02,Leases (Topic 842). ASU 2016-02 requires lessees to recognize assets and liabilities ~~measured at fair value on June 30, 2018:~~

Level 1

Level 2

Level 3

Total

Liabilities

Derivative financial instruments

$ -

$ -

$ 1,579,258

$ 1,579,258

~~The following table sets forth by level~~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 ~~fair value hierarchy~~option to adopt the ~~Company’s~~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 ~~assets and liabilities measured at fair value on September 30, 2017:~~

Level 1

Level 2

Level 3

Total

Liabilities

Derivative financial instruments

$ -

$ -

$ 294,637

$ 294,637

8
~~Table of Contents~~
statements.

~~Recently Issued Accounting Pronouncements~~

In January 2017, the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment”. The amendments in this update simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. This update is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 31, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing after January 1, 2017. The Company notes that this guidance applies to its reporting requirements and will implement the new guidance accordingly in performing goodwill impairment testing; however, the Company does not believe this update will have a material impact on the consolidated financial statements.

~~In January 2017, the FASB issued ASU 2017-01, “~~~~Business Combinations (Topic 805): Clarifying the Definition of a Business,~~” which revises the definition of a business. This update is effective for annual periods beginning after December 15, 2017, including interim periods within those years. Early adoption is permitted. The Company notes that this guidance will impact its acquisitions beginning October 1, 2018.

In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” (“ASU 2016-1O”). The amendments in this update clarify the following two aspects to Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. The entity first identifies the promised goods or services in the contract and reduces the cost and complexity. An entity evaluates whether promised goods and services are distinct. Topic 606 includes implementation guidance on determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The Company evaluated the impacts of ASU 2016-10 and does not believe it will an impact on the Company’s revenue recognition practices and will adopt the standard on October 1, 2018.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our financial statements upon adoption

~~Net Income (Loss) Per Share~~Note 2 – Going concern

~~Basic loss per share~~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 ~~computed~~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.

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 ~~dividing~~retaining net ~~income,~~earnings or ~~loss,~~through future public or private offerings of the Company’s stock or through loans from private investors, although there can be no assurance that it will be able to obtain such financing. The Company’s failure to do so could have a material and adverse effect upon it and its shareholders.

Note 3 – FAIR VALUE OF FINANCIAL INSTRUMENTS

ASC Topic 820 establishes a fair value hierarchy, giving the highest priority to quoted prices in active markets and the lowest priority to unobservable data and requires disclosures for assets and liabilities measured at fair value based on their level in the hierarchy. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:

	●	Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
	●	Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
	●	Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

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, 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 ~~weighted average number~~fair value hierarchy the Company’s financial assets and liabilities measured at fair value on June 30, 2019:

	Level 1		Level 2		Level 3		Total
Liabilities
Derivative financial instruments	$	-	$	-	$	1,120,966	$	1,120,966

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:

	Level 1		Level 2		Level 3		Total
Liabilities
Derivative financial instruments	$	-	$	-	$	1,181,278	$	1,181,278

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 which range from 2020 to 2024.

As a result of ~~shares~~the adoption of ~~common stock outstanding~~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, net of accumulated amortization, and a corresponding lease liability of $2,828,361 at the October 1, 2018, date of adoption. 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 ~~period. Diluted earnings (loss) per share~~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 ~~computed by dividing net income, or loss, by~~calculated using the ~~weighted average number~~incremental borrowing rate at lease commencement, which takes into consideration recent debt issuances as well as other applicable market data available.

Amortization of ~~shares~~lease assets is included in general and administrative expenses. The future minimum lease payments of ~~common stock outstanding for the period. There were 13,666,226 and 10,071,182 potentially dilutive common shares outstanding~~lease liabilities as of June 30, 2018 and 2017, respectively. Because of the net losses incurred during the three and nine months ended June 30, 2018 and 2017, 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.2019, are as follows:

Year ended June 30,	Operating Leases			Financing Leases
2019		791,260		$	435,093
2020		932,082			432,177
2021		649,795			459,420
2022		519,422			234,776
2023		323,356			204,812
Thereafter		27,911			4,977
Total lease payments		3,243,826			1,771,255
Less: Payments Made		(613,473	)		(349,666	)
Total Lease Liabilities	$	2,630,353		$	1,421,589

~~Capital Leases~~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, 2019 and September 30, 2018 consist of:

	June 30, 2019			September 30, 2018
Customer list	$	860,044		$	865,672
License		503,000			503,000
Favorable lease		3,100			3,100
Domains & Websites		49,606			49,690
Non-compete agreements		183,513			184,563
Assembled Workforce		50,750			50,750
Patent		11,334			-
Intellectual Property		328,563			342,610
Total		1,970,162			1,999,385
Accumulated amortization		(603,486	)		(318,815	)
Net value	$	1,386,424		$	1,680,570

The Company ~~accounts for capital leases in accordance with ACS 840-30. During~~estimates amortization to be recorded on existing intangible assets through the year ended September 30, 2017, the Company entered into three separate long-term leases for equipment that contain a $1 buyout option upon lease termination. The Company determined these were capital leases based on the minimum buy out price and capitalized the net present value of the leases which totaled $116,800 as equipment.2030 to be:

On February 2, 2018, the Company entered into a long term lease for equipment that contain a bargain purchase option upon lease termination. The Company determined this was a capital lease based on the minimum buy out price and capitalized the net present value of the lease of $385,208 plus the required up front cash payment of $39,986 which totaled $425,194 as equipment.

	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

As of September 30, 2017, there was a total of $111,501 of future payments due through December 2019 of which $20,734 are financing charges leaving a total principal balance of $90,967 as of September 30, 2017. Of this amount, $37,990 was current and $52,777 was long term as of September 30, 2017.

As of June 30, 2018, there was a total of $470,175 of future payments due through March 2021 of which $39,754 are financing charges leaving a total principal balance of $430,421 as of June 30, 2018. Of this amount, $153,555 was current and $276,866 was long term as of June 30, 2018.

~~Future annual payments required under the capital leases through termination are as follows:~~

Year ended September 30,

Principal

Interest

Total

2018

$ 37,022

$ 7,463

$ 44,485

2019

152,912

20,569

173,481

2020

122,850

9,379

132,229

2021

117,637

2,343

119,980

Total

$ 430,421

$ 39,754

$ 470,175

9
~~Table of Contents~~

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, ~~2018 and September 30, 2017,~~2019, the Company ~~held $815,877 and $0 of~~did not hold cash at ~~one~~any financial institution in excess of the amount insured by the Federal Deposit Insurance Corporation (“FDIC”) of up to $250,000. As

Customer Concentrations

During the Nine Months Ended June 30, 2019, there was no customers that represented over 10% of the Company’s revenues. During the Nine Months Ended June 30, 2018, ~~and September 30, 2017,~~no customer represented over 10% of the ~~Company had a note receivable totaling $1,300,000 and $1,300,000 due from a single entity.~~Company’s revenues.

As of ~~September~~June 30, ~~2017,~~2019, the Company had total accounts receivable net of allowances of ~~$229,564.~~$331,346. Three ~~separate~~ clients comprised a total of ~~41%~~27% of this balance as follows:

	Balance			Percent of Total			Balance			Percent of Total
Customer 1	$	42,878			14	%	$	57,067			12	%
Customer 2		45,635			15	%		42,625			9	%
Customer 3		37,540			12	%		28,121			6	%
All others		178,294			59	%		368,150			74	%
Total		304,347			100	%		495,963			100	%
Allowance for doubtful accounts		(74,783	)					(164,617	)
Net accounts receivable	$	229,564					$	331,346

As of ~~June~~September 30, 2018, the Company had total accounts receivable, net of allowances, of ~~$300,215. Two~~$251,655. Three separate clients comprised a total of ~~21%~~36% of this balance as follows:

	Balance			Percent of Total			Balance			Percent of Total
Customer 1	$	45,635			11	%	$	180,000			27	%
Customer 2		42,921			10	%		34,268			5	%
Customer 3								27,317			4	%
All others		339,896			79	%		427,680			64	%
Total		428,452			100	%		669,265			100	%
Allowance for doubtful accounts		(128,237	)					(417,610	)
Net accounts receivable	$	300,215					$	251,655

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

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~~Table of Contents~~

The Company’s property and equipment consisted of the following as of June 30, ~~2018~~2019 and September 30, ~~2017:~~2018:

	June 30, 2018			September 30, 2017			June 30, 2019			September 30, 2018
Assets Not-In-Service							$	-		$	455,540
Capital Assets								1,809,511			535,095
Land								212,550			212,550
Buildings & Real Estate								941,857			937,450
Furniture and Equipment	$	182,062		$	146,870			183,557			189,459
Laboratory Equipment		1,859,567			439,071			2,145,958			2,468,141
Software		63,913			58,333			79,057			63,913
Leasehold Improvements		139,401			41,081			684,698			303,331
Vehicles		83,915			75,165			83,915			83,915
Total		2,328,858			760,520			6,141,103			5,249,394
Accumulated depreciation		(457,629	)		(213,447	)		(1,221,698	)		(644,291	)
Net value	$	1,871,229		$	547,073		$	4,919,405		$	4,605,103

Note 8 – Related Party Transactions

During the ~~nine months ended~~Nine Months Ended June 30, 2018, the Company capitalized a total of $425,194 of equipment purchased through capital leases. There was depreciation expense of $30,705 and $14,001 and $63,796 and $22,135 recorded on equipment purchased through capital leases during the three and nine months ended June 30, 2018 and 2017, respectively.

~~NOTE 3 – 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, 2018 and September 30, 2017 consist of:~~

June 30,
2018

September 30,
2017

Customer list

$ 1,102,462

$ 480,670

License

503,000

256,000

Favorable lease

3,100

3,100

Websites

49,574

41,965

Patent

10,278

-

Intellectual property

327,180

-

Non-compete agreements

183,111

-

Total

2,178,705

781,735

Accumulated amortization

(369,828 )

(189,475 )
Net value

$ 1,808,877

$ 592,260

~~The Company estimates amortization to be recorded on existing intangible assets through the estimated lives to be:~~

For the years ended September 30,

Amortization

2018

$ 102,585

2019

410,339

2020

387,513

2021

316,214

2022

218,460

Thereafter

373,766

Total

$ 1,808,877

~~NOTE 4 – RELATED PARTY TRANSACTIONS~~

~~Through September 30, 2017,~~2019, the Company received loans from its Chief Operating Officer totaling ~~$106,000~~$15,000 and made repayments totaling ~~$21,795~~$1,040 leaving a balance due as of ~~September 30, 2017 of $84,205. Additionally, the Company made repayments totaling $84,205 during the nine months ended~~ June 30, ~~2018.~~2019 of $13,960. The advances are non-interest bearing and due on demand. There was $0$13,960 and ~~$84,205~~$0 due as of June 30, ~~2018~~2019 and September 30, ~~2017,~~2018 and is included in the accompanying consolidated balance sheets as a current portion of notes payable to related parties.

During the ~~nine and three months ended~~Nine Months Ended June 30, 2018 and 2017, the Company incurred total expenses of $100,000 and $7,858 and $114,317 and $35,530, respectively, for management consulting services performed by Newport Commercial Advisors, an entity fully owned and controlled by our Chief Executive Officer. There was not a balance payable to Newport Commercial Advisors as of June 30, 2018 or September 30, 2017.

~~During the year ended September 30, 2017, the Company received loans from its Chief Executive Officer totaling $80,100 and made repayments totaling $75,650. Additionally,~~2019 the Company made ~~repayments~~payments to Sara Lausmann, associated with the asset purchase of Oregon Analytical Services, LLC, totaling ~~$4,450 during the nine months ended June 30, 2018. The loans are non-interest bearing and due on demand.~~$12,000. There was $0$568,299 and ~~$4,450~~$580,299 of principal due as of June 30, ~~2018~~2019 and September 30, ~~2017.~~

During the year ended September 30, 2017 the Company made repayments to Eric Ezrine, a shareholder of CR Labs, on an outstanding note payable totaling $13,139. The loans carry an interest rate of 0% per annum. There was $130 and $130 due as of June 30, 2018, and September 30, 2017. Additionally, the Company entered into a severance agreement with Mr. Ezrine whereby it agreed to make payments totaling $44,500 through August 2018. The Company made repayments of $22,050 during the year ended September 30, 2017 and $20,000 during the nine months ended June 30, 2018. There was $2,450 and $22,450 accrued as of June 30, 2018 and September 30, 2017, respectively.

11
~~Table of Contents~~

On May 24, 2016, the Company executed an asset purchase agreement with Sara Lausmann, managing member owner of Oregon Analytical Services, LLC, for $972,500. The terms of the purchase required the issuance of 200,000 shares of Series C Preferred Stock, valued at $80,000, $72,500 in a short-term loan and $700,000 in a long-term note. Through the year ended September 30, 2017, the Company repaid a total of $82,630 to Sara Lausmann, Vice President Client Services. The Company made additional repayments of $79,500 during the nine months ended June 30, 2018. The total amount outstanding is $610,370 and $689,870 as of June 30, 2018 and September 30, 2017, respectively. As of June 30, 2018 and September 30, 2017, $74,370 and $89,870 and $536,000 and $600,000 are included in the accompanying consolidated balance sheets as current and long-term portions of notes payable to related party, respectively. The ~~notes carry~~note carries interest at a rate of 5% per annum and had accrued interest totaling ~~$71,830~~$100,737 and ~~$47,409~~$79,295 due as of June 30, ~~2018~~2019 and September 30, ~~2017,~~2018, respectively.

OnDuring the Nine Months Ended June ~~1, 2016,~~30, 2019, the Company ~~executed a share purchase agreement with~~made $25,500 in payments to Anthony Smith, ~~for~~our Chief Science Officer, associated with the purchase of 80% of Smith Scientific ~~Industries for $636,000. The terms~~Industries. There was $210,500 and $236,000 of ~~the purchase required the issuance~~principal due as of ~~300,000 shares of Series C Preferred Stock, valued at $135,000~~June 30, 2019 and ~~$336,000 in a promissory note. During the year ended~~ September 30, ~~2017, the Company repaid $50,000 to Anthony Smith, our Chief Science Officer. During the nine months ended June 30,~~ 2018, ~~the Company made repayments totaling $25,000.~~respectively. The note carries interest at a rate of 5% per ~~annum.~~annum and had accrued interest totaling $39,320 and $30,960 due as of June 30, 2019 and September 30, 2018, respectively.

During the Nine Months Ended June 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. There was ~~$236,000~~$113,554 and ~~$261,000~~$117,412 of principal due as of June 30, ~~2018~~2019 and September 30, ~~2017 and $27,986 and $18,846 of accrued interest due as of June 30,~~ 2018, ~~and September 30, 2017,~~ respectively.

On October 19, 2016, the Company assumed a $194,512 payable due to Henry Grimmett, a former officer of Greenhaus and former Director of the Company, with its acquisition of Greenhaus Analytical Services, LLC. The note bears interest at 0% per annum and requires repayments of $25,000 quarterly.

During the ~~year ended September~~Nine Months Ended June 30, ~~2017,~~2019, the Company made ~~repayments totaling $25,100. Additionally, during~~no payments to Henry Grimmett, prior Company Director (retired April 2018), associated with the ~~nine months ended June 30, 2018, the Company made cash repayments~~acquisition of $2,000 and agreed to issue 125,000 shares of common stock valued at $62,500 for the settlement of $50,000 of principal resulting in a loss on the settlement of debt of $15,000. There was a total of $117,412 and $169,412 due as of June 30, 2018 and September 30, 2017 of which $50,000 is current and $67,412 is long term. Mr. Grimmett retired and resigned from the board of directors in June 2018.

~~On October 19, 2016, the~~Greenhaus Analytical Services, LLC. The Company entered into a $340,000 note payable as part of its acquisition of Greenhaus Analytical Services, LLC. ~~At the time of issuance, the note carried a debt discount of $55,277.~~ The note carries interest at a rate of 6% per annum and matures on October 16, 2020. On April 16, 2018, 25% of the outstanding principal balance, or $85,000, became convertible to common stock of the Company at the holder’s option at a rate equal to 80% of the lowest close price in the prior five trading days. The Company recorded an additional debt discount related to the fair value of the embedded conversion feature totaling $29,044. From April 16, 2018 to June 30, 2018, the Company amortized $2,384 of this to interest expense. There was $340,000 ~~and $340,000~~ of ~~total~~ principal ~~of which $85,000 and $0, was convertible~~ as of June 30, ~~2018~~2019 and September 30, ~~2017, respectively. Additionally, there was a total unamortized~~2018. Unamortized debt discount of ~~$58,375~~$32,967 and ~~$42,044,~~$51,971 as of ~~which $26,660~~June 30, 2019 and ~~$0 was related to the convertible portion of the note principal,~~September 30, 2018, respectively and ~~$34,764~~$55,164 and ~~$19,506~~$39,905 of accrued interest due as of June 30, ~~2018~~2019 and September 30, ~~2017,~~2018, respectively.

~~On November 1, 2016,~~During the Nine Months Ended June 30, 2019, the Company ~~entered into~~received $178,894 from a ~~$50,000 note payable, that contained a premium~~related party associate with Keystone Labs and made repayment of $7,416 based on fair value, to Green Style Consulting, LLC. The Green Style Consulting, LLC Managing Member is our General Manager Northern California, who was hired by the Company concurrent to the asset purchase. The note carries interest at a rate$7,007, leaving balances due of ~~5% per annum~~$329,079 and matures on October 31, 2018. During the nine months ended June 30, 2018 and the year ended September 30, 2017, the Company made repayments of $24,328 and $6,090. There was $19,582 and $43,910 of principal, $1,250 and $4,028 of unamortized note premium and $705 and $2,055 of accrued interest due$153,177 as of June 30, ~~2018~~2019 and September 30, ~~2017,~~2018, respectively.

~~On May 2, 2018, the Company assumed an outstanding related party loan payable as part of its acquisition of Keystone Labs, Inc (see~~ ~~Note 10 – Acquisitions~~~~) totaling $153,755.~~ Amounts have been adjusted for USD. The ~~loans~~advances are non-interest bearing and due on ~~demand. From~~demand and is included in the ~~date~~accompanying consolidated balance sheets as a current portion of ~~acquisition~~notes payable to ~~June 30, 2018, the Company made repayments totaling $22,340 leaving a principal balance of $131,415 due as of June 30, 2018.~~related parties.

On October 19, 2016, the Company entered into an asset purchase agreement with Green Style Consulting LLC requiring a future share of net profits generated by Green Style Consulting. The fair value of these future net profits were estimated to be $15,809. There have been no monthly net profits to distribute from the time of acquisition to June 30, 2018 and as such no repayments have been made. There was $15,809 accrued and included in accounts payable and accrued liabilities for future payments related to this earn out as of June 30, 2018 and September 30, 2017.

Through September 30, 2016, the Company borrowed a total of $16,200 from our Chief Science Officer to fund operations. The loans are non-interest bearing, due on demand and as such are included in current liabilities. During the year ended September 30, 2017 and the nine months ended June 30, 2018, the Company made repayments totaling $7,000 and $9,200, respectively. There was $0 and $9,200 due as of June 30, 2018 and September 30, 2017, respectively.

On March 5, 2018, the Company entered into an agreement with a related party to develop and, in turn, license software. As part of the agreement, the Company advanced the related party $200,000 and entered into a convertible note receivable to secure the advance as collateral. Upon default, the convertible note is due on March 5, 2021, carries interest at a rate of 8% and is convertible to common stock of the issuer at the Company’s discretion at $0.03 per share. As of June 30, 218, the Company determined do not pursue the development of the software and the related party agreed it would return the $200,000. During the nine months ended June 30, 2018, the related party made returned $20,000 leaving $180,000 outstanding as of June 30, 2018. The Company recorded the $180,000 as a deposit with related parties on the accompanying balance sheet.

12
~~Table of Contents~~

~~NOTE 5~~Note 9 – STOCKHOLDERS’ EQUITY

Series A Convertible Preferred Stock

~~The Company designated 1,850,000 shares of Series A Convertible Preferred Stock (“Series A Preferred Stock”) with a par value of $0.0001 per share.~~ The Company has 0 shares of Series A Convertible Stock issued and outstanding as of June 30, ~~2018~~2019 and ~~September 30, 2017.~~2018.

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, ~~2018~~2019 and ~~September 30, 2017.~~2018. These shares converted to common stock at a rate of 1 common share per each shares 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, ~~2018~~2019 and ~~September 30, 2017.~~2018. These shares converted to common stock at a rate of 5 common shares per each shares 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 shares of Series D Convertible Preferred Stock.

During the ~~nine months ended~~Nine Months Ended June 30, 2019, the Company received conversion notices from Series D Preferred Stockholders resulting in a total of 507,500 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 ~~accepted five separate~~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 280,000 shares of Series D Preferred Stock.

There were ~~552,500~~349,500 and ~~832,500~~552,500 shares of Series D Convertible Stock issued and outstanding as June 30, ~~2018~~2019 and ~~September~~June 30, ~~2017,~~2018, respectively.

Common Stock

~~The Company has authorized to issue up to 1,000,000,000 shares of common stock with a par value of $0.0001 per share.~~

During the ~~nine months ended~~Nine Months Ended June 30, 2019, the Company issued 1,038,017 common shares valued at $331,151 for services; 1,415,000 common shares for cash proceeds of $592,000; 112,500 common shares valued at $68,250 under its employee equity incentive plan; 779,808 common shares for the conversion of $317,100 of outstanding principal on convertible notes payable; 669,362 common shares for the conversion of $388,000 of convertible debentures; 10,163 common shares for conversion of interest payable of $2,988; 507,500 common shares for the conversion of Preferred Series D stock, and 20,000 common shares valued at $11,760 for debt issue costs. 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 ~~222,750~~269,750 common shares valued at ~~$265,527~~$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; ~~197,000~~200,000 common shares valued at $440,021 under its employee equity incentive ~~plan under which a total expense of $439,210 was recorded;~~plan; 37,500 common shares for the settlement of ~~$15,000~~$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 ~~$122,157;~~$162,000; 125,000 common shares for the settlement of non-convertible related party debt totaling ~~$50,000; 13,333 common shares for the exercise of outstanding warrants for which the Company received cash totaling $8,000~~$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.~~terms

There were ~~19,719,903~~27,839,340 and ~~10,732,922~~19,719,903 shares of common stock issued and outstanding at June 30, ~~2018~~2019 and ~~September~~June 30, ~~2017,~~2018, respectively.

13
~~Table of Contents~~

~~NOTE 6~~Note 10 – LOANS PAYABLE

The Company had the following loans payable outstanding as of June 30, ~~2018~~2019 and September 30, ~~2017:~~2018:

June 30,
2018

September 30,
2017

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.

$ 58,508

$ 71,039

On August 1, 2017, the Company entered into a note payable totaling $500,000 for the acquisition of Viridis (see note 3). The note carries interest at 8% annually and is due on July 1, 2018.

500,000

500,000

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

1,000,000

On August 31, 2017, the Company executed a note payable for $120,000 of which $20,000 was an original issue discount resulting in cash proceeds of $100,000. The note carries interest at 8% annually and is due on March 3, 2018.

-

120,000

1,058,508

1,691,039

Less: unamortized original issue discounts

(74 )

(127,662 )
Total loans payable

1,058,434

1,563,377

Less: current portion of loans payable

1,011,986

1,503,545

Long-term portion of loans payable

$ 46,448

$ 59,832

~~As discussed in~~ ~~Note 10 – Acquisitions~~, on January 1, 2018, the Company entered into a note payable for $100,000 as part of the acquisition of C3 Labs, LLC. The note was due 90 days from issuance on March 31, 2018, carried no interest and was paid in full during the period of the date of acquisition to June 30, 2018.

	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 74^thAve, 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

As of June 30, ~~2018~~2019 and September 30, ~~2017,~~2018, the Company accrued interest of ~~$59,760~~$59,178 and ~~$12,625, respectively.~~$47,767 respectively

Note 11 – Convertible NOTES PAYABLE

~~NOTE 7 – 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 913 – 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.

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

The following table summarizes all convertible notes outstanding as of September 30, ~~2017:~~

Holder

Issue Date

Due Date

Principal

Unamortized Debt Discount

Carrying
Value

Accrued
Interest

Noteholder 1

3/2/2017

3/2/2018

$ 125,000

$ (38,112 )

$ 86,888

$ 5,671

Noteholder 1

7/14/2017

7/14/2018

275,600

(11,795 )

263,805

4,712

Noteholder 1

8/14/2017

8/14/2018

275,600

(13,068 )

262,532

2,839

Noteholder 4

3/2/2017

3/2/2018

69,000

(50,009 )

18,991

7,187

Noteholder 4

6/5/2017

3/2/2018

125,000

(70,833 )

54,167

3,205

Noteholder 4

7/14/2017

7/14/2018

275,600

(11,795 )

263,805

4,470

Noteholder 4

8/14/2017

8/14/2018

275,600

(13,068 )

262,532

2,597

$ 1,421,400

$ (208,680 )

$ 1,212,720

$ 30,681

~~The following table summarizes all convertible notes outstanding as of June 30,~~ 2018:

Holder	Issue Date	Due Date	Principal		Unamortized Debt Discount		Carrying Value		Accrued Interest		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	4/24/2018	4/24/2019	$	500,000	$	-	$	500,000		-	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		-
			$	500,000	$	-	$	500,000	$	-			$	2,431,822	$	(753,557	)	$	1,678,265	$	11,519

~~Table of Contents~~

Noteholder 1

On March 2, 2017, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $125,000 resulting in cash proceeds to the Company of $125,000 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 March 2, 2018. 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 twenty prior trading days including the date of conversion. During the nine months ended June 30, 2018, the holder elected to convert a total of $125,000 of principal in exchange for 325,562 common shares. There was $0 and $125,000 of principal and $0 and $7,397 of accrued interest due at June 30, 2018 and September 30, 2017, respectively.

On July 14, 2017, the Company sold and issued a Convertible Promissory Note 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 July 14, 2018. The Note is convertible into the Company’s common stock commencing 180 days from the date of issuance at a conversion price equal to 75% of the lowest trade price of the Company’s common stock for the fifteen prior trading days including the date of conversion. During the nine months ended June 30, 2018, the holder elected to convert $275,600 of outstanding principal and $12,354 of accrued interest to 651,836 and 27,976 shares of common stock. There was $0 and $275,600 of principal and $0 and $4,712 of accrued interest due at June 30, 2018 and September 30, 2017, respectively.

On August 14, 2017, the Company sold and issued a Convertible Promissory Note 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 from the date of issuance at a conversion price equal to 75% of the lowest trade price of the Company’s common stock for the fifteen prior trading days including the date of conversion. During the ~~nine months~~year ended ~~June~~September 30, 2018, the holder elected to convert ~~$275,600~~$167,100 of ~~outstanding~~ principal due in exchange for 479,848 shares of common stock and ~~$15,464~~the holder elected to convert $2,988 of ~~accrued~~ interest ~~to 403,809 and 22,658~~due in exchange for 10,163 shares of common stock. There was $0 and ~~$275,600~~$167,100 of principal and $0 and $2,839 of accrued interest due at June 30, ~~2018~~2019 and September 30, ~~2017,~~2018, respectively.

Noteholder 42

On July ~~14, 2017,~~2, 2018, the Company sold and issued a Convertible Promissory ~~Note~~ to an unrelated party for the principal amount of ~~$275,600~~$220,000 of which ~~$15,600~~$20,000 was an original issue discount and ~~$10,000~~$17,000 was paid directly to third parties resulting in cash proceeds to the Company of ~~$250,000~~$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 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 ~~funded~~$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 ~~on May 3, 2018.~~of $200,000 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 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. There was $330,000 and $330,000 of principal and $24,085 and $10,994 of accrued interest due at June 30, 2019 and September 30, 2018, respectively.

On October 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. The Note, together with accrued interest at the annual rate of 8%, is due on January 1, 2019. The principal amount of the note and any accrued interest thereon are convertible at the option of the holder into common shares of the Company at any time at a conversion price of $0.60 per share. There was $220,000 of principal and $13,067 of accrued interest due at June 30, 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

On September 6, 2018, the Company sold and issued a Convertible Promissory 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. The Note, together with accrued interest at the annual rate of 10%, is due on September 6, 2019. The principal amount of the note and any accrued interest thereon are convertible at the option of the holder into common shares of the Company at any time at a conversion price of $0.50 per share. There was $125,000 and $125,000 of principal and $10,171 and $0 of accrued interest due at June 30, 2019 and September 30, 2018, respectively.

Noteholder 7

On September 6, 2018, the Company sold and issued a Convertible Promissory 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. The Note, together with accrued interest at the annual rate of 10%, is due on September 6, 2019. The principal amount of the note and any accrued interest thereon are convertible at the option of the holder into common shares of the Company at any time at a conversion price of $0.50 per share. There was $62,500 and $62,500 of principal and $4,897 and $0 of accrued interest due at June 30, 2019 and September 30, 2018, respectively.

Noteholder 8

On November 15, 2018, the Company sold and issued a Convertible Promissory 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. The Note, together with accrued interest at the annual rate of 8%, is due on November 15, 2019. The principal amount of the note and any accrued interest thereon are convertible at the option of the holder into common shares of the Company at any time at a conversion price of $0.55 per share. There was $222,600 of principal and $11,075 of accrued interest due at June 30, 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 of principal and $8,480 of accrued interest due at June 30, 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 ~~14, 2018.~~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 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 ~~upon funding~~commencing 180 days from the date of issuance at a conversion price equal to ~~75%~~65% of the lowest trade price of the Company’s common stock for the fifteen prior trading days including the date of conversion. ~~The Noteholder elected to convert all outstanding principal on the date the note was funded, or May 3, 2018.~~ There was $0$105,000 of principal and $0$4,235 of accrued interest due at June 30, ~~2018 and September 30, 2017 respectively.~~

~~Noteholder 5~~2019.

On January ~~1, 2018,~~14, 2019, the Company entered into a convertible note payable ~~totaling $500,000~~with an unrelated party for $131,250 of which included $6,250 in ~~exchange for~~third party fees resulting in net cash proceeds to the Company of $125,000. The convertible note payable carries interest at a ~~60% interest in C3 Labs, LLC. The note bears no interest, matures~~rate of 8% per annum, is due on ~~June 30, 2018~~January 14, 2020 and ~~automatically converted to~~is convertible into common stock of the Company at ~~$0.75 per share on~~ the ~~maturity date. In~~option of the ~~event~~noteholder six months after issuance at a rate equal to a 35% discount from the ~~average~~lowest trading price of the Company’s common stock ~~during~~in the ~~five days prior to maturity is less than $0.75 per share,~~preceding 15 trading days. There was $131,250 of principal and $4,804 of accrued interest due at June 30, 2019.

On February 5, 2019, the Company ~~was~~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 ~~pay~~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 ~~difference between $0.75 and the average~~lowest trading price ~~during~~of the Company’s common stock in the preceding ~~five days per share converted in cash. On~~15 trading days. There was $131,250 of principal and $4,171 of accrued interest due at June 30, ~~2018,~~2019.

On March 15, 2019, the Company ~~issued 666,667 shares~~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 ~~for~~of the ~~conversion~~Company at the option of ~~$500,000~~the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of ~~outstanding principal.~~the Company’s common stock in the preceding 15 trading days. There was ~~$0 and $0~~$70,913 of principal and $1,663 of accrued interest due ~~as of~~at June 30, ~~2018 and September 30, 2017, respectively.~~2019.

Noteholder 610

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 ~~of principal~~interest due ~~as of~~on both June 30, ~~2018~~2019 and September 30, ~~2017, respectively.~~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

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 of accrued interest due at June 30, 2019.

Noteholder 13

NOTE 812 – 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.

~~The~~During the fiscal year ended September 30, 2018, the Company ~~also~~ issued three separate debentures under the same terms for additional cash proceeds of $610,000. The additional debentures carry an additional 152,500 warrants to purchase additional common shares of the Company at $0.80 per share. Additionally, the outstanding principal and interest may be converted to common stock of the Company at $0.60 per share.

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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.

Associated with the issuance of the convertible debentures, the Company incurred ~~cash based~~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:

Expected term of options granted	~~2.00~~	2 years
Expected volatility		223	%
Risk-free interest rate		2.49	%
Expected dividend yield		0	%

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:

Expected term of options granted	~~2.00~~	2 years
Expected volatility	~~211-223~~	211 - 223	%
Risk-free interest rate	~~2.09-2.25~~	2.09 - 2.25	%
Expected dividend yield		0	%

Additionally, the outstanding principal on convertible debentures totaling ~~$6,583,000~~$6,957,000 may be converted into common stock of the Company at $0.60 per share for a total of ~~10,971,667~~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~~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, ~~2018~~2019 the Company has amortized ~~$900,471~~$716,745 of the total outstanding debt discount leaving an unamortized debt discount of ~~$5,682,529.~~$3,466,045. The remaining debt discount will be amortized to interest expense over the expected life of the note. There was ~~$6,583,000~~$5,183,000 of principal and accrued interest totaling ~~$184,287~~$550,939 outstanding as of June 30, ~~2018.~~2019.

~~NOTE 9~~Note 13 – ~~DERIVATIVE LIABILITY~~Derivative Liability

As of June 30, ~~2018~~2019 and September 30, ~~2017,~~2018, Company had a derivative liability balance of ~~$1,579,258~~$1,120,966 and ~~$294,637~~$1,181,278 on the balance sheets and recorded a gain of ~~$363,349 and $2,157,443~~$424,774 from derivative liability fair value adjustments during the ~~three and~~ nine months ended June 30, ~~2018. The derivative liability activity comes from convertible notes payable as follows:~~2019.

On ~~July 14, 2017,~~November 15, 2018, the Company issued a ~~$275,600 Convertible Promissory Note~~$222,600 convertible promissory note to an unrelated party that ~~matured~~matures on ~~July 14, 2018. The note bore interest at a rate of 8% per annum and was convertible into the Company’s common shares six months after issuance, at the holder’s option, at the conversion rate equal~~November 15, 2019. Refer to ~~a 25% discount from the lowest trading price in the fifteen trading days prior to conversion.~~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~~Derivatives and ~~Hedging”~~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 ~~a Monte Carlo Simulation.~~the Black-Scholes option pricing model. The aggregate fair value of the derivative at the issuance date of the note was ~~$419,722~~$220,463 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of ~~$260,000~~$184,957 which was up to the face value of the convertible note with the excess fair value at initial measurement of ~~$159,722~~$35,506 being recognized as a loss on derivative fair value measurement.

~~During the nine months ended June 30,~~On December 27, 2018, the noteholder elected to convert a total of $275,600 of principal. At June 30, 2018, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $0 and recorded a $64,148 gain from change in fair value and $355,574 due to conversion for the nine months ended June 30, 2018. The fair value of the embedded derivatives for the notes was determined using a Monte Carlo simulation model based on the following assumptions: (1) expected volatility of 128%, (2) risk-free interest rate of 1.84%, and (3) expected life of 0.22 of a year.

~~On July 14, 2017,~~ the Company issued a ~~$275,600 Convertible Promissory Note~~$105,000 convertible promissory note to an unrelated party that ~~matured~~matures on ~~July 14, 2018. The note bore interest at a rate of 8% per annum and was convertible into the Company’s common shares six months after issuance, at the holder’s option, at the conversion rate equal~~December 27, 2019. Refer to ~~a 25% discount from the lowest trading price in the fifteen trading days prior to conversion.~~Noteholder 9 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.~~

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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 a Monte Carlo simulation. The aggregate fair value of the derivative at the issuance date of the note was ~~$419,796~~$98,091 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of ~~$260,000~~$38,365 which was up to the face value of the convertible note with the excess fair value at initial measurement of ~~$159,796~~$59,725 being recognized as a loss on derivative fair value measurement.

During the nine months ended June 30, 2018, the noteholder elected to convert a total of $275,600 of principal. At June 30, 2018, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $0 and recorded a $8,276 gain from change in fair value and $411,520 due to conversion for the nine months ended June 30, 2018. The fair value of the embedded derivatives for the notes was determined using a Monte Carlo simulation model based on the following assumptions: (1) expected volatility of 128%, (2) risk-free interest rate of 1.85%, and (3) expected life of 0.07 of a year.

On ~~August 14, 2017,~~February 4, 2019, the Company issued a ~~$275,600 Convertible Promissory Note~~$265,000 convertible promissory note to an unrelated party that ~~matured~~matures on August 14, 2018. The note bore interest at a rate of 8% per annum and was convertible into the Company’s common shares six months after issuance, at the holder’s option, at the conversion rate equalFebruary 4, 2020. Refer to ~~a 25% discount from the lowest trading price in the fifteen trading days prior to conversion.~~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 a Monte Carlo Simulation. The aggregate fair value of the derivative at the issuance date of the note was ~~$330,278~~$322,521 which was recorded as a derivative liability on the balance sheet. The Company ~~recorded~~recognized a ~~debt discount~~loss of ~~$260,000 which was up to the face value of the convertible note with the excess fair value at initial measurement of $70,278 being recognized as a loss~~$322,521 on derivative fair value measurement.

During the nine months ended June 30, 2018, the noteholder elected to convert a total of $275,600 of principal. At June 30, 2018, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $0 and recorded a $13,917 gain from change in fair value and $316,361 due to the conversion for the nine months ended June 30, 2018. The fair value of the embedded derivatives for the notes was determined using a Monte Carlo simulation model based on the following assumptions: (1) expected volatility of 128%, (2) risk-free interest rate of 1.81%, and (3) expected life of 0.50 of a year.

On ~~August 14, 2017,~~February 5, 2019, the Company issued a ~~$275,600 Convertible Promissory Note~~$131,250 convertible promissory note to an unrelated party that ~~matured~~matures on August 14, 2018. The note bore interest at a rate of 8% per annum and was convertible into the Company’s common shares six months after issuance, at the holder’s option, at the conversion rate equalFebruary 5, 2020. Refer to ~~a 25% discount from the lowest trading price in the fifteen trading days prior to conversion.~~Noteholder 9 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 a Monte Carlo Simulation. The aggregate fair value of the derivative at the issuance date of the note was ~~$329,356~~$144,752 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of ~~$260,000~~$14,423 which was up to the face value of the convertible note with the excess fair value at initial measurement of ~~$69,356~~$130,329 being recognized as a loss on derivative fair value measurement.

~~During the nine months ended June 30, 2018, the noteholder elected to convert a total of $275,600 of principal. At June 30, 2018,~~On February 11, 2019, the Company ~~marked-to-market the fair value of the derivative liabilities related~~issued a $131,250 convertible promissory note to ~~notes and determined~~ an ~~aggregate fair value of $0 and recorded a $177,523 loss from change in fair value and $446,879 due~~unrelated party that matures on February 11, 2020. Refer to ~~the conversion~~Noteholder 9 under“Note 12 – Convertible Debentures” for the nine months ended June 30, 2018. The fair value of the embedded derivatives for the notes was determined using a Monte Carlo simulation model based on the following assumptions: (1) expected volatility of 129%, (2) risk-free interest rate of 1.88%, and (3) expected life of 0.29 of a year.

On April 16, 2018, $85,000 of $340,000 principal on a note with a related party became convertible to common stock at the option of the noteholder. The note bears interest at a rate of 6% per annum and was convertible into the Company’s common shares six months after issuance, at the holder’s option, at the conversion rate equal to a 20% discount from the lowest trading price in the five trading days prior to conversion.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.~~

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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 a Monte Carlo Simulation. The aggregate fair value of the derivative at the issuance date of the note was ~~$29,044~~$228,916 which was recorded as a derivative liability on the balance sheet. The Company ~~recorded~~recognized a ~~debt discount~~loss of ~~$29,044 which was up to the~~$228,916 on derivative fair value ~~of the convertible portion of the note.~~measurement.

At June 30, ~~2018,~~2019, the Company marked-to-market the fair value of the derivative liabilities related to ~~notes~~conversion features and determined an aggregate fair value of ~~$29,217~~$835,762 and recorded a ~~$173 loss~~$208,198 gain from ~~the~~ change in fair value for the nine months ended June 30, ~~2018.~~2019. The fair value of the embedded derivatives ~~for the notes~~ was determined using a ~~Monte Carlo simulation~~Black-Scholes option pricing model based on the following assumptions: (1) expected volatility of ~~128%~~123%, (2) risk-free interest rate of ~~2.55%~~1.92%, (3) exercise prices of $0.21 - $0.31, and ~~(3)~~(4) expected ~~life~~lives of ~~2.3 years.~~

On July 14, 2017, the Company issued a $275,600 Convertible Promissory Note to an unrelated party that matured on July 14, 2018. The note bore interest at a rate of 8% per annum and was convertible into the Company’s common shares at the date of funding, at the holder’s option, at the conversion rate equal to a 25% discount from the lowest trading price in the fifteen trading days prior to conversion. The note was funded on May 3, 2018 at which point it was immediately convertible. 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 a Monte Carlo Simulation. The aggregate fair value of the derivative at the issuance date of the note was $404,548 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $250,000 which was up to the face value of the convertible note with the excess fair value at initial measurement of $154,548 being recognized as a loss on derivative fair value measurement.

During the nine months ended June 30, 2018, the noteholder elected to convert a total of $275,600 of principal. At June 30, 2018, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $0 and recorded a change of $404,548 due to the conversion for the nine months ended June 30, 2018. The fair value of the embedded derivatives for the notes was determined using a Monte Carlo simulation model based on the following assumptions: (1) expected volatility of 129%, (2) risk-free interest rate of 1.86%, and (3) expected life of 0.280.38 – 0.62 of a year.

~~As discussed in~~ ~~Note 8 – Convertible Debentures~~,On October 2, 2018, the Company issued a total of ~~$6,583,000 of Convertible Debentures~~$220,000 convertible debenture to an unrelated ~~parties~~party that ~~mature~~matures on ~~dates ranging from~~ January ~~29, 2021 to March 8, 2021.~~1, 2019. The Company issued a total of ~~2,243,050~~100,000 warrants to purchase additional shares of common stock of the Company in connection with the ~~Convertible Debentures.~~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 ~~embedded~~ derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the issuance date of the warrants was ~~$4,616,545~~$57,014 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of ~~$4,465,131~~$53,333 which was up to the face value of the convertible debentures with the excess fair value at initial measurement of ~~$151,414~~$3,681 being recognized as a loss on derivative fair value measurement.

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, ~~2018,~~2019, the Company marked-to-market the fair value of the derivative liabilities related to warrants and determined an aggregate fair value of ~~$1,550,041~~$285,294 and recorded a ~~$3,054,253~~$997,254 gain from change in fair value ~~and $12,251 change due to warrant exercises~~ for the nine months ended June 30, ~~2018.~~2019. The fair value of the ~~embedded~~ derivatives ~~for the notes~~ was determined using a Black-Scholes option pricing model based on the following assumptions: (1) expected volatility of ~~118% - 129%~~123%, (2) risk-free interest rate of ~~2.52%~~1.92%, (3) exercise prices of $0.60 -to $0.80, and (4) expected lives of ~~1.59~~0.59 – ~~1.69 of a year.~~

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1.32 years.

The following table summarizes the derivative liabilities included in the balance sheet at June 30, ~~2018:~~2019:

Fair Value of Embedded Derivative Liabilities:
Balance, September 30, 2017	$	294,637
Fair Value of Derivative Liabilities:
Balance, September 30, 2018				$	1,181,278
Initial measurement of derivative liabilities		6,549,289			1,145,140
Change in fair market value		(2,922,558	)		(1,205,452	)
Write off due to conversion		(2,342,112	)		-
Balance, June 30, 2018	$	1,579,258
Balance, June 30, 2019				$	1,120,966

The following table summarizes the gain (loss) on derivative liability included in the income statement for the ~~three and nine months ended~~Nine Months Ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively.

	Three Months Ended June 30,						Nine Months Ended June 30,						June 30,
	2018			2017			2018			2017			2019			2018
Day one loss due to derivatives on convertible debt	$	(154,548	)	$	(69,734	)	$	(765,115	)	$	(421,940	)	$	(780,678	)	$	(765,115	)
Change in fair value of derivatives		517,897			226,626			2,922,558			387,554			1,205,452			2,922,558
Total derivative gain (loss)	$	363,349		$	156,892		$	2,157,443		$	(34,386	)	$	424,774		$	2,157,443

NOTE ~~10 – ACQUISITIONS~~

~~C3 Labs, LLC~~

On January 1, 2018, the Company completed its acquisition of C3 Labs, LLC (“C3 Labs”). In consideration of a 60% ownership, the Company issued a $500,000 convertible note payable which carries no interest and matures on June 30, 2018. Upon maturation, the note will convert to common stock of the Company at $0.75 per share. Additionally, the Company issued a $100,000 note payable due on March 31, 2018 which bears no interest.

~~The Company has been granted two options to purchase additional interest of C3 Labs subject to the following terms and conditions.~~

(a) 30% Option. Effective as of Closing and terminating the date three (3) years from the Closing Date, the C3 Members hereby collectively grant EVIO the right to ratably purchase from the C3 Members an aggregate of 30% of the Interests in C3 LABS following the issuance of 60% of the Interests to EVIO. EVIO may exercise its option by providing C3 LABS and the C3 Members written notice of its intent to exercise the option. The C3 Members shall have three (3) days following the date of such notice to execute assignments of Interests totaling 30% of the then outstanding membership interests in C3 LABS in favor of EVIO California. If EVIO should elect to exercise its option within nine (9) months from the Closing Date, the exercise price for the 30% of Interests shall be $450,000.00, to be paid in cash or EVIO’s common stock, as agreed by the C3 Members. If EVIO does not exercise the option within nine (9) months from the Closing Date, the exercise price shall be set by mutual agreement between the parties or, if no such agreement can be reached, as determined by an independent third-party valuation by an appraiser agreed to by the parties.

(b) 10% Option. Effective as of three (3) years after the Closing Date and terminating the date twenty four (24) months therefrom, the C3 Members hereby collectively grant EVIO the right to ratably purchase from the C3 Members an aggregate of 10% of the then outstanding Interests in C3 LABS (comprising the remaining Interests not owned by EVIO). EVIO may exercise its option by providing C3 LABS and the C3 Members written notice of its intent to exercise the option. The C3 Members shall have three (3) days following the date of such notice to execute assignments of Interests totaling 10% of the then outstanding membership interests in C3 LABS in favor of EVIO. Upon notice of its intent to exercise the option granted hereby, the exercise price shall be set by mutual agreement between the parties or, if no such agreement can be reached, as determined by an independent third-party valuation by an appraiser agreed to by the parties.

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The Company applied the acquisition method to the business combination and valued each of the assets acquired (cash, accounts receivable, security deposits, customer lists, certain testing licenses, equipment and non-compete agreements) and liabilities assumed (accounts payable and deferred rent payable) at fair value as of the acquisition date. The cash, accounts receivable, security deposits, accounts payable and deferred rent payable were deemed to be recorded at fair value as of the acquisition date. The Company determined the fair value of the equipment to be historical net book value. The preliminary allocation of the purchase price was based on estimates of the fair value of the assets and liabilities assumed based on provisional amounts. The allocation of the excess purchase price is not final and the amounts allocated to intangible assets are subject to change pending the completion of final valuations of certain assets and liabilities. Under the purchase agreement, the Company issued a $100,000 promissory note and a $500,000 convertible promissory note for total consideration of $600,000 in exchange for a 60% interest. The following table shows the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

ASSETS ACQUIRED

Cash

$ 20,468

Accounts receivable

5,110

Other current assets

3,461

Security deposits

20,000

Equipment

244,875

License

247,000

Customer list

112,000

Non-compete agreement

88,000

Goodwill

291,697

TOTAL ASSETS ACQUIRED

$ 1,032,611

LIABILITIES ASSUMED

Accounts payable

4,314

Deferred rent

28,297

TOTAL LIABILITIES ASSUMED

32,611

Non-controlling interest

(400,000 )
NET ASSETS ACQUIRED

$ 600,000

~~The license and customer list will be amortized over 7 years and non-compete agreement over 5 years~~

~~From the date of acquisition on January 1, 2018 to June 30, 2018 C3 Labs generated total revenues of $75,835.~~

~~Keystone Labs, Inc.~~

On May 2, 2018, EVIO Canada, Inc, (“EVIO Canada”), a wholly-owned subsidiary of the Company consummated certain agreements to acquire a 50% interest of Keystone Labs, Inc. (“Keystone”) for $2,495,000 Canadian Dollars in cash.

The Company applied the acquisition method to the business combination and valued each of the assets acquired (cash, accounts receivable, prepaid expenses and other current assets, websites, customer lists, certain testing licenses, equipment, non-compete agreements and other intellectual property) and liabilities assumed (accounts payable, capital lease obligations, deferred revenue and related party payables) at fair value as of the acquisition date. The cash, accounts receivable, prepaid expenses and other current assets, accounts payable, related party payables and deferred revenues were deemed to be recorded at fair value as of the acquisition date. The Company determined the fair value of the equipment to be historical net book value. The preliminary allocation of the purchase price was based on estimates of the fair value of the assets and liabilities assumed based on provisional amounts. The allocation of the excess purchase price is not final and the amounts allocated to intangible assets are subject to change pending the completion of final valuations of certain assets and liabilities. Under the purchase agreement, the Company paid a total of $2,495,000 Canadian Dollars which equated to $1,962,095 US Dollars in exchange for a 50% interest. The following table shows the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

ASSETS ACQUIRED

Cash

$ 371,278

Accounts receivable

65,815

Prepaid expenses and other current assets

38,415

Equipment

40,774

Intellectual property

334,719

Websites and domain names

18,299

Customer list

521,539

Non-compete agreement

97,302

Goodwill

2,716,027

TOTAL ASSETS ACQUIRED

$ 4,204,167

LIABILITIES ASSUMED

Accounts payable

108,207

Capital lease obligation

12,826

Related party payables

153,755

Deferred revenue

5,189

TOTAL LIABILITIES ASSUMED

279,977

Non-controlling interest

(1,962,095 )
NET ASSETS ACQUIRED

$ 1,962,095

20
~~Table of Contents~~

~~The customer list, website and domain names, non-compete agreements and intellectual property will be amortized over 7, 2, 2 and 5 years, respectively.~~

~~From the date of acquisition on May 2, 2018 to June 30, 2018 Keystone generated total revenues of $73,284.~~

~~Leaf Detective, LLC~~

On April 29, 2018, EVIO Labs Humbolt, Inc., a wholly-owned subsidiary of the Company entered into an Asset Purchase Agreement (“Agreement”) with Leaf Detective, LLC. (“Leaf Detective”). Pursuant to the Agreement, Leaf Detective agreed to sell its assets including equipment, tools, brand, customer lists, customer contracts, rental agreements, and equipment leases for total consideration of $500,000 in a Convertible Promissory Note (“Note”). The Note is convertible at $1.25 per share, bears no interest and has a maturity of 12 months from the closing of the Agreement.

The Company applied the acquisition method to the business combination and valued each of the assets acquired (equipment and lab supplies) at fair value as of the acquisition date. The lab supplies were deemed to be recorded at fair value as of the acquisition date. The Company determined the fair value of the equipment to be historical net book value. The preliminary allocation of the purchase price was based on estimates of the fair value of the assets and liabilities assumed based on provisional amounts. The allocation of the excess purchase price is not final and the amounts allocated to intangible assets are subject to change pending the completion of final valuations of certain assets and liabilities. Under the purchase agreement, the Company issued a $500,000 convertible promissory note in exchange for all assets. The following table shows the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

ASSETS ACQUIRED

Lab supplies

$ 7,715

Equipment

14,925

Goodwill

477,900

TOTAL ASSETS ACQUIRED

$ 500,000

~~From the date of acquisition on April 29, 2018 to June 30, 2018 EVIO Humboldt generated total revenues of $7,560.~~

~~NOTE 11 – INDUSTRY SEGMENTS~~

~~This summary reflects the Company’s current segments, as described below.~~

~~Corporate~~

~~The parent Company provides overall management and corporate reporting functions for the entire organization.~~

~~Consulting~~

The Company provides advisory, licensing and compliance services to the cannabis industry. Consulting clients are located in states that have state managed medical and/or recreational programs. EVIO assists these companies with license applications, business planning, state compliance and ongoing operational support.

~~Testing Services~~

The Company provides analytical testing services to the cannabis industry under the EVIO Labs brand. As of June 30, 2018, EVIO Labs has nine operating labs. EVIO Labs clients are located in Oregon, California and Massachusetts and consist of growers, processors and dispensaries. Operating under the rules of the appropriate state regulating body, EVIO Labs certifies products have been tested and are free from pesticides and other containments before resale to patients and consumers.

Nine months ended June 30, 2018

Corporate

Consulting
Services

Testing
Services

Total
Consolidated

Revenue

$ -

$ 141,453

$ 2,172,061

$ 2,313,514

Segment income (loss) from operations

(2,033,171 )

(2,059,269 )

(1,247,926 )

(5,340,366 )
Total assets

1,899,440

372,224

11,497,993

13,769,657

Capital expenditures

-

(1,038 )

(882,474 )

(883,512 )
Depreciation and amortization

-

11,246

410,304

421,550

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~~Table of Contents~~

Nine months ended June 30, 2017

Corporate

Consulting
Services

Testing
Services

Total
Consolidated

Revenue

$ -

$ 196,520

$ 2,081,877

$ 2,278,397

Segment income (loss) from operations

(589,258 )

(192,898 )

(390,590 )

(1,172,746 )
Total assets

85,877

240,459

3,644,591

3,970,927

Capital expenditures

-

(1,038 )

(47,688 )

(48,726 )
Depreciation and amortization

-

17,922

171,839

189,761

Three months ended June 30, 2018

Corporate

Consulting
Services

Testing
Services

Total
Consolidated

Revenue

$ -

$ 38,637

$ 595,701

$ 634,338

Segment income (loss) from operations

(573,239 )

(1,083,993 )

(653,134 )

(2,310,366 )
Total assets

1,899,440

372,224

11,497,993

13,769,657

Capital expenditures

-

-

(351,998 )

(351,998 )
Depreciation and amortization

-

4,075

191,500

195,575

Three months ended June 30, 2017

Corporate

Consulting
Services

Testing
Services

Total
Consolidated

Revenue

$ -

$ 9,345

$ 767,873

$ 777,218

Segment income (loss) from operations

(210,554 )

(197,546 )

(91,472 )

(499,572 )
Total assets

85,877

240,459

3,644,591

3,970,927

Capital expenditures

-

-

(2,962 )

(2,962 )
Depreciation and amortization

-

5,975

63,056

69,031

~~NOTE 12~~14 – STOCK OPTIONS AND WARRANTS

The following table summarizes all stock option and warrant activity for the ~~nine months ended~~Nine Months Ended June 30, ~~2018:~~2019:

Shares

Weighted-
Average
Exercise Price
Per Share

Outstanding, September 30, 2017

655,000

$ 0.902

Granted

4,268,049

0.795

Exercised

(13,333 )

0.600

Forfeited

(70,000 )

0.891

Expired

-

-

Outstanding, June 30, 2018

4,839,716

$ 0.809

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	Shares		Weighted-Average Exercise Price Per Share
Outstanding, September 30, 2018		4,638,050	$	0.784
Granted		646,920		0.610
Exercised				-
Forfeited		-		-
Expired		-		-
Outstanding, June 30, 2019		5,284,970	$	0.796

The following table discloses information regarding outstanding and exercisable options and warrants at June 30, ~~2018:~~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		120,000	$	0.400		3.13		90,000	$	0.400	0.400		110,000	$	0.400		2.13		110,000	$	0.400
$	0.500		165,000	$	0.500		3.20		123,750	$	0.500	0.420		330,000	$	0.420		4.55		330,000	$	0.420
$	0.600		583,966	$	0.600		1.58		583,966	$	0.600	0.500		165,000	$	0.500		2.20		162,500	$	0.500
$	0.650		145,000	$	0.650		4.32		36,250	$	0.650	0.600		627,220	$	0.600		0.62		627,220	$	0.600
$	0.800		3,195,750	$	0.800		3.49		2,420,750	$	0.800	0.650		145,000	$	0.650		3.32		36,250	$	0.650
$	1.100		170,000	$	1.100		4.97		42,500	$	1.100	0.800		3,482,750	$	0.800		1.94		3,095,250	$	0.800
$	1.260		230,000	$	1.260		4.01		57,500	$	1.260	0.850		100,000	$	0.850		3.80		-	$	0.850
$	1.280		150,000	$	1.280		4.80		18,750	$	1.280	1.050		25,000	$	1.050		4.30		-	$	1.050
$	1.300		10,000	$	1.300		3.31		5,000	$	1.300	1.260		220,000	$	1.260		3.01		110,000	$	1.260
$	1.386		60,000	$	1.386		4.01		15,000	$	1.386	1.300		10,000	$	1.300		2.31		7,500	$	1.300
$	1.666		10,000	$	1.666		4.09		2,500	$	1.666	1.386		60,000	$	1.386		3.01		30,000	$	1.386
Total			4,839,716	$	0.809		3.39		3,398,466	$	0.761
$												1.666		10,000	$	1.666		3.09		5,000		1.666
												Total		5,284,970	$	0.783		2.82		4,513,720	$	0.796

In determining the 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:

	June 30, ~~2018~~ 2019
Expected term of options granted	~~4.98 – 5.00~~	1.1 to 5.0 years
Expected volatility	~~251-256~~	102.63 to 122.49	%
Risk-free interest rate	~~2.01–2.25~~	2.57 to 2.67	%
Expected dividend yield		0	%

The Company recognized stock option expense of ~~$321,898~~$167,398 and ~~$14,133 and $1,389,666 and $63,917~~$206,108 during the three ~~and nine~~ months ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. There was ~~$1,198,583~~$696,960 of unrecognized ~~stock based~~stock-based compensation expense as of June 30, ~~2018.~~ 2019.

~~NOTE 13~~Note 15 – ~~COMMITMENTS AND CONTINGENCIES~~Subsequent Events

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. We are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.

During the year ended September 30, 2017, the Company purchased a software license for $200,000 in cash. The Company relied on the representation of the seller regarding the assignability of the license. However, independent verification of the assignability was not obtained. As a result, the Company recognized a $200,000 impairment loss on the write off of the asset. There have been no additional amounts accrued for potential losses related to the assignability of the license.

~~The Company has entered into various office and laboratory leases as well as a long term operating lease. Future minimum rental payments under the terms of the lease are:~~

Year ending September 30,

2018

168,657

2019

639,375

2020

609,812

2021

417,809

2022

291,974

2023

132,660

Total

$ 2,260,290

23
~~Table of Contents~~

~~NOTE 14 – SUBSEQUENT EVENTS~~

Common Stock Issuances

The Company made the following issuances of common stock subsequent to June 30, ~~2018:~~2019:

·● ~~165,000 common shares valued at $178,250 subject to the vesting requirements of certain agreements with employees.~~
· ~~5,000 common shares valued at $5,450 for services performed.~~
· ~~208,332~~25,000 common shares for the conversion of ~~$125,000~~10,000 shares of Series D Preferred Stock.
● 58,245 common shares for the settlement of $21,000 of accounts payable.
● 12,500 common shares valued at $6,624 for the vesting of restricted stock grants for officers and directors
● 688,017 common shares for services valued at $192,390
● 1,201,420 common shares for the conversion of $357,222 of outstanding principal on convertible ~~debentures.~~notes payable.
● 381,351 common shares for the settlement of $165,000 of outstanding interest and penalties on convertible notes payable.

~~Acquisitions~~Convertible Notes Payable

On ~~June 27, 2018, Greenhaus Analytical Labs, LLC (“Greenhaus”), a wholly-owned subsidiary of~~August 8, 2019, the Company entered into a ~~Purchase and Sale Agreement (the “PSA”)~~convertible note payable with ~~Michael G. Myers (“Myers”). Pursuant~~an unrelated party for $33,092 which included $1,575 third party fees resulting in net cash proceeds to the ~~PSA, Greenahus will acquire certain real estate for~~Company of $31,517. The convertible note payable carries interest at a ~~total purchase~~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 ~~$1,150,000, with $25,000 due upon execution of~~ the ~~PSA, $475,000 to be escrowed, and $650,000~~Company’s common stock in the form of a secured promissory note (the “Myers Note”). The Myers Note will be secured by a deed of trust for the Property and bears 8% interest per annum. The Property purchase is subject to a commercial lease held by MRX (defined below) which will be acquired by Greenhaus pursuant to the APA (below defined).

On June 27, 2018, Greenhaus executed an Asset Purchase Agreement (“APA”) with MRX Labs LLC, an Oregon limited liability company (“MRX”) which was closed on July 5, 2018. Pursuant to the APA, Greenhaus acquired certain tangible and intangible assets of MRX, including but limited to (i) furniture, (ii) fixtures, (iii) client and vender contracts, (iv) inventory, (v) goodwill, (vi) ownership rights to any copyrightable works, including all related copyright registrations, (vii) know-how or other trade secrets, whether or not reduced to practice, (viii) licenses, options to license and other contractual rights to use intellectual property, (ix) computer and electronic data processing programs and software programs, (x) equipment, (xi) customer lists, (xii) “know-how “ and proprietary information and trade secrets relating to the MRX’s business operations, (xiii) manufacturers’ warranties (including pending warranty claims) and manuals relating to the purchased assets (xiv) an irrevocable license to use the tradename “MRX Labs” for six months, (xv) certain assets specifically listed in Exhibit A of the APA and (xvi) MRX’s books and records relating to the foregoing (the “Assets”). The total purchase price for the Assets is $1,500,000, payable as a cashier’s check or wire transfer in the amount of $750,000 and a promissory note in the principal amount of $750,000.

~~Debt Issuance~~preceding 15 trading days.

On August 1,8, 2019, the Company entered into a convertible note payable with an unrelated party for $33,092 which included $1,575 third party fees resulting in net cash proceeds to the Company of $31,517. 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.

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

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

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. This case is still in process.

On August 29, 2018, the Company issued FIRSTFIRE GLOBAL OPPORTUNITIES FUND, LLC (“Creditor”) a ~~promissory note~~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 17^th Judicial Circuit in and for ~~$330,000 due at~~Broward County, Florida. Since such filing, the ~~earlier~~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 ~~October 1, 2018 or~~its common stock under 3(a)(10) of the ~~closing~~Securities Act of ~~a financing or series of financing with gross proceeds of $3,000,000.~~1933 in settlement for all claims. The ~~note bears interest at 8% per annum and had a $30,000 original issue discount. Default provisions~~settlement was approved by the court on ~~the note include a conversion feature where the holder can convert the unpaid balance to the Company’s stock at $0.60 per share.~~August 27, 2019. The shares were issued on September 6, 2019.

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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.

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.

25
~~Table of Contents~~

Business of Registrant

EVIO, ~~INC.~~Inc., a Colorado corporation and its subsidiaries ~~(“EVIO”, the “Company”, the “Registrant”, “we”, “our”, or “us”)~~ provide analytical testing and advisory services to the emerging legalized cannabis industry.

EVIO, ~~INC.~~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 ~~took over~~assumed its operations. In September 2014, the Company changed its name from Quantech Electronics Corp. to Signal Bay, Inc. then to EVIO, INC. ~~during~~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 isare located in ~~Bend, Oregon.~~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 ~~Consulting Services provides advisory and research services~~Labs Oregon, Inc. was formed on April 4, 2016 to ~~cannabis companies including regulatory licensing and compliance, industry research, operational support, educational services and operating services~~become the holding company for ~~current and prospective licensed cannabis businesses.~~Oregon laboratory operations.

EVIO ~~Inc. d/b/a EVIO~~ Labs ~~is the~~Eugene was formed on May 23, 2016, as a wholly owned ~~analytical laboratory division~~subsidiary of ~~the Company.~~ EVIO ~~Labs consists of six operating companies: CR Labs,~~ Inc. ~~d/b/a EVIO Labs Bend,~~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. ~~d/b/~~in Medford, OR.

On October 19, 2016, the Company entered into a ~~EVIO Labs Medford,~~Membership Interest Purchase Agreement to purchase 100% of the ownership of Greenhaus Analytical ~~Services LLC d/b/~~Labs, LLC.

On August 1, 2017, the Company entered into a ~~EVIO Labs Portland,~~Membership Interest Purchase Agreement with Viridis Analytics MA, ~~d/b/~~LLC.

On December 29, 2017, the Company entered into a ~~EVIO Labs MA and~~Membership Purchase Agreement to purchase 60% of the outstanding shares of C3 Labs, LLC ~~d/b/~~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 ~~Berkeley all of~~LLC which provide compliance testing services. Tests include identification of compounds and contaminants including cannabinoid potency and terpene profiling, as well as screening for residual solvents, pesticides, and hazardous microbiological growth., of cannabis products.completed on July 5, 2018.

The active subsidiaries of EVIO, Inc. are as follows:

Trade Name (dba)

Company Name

State of
Incorporation

Ownership %

Acquisition Month

~~EVIO Labs Bend (dba)~~

~~CR Labs, Inc.~~

~~Oregon~~

~~80%~~

~~September 2015~~

~~EVIO Labs Eugene~~

~~EVIO Labs Eugene, LLC~~

~~Oregon~~

~~100%~~

~~May 2016~~

EVIO Labs Medford ~~(dba)~~

Smith Scientific Industries, LLC

Oregon

~~80%~~

June 2016

EVIO Labs Portland ~~(dba)~~

Greenhaus Analytical Labs

Oregon

~~100%~~

100

October 2016

EVIO Labs MA

Viridis Analytics

Massachusetts

~~100%~~

100

August 2017

EVIO Labs Berkeley

C3 Labs, LLC

California

~~60%~~

January 2018

Keystone Labs

Keystone Labs, Inc.

Ontario, Canada

~~50%~~

May 2018

EVIO Labs Humboldt

Leaf Detective, LLC

California

~~100%~~

100

April 2018

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

RESULTS OF OPERATIONS

Three Months Ended June 30, 2019 compared to Three Months Ended June 30, 2018 ~~and 2017~~

Revenues and Costs of Revenues

									Percentage of Revenue						Three Months Ended June 30									Percentage of Revenue
	2018			2017		Change			2018			2017			2019			2018			Change			2019			2018
Testing services	$	595,701		$	767,873	$	(172,172	)		94	%		99	%	$	1,098,310		$	595,701		$	502,609			99.7	%		93.9	%
Consulting services		38,637			9,345		29,292			6	%		1	%		3,000			38,637			(35,637	)		0.3	%		6.1	%
Total revenue		634,338			777,218		(142,880	)		100	%		100	%		1,101,310			634,338			466,972			100.0	%		100.0	%

Cost of revenue
Testing services	$	754,647		$	592,273	$	162,374			119	%		76	%	$	823,540		$	754,647		$	68.893			74.8	%		119.0	%
Consulting services		4,729			33,373		(28,644	)		1	%		4	%		-			4,729			(4,729	)		0.0	%		0.7	%
Depreciation		70,075			28,618		41,457			11	%		4	%		289,523			70,075			219,448			26.3	%		11.0	%
Total cost of revenue		829,451			654,264		175,187			131	%		84	%		1,113,063			829,451			283,612			101.1	%		130.8	%

Gross profit	$	(195,113	)	$	122,954	$	(318,067	)		-31%			16	%
Gross margin															$	(11,753	)	$	(195,113	)	$	183,360			-1.1	%		-30.8	%

26
~~Table of Contents~~

Revenues

~~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 ~~were $634,338 compared~~an increase of $502,609 or 84%. The increase was due primarily to ~~$777,218 for~~increased testing revenue, offset by a decrease in consulting revenue of $35,637.

Gross Profit

For the three months ended June 30, ~~2017. The decrease in revenues during the three months ended June 30, 2018 is the result~~2019, gross loss was $11,753 compared to a gross loss of ~~a decrease of $172,172 or 22.4% in testing services completed during the current period offset with an increase in consulting services of $29,292 or 313.5%.~~

The $172,172 decrease in testing revenue was attributable to decreases in the Company’s Oregon locations partially offset by increased revenues in the Company’s locations in California, Massachusetts and Canada. For the Oregon locations, the company’s locations realized a decrease in sales of $306,287 or 41.0%. This decrease was partially offset by increased revenues in its California locations during the three months ending June 30, 2018, representing increases of $28,431 or 139.3% versus the three months ending June 30,2017. In addition, the Company’s acquisition of Viridis, a lab located in Massachusetts attributed $32,400 of revenue in the three months ending June 30, 2018 versus no revenues for the three months ending March 31, 2017. In addition, the acquisition of Keystone, the Company’s laboratory in Canada attributed $73,284 in revenue for the three months ending June 30, 2018 versus no revenue in the third quarter of 2017.

The decrease in testing revenue in the Oregon market was the result of an oversupply of tested cannabis in the Oregon market which resulted in a reduction in testing demand and the attrition of customers. The Company attributes the attrition of customers in the Oregon market to customers not being able to comply with more stringent state cannabis testing and growing standards and client’s insufficient capital to withstand the recent decrease in wholesale pricing in the overall Oregon cannabis market. Another factor causing the decrease in revenues was several customers of the Company relocated their facilities and temporarily ceased testing of their cannabis product. The Company also attributes the decrease in revenue in Medford and Portland to increased competition from other cannabis testing laboratories. Specifically, for the Medford market, cannabis is mostly grown outdoors and therefore, seasonal. Typically, outdoor cannabis is harvested in late Fall and if in demand, tested soon thereafter in November to December. However, with the oversupply of cannabis in the Oregon market, outdoor growers have stockpiled their inventory and do not plan on testing their inventory until they sell. Meanwhile, many growers have converted their crops to other non-cannabis commodities, shifting cannabis from Medford to other Oregon markets, such as Portland, Bend and Eugene. The decrease in testing revenue was partially offset by the increased revenues from the start of operations of Viridis Analytics, the Company’s Massachusetts location for the three months ending June 30, 2018 versus the three months ending March 31, 2017, the purchase of Keystone, the Company’s Canadian location in the city of Edmonton and the start of operations of the Company’s California locations in cities of Berkeley and Humboldt.

Effective January 1, 2018, the state of California started to require mandatory compliance testing. However, the state of California has not begun to enforce this mandatory requirement. Enforcement was expected to initiate on July 1, 2018. However, the Company expects that the state of California will start to enforce the mandated compliance testing for all cannabis products sold no sooner than December 31, 2018. Until compliance testing is required and enforced by the state of California for all cannabis sold or distributed, the Company expects its revenues in its California locations to remain fairly consistent between periods.

The commonwealth of Massachusetts required that all cannabis licensed testing laboratories obtain International Organization Standardization (ISO) accreditation. During the three months ending June 30, 2018, the Company did not have this accreditation. The Company obtained ISO 17025 accreditation in August 2018.

~~Cost of revenues~~$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 ~~$829,451~~$1,548,830 compared to ~~$654,264~~$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 ~~the cost~~other income of ~~revenues during the three months ended June 30, 2018 is the~~$1,357,507, was a result of the increased direct costs associated with providing testing services. This increase is the result of increased personnel costs at the Company’s new locations such as Canada, Massachusetts and California. In addition, the Company incurred increased costs for International Organization Standardization (ISO) accreditations required in California and Massachusetts. Cost of revenues for Depreciation and amortization increased to $70,075 for the three months ending June 30, 2018 from $28,618 for the three months ending June 30, 2017, an increase of $41,457 or 144.9%. The increase in depreciation and amortization correlates to the increase in property and equipment. As of June 30, 2018, the company had net property and equipment of $1,871,229 compared to June 30, 2017 of $434,893, an increase of $1,436,336 or 330.3%.

Gross loss for the three months ended June 30, 2018 was $195,113 compared to a gross profit of $122,954 during the three months ended June 30, 2017. This decrease in gross profit is the result of decreased revenues in the ~~Oregon markets partially offset by increased revenues in California~~fair market value of derivative liabilities and ~~revenues from acquired locations in Massachusetts and Canada net~~reduction of ~~increased costs of revenue attributable to increased costs from the Company’s new locations such as headcount and depreciation from new equipment.~~

~~Operating Expenses~~

Percentage of Revenue

2018

2017

Change

2018

2017

Selling, general and administrative

$ 1,989,753

582,113

$ 1,407,640

313 %

75 %
Depreciation and amortization

125,500

40,413

85,087

20 %

5 %

$ 2,115,253

$ 622,526

$ 1,492,727

333 %

80 %

27
~~Table of Contents~~

Total operating expenses during the three months ended June 30, 2018 were $2,115,253 compared to $622,526 during the three months ended June 30, 2017. The Company experienced an increase of $1,492,727 in selling, general and administrative expenses during the three months ended June 30, 2018 compared to the three months ended June 30, 2017 due to increased business size due to acquisitions and organic growth that has occurred during the period of January 1, 2017 to March 31, 2018, 2017. Additionally, total stock based compensation included in selling, general and administrative expenses was $605,267 during the three months ended June 30, 2018 compared to $110,843 during the same period in 2017. There was an increase of $85,087 in depreciation and amortization which was driven by the amortization of intangible assets and equipment associated with the acquisition completed during. In addition to the stock based compensation and amortization, the increase in selling, general and administration was due to increased spending in marketing and advertising, increased personnel in selling, marketing, corporate and administrative functions, costs associated with the Company’s attendance at industry and trade conferences, start-up costs for two new locations in California and Massachusetts, travel costs and increased health care premiums.

~~Other Income (Expense)~~

Percentage of Revenue

2018

2017

Change

2018

2017

Interest expense, net of interest income

$ (1,510,076 )

(227,879 )

$ (1,282,197 )

-238%

-29%

Other income

-

105

(105 )

0 %

0 %
Gain (loss) on change in fair market value of derivative liabilities

363,349

156,892

206,457

57 %

20 %

$ (1,146,727 )

$ (70,882 )

$ (1,075,845 )

-181%

-9%

Total other income (expense) was a net expense of $1,146,727 during the three months ended June 30, 2018 compared to a net expense of $70,882 during the three months ended June 30, 2017. The increase in net expense of $1,075,845 is from the increase in interest expense, ~~of $1,282,197 from the recognition of debt discounts associated with convertible and non-convertible notes payable as well as convertible debentures payable~~ offset by an increase ~~of $206,457~~ in gains recognized on the fair value measurements of derivative liabilities. Specifically, the amortization of debt discounts included in interest expense increased from $192,029 during the three months ended June 30, 2017 to $1,361,865 during the three months ended June 30, 2018 resulting in an additional $1,169,836 of interest expense being recognized in the current period when compared to the same period in 2017.other expenses.

Net Loss

Percentage of Revenue

2018

2017

Change

2018

2017

Net loss

$ (3,457,093 )

$ (570,454 )

$ (2,886,639 )

-545 %

-73 %

	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, ~~2018~~2019 was ~~$3,457,093~~$1,349,800, compared to ~~$570,454~~$3,457,090 during the three months ended June 30, ~~2017.~~2018. The ~~increase~~reduction of $2,107,290 in net loss is the result of ~~a decrease~~an increase in gross margin ~~increased~~and reduction in operating expenses and ~~increased other expenses.~~gain on change in fair market value of derivative liabilities.

Nine Months Ended June 30, 2019 compared to Nine Months Ended June 30, 2018 ~~and 2017~~

Revenues

Revenues and Costs of Revenues

									Percentage of Revenue						Nine Months Ended June 30									Percentage of Revenue
	2018			2017		Change			2018			2017			2019			2018			Change			2019			2018
Testing services	$	2,172,061		$	2,081,877	$	90,184			94	%		91	%	$	3,020,727		$	2,172,061		$	848,666			99.9	%		93.9	%
Consulting services		141,453			196,520		(55,067	)		6	%		9	%		3,000			141,453			(138,453	)		0.1	%		6.1	%
Total revenue		2,313,514			2,278,397		35,117			100	%		100	%		3,023,727			2,313,514			710,213			100	%		100	%

Cost of revenue
Testing services	$	2,115,487		$	1,717,997	$	397,490			91	%		75	%	$	2,672,706		$	2,115,487		$	557,219			88.4	%		91.4	%
Consulting services		93,721			65,378		28,343			4	%		3	%		-			93,721			(93,721	)		0.0	%		4.1	%
Depreciation		154,894			74,968		79,926			7	%		3	%		901,827			154,894			746,933			29.8	%		6.7	%
Total cost of revenue		2,364,102			1,858,343		505,759			102	%		82	%		3,574,533			2,364,102			1,210,431			118.2	%		102.2	%

Gross Profit	$	(50,588	)	$	420,054	$	(470,642	)		-2%			18	%
Gross margin (loss)															$	(550,806	)	$	(50,588	)	$	(500,218	)		-18.2	%		-2.2	%

~~Revenues~~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 were $2,313,514 compared to $2,278,397 for the nine months ended June 30, 2017. The increase in revenues during the nine months ended June 30, 2018 is the result of increased testing services completed in the current period partially offset by decreased advisory services performed in the current period as compared to the prior period. Specifically, the Company has made acquisitions in the prior 12 months that have added operating labs which did not exist in the prior period. These acquisitions have shifted a greater percentage of revenue to testing services from advisory services.

28
~~Table of Contents~~

~~Revenue for the nine months ending June 30, 2018 was $2,313,514 versus $2,278,397 for the nine months ending June 30, 2017,~~ an increase of ~~$35,117~~$848,666, or ~~1.5%~~39%. The increase was due to an increase in testing ~~revenue of $90,184 partially~~revenues, primarily in California, offset ~~in part~~ by a decrease in consulting revenue of $55,067. The $90,184 increase in testing revenue was attributable to increases in the Company’s acquired locations in California ($47,319), Canada ($73,284) and Massachusetts ($133,540) that had no revenues in$138,453.

Gross Profit

For the nine months ~~ending~~ended June 30, ~~2017. The increase in testing services revenues totaling $254,143~~2019, gross loss was ~~partially offset by the decrease in testing service revenues~~$550,806 compared to gross loss of ~~$163,959 at the Company’s locations in Oregon.~~

The decrease in testing revenue in the Oregon market was the result of an oversupply of tested cannabis in the Oregon market which resulted in a reduction in testing demand and the attrition of customers. The Company attributes the attrition of customers in the Oregon market to customers not being able to comply with more stringent state cannabis testing and growing standards and client’s insufficient capital to withstand the recent decrease in wholesale pricing in the overall Oregon cannabis market . Another factor causing the decrease in revenues was several customers of the Company relocated their facilities and temporarily ceased testing of their cannabis product. The Company also attributes the decrease in revenue in Medford and Portland to increased competition from other cannabis testing laboratories. Specifically, for the Medford market, cannabis is mostly grown outdoors and therefore, seasonal. Typically, outdoor cannabis is harvested in late Fall and if in demand, tested soon thereafter in November to December. However, with the oversupply of cannabis in the Oregon market, outdoor growers have stockpiled their inventory and do not plan on testing their inventory until they sell. Meanwhile, many growers have converted their crops to other non-cannabis commodities, shifting cannabis from Medford to other Oregon markets, such as Portland, Bend and Eugene.

Effective January 1, 2018, the state of California started to require mandatory compliance testing. However, the state of California not begun to enforce this mandatory requirement. Enforcement was expected to initiate on July 1, 2018. However, the Company expects that the state of California will start to enforce the mandated compliance testing for all cannabis products sold no sooner than December 31, 2018. Until compliance testing is required and enforced by the state of California for all cannabis sold or distributed, the Company expects its revenues in its California locations to remain fairly consistent between periods.

Consulting revenue decreased from the nine months ending June 30, 2017 versus the nine months ending June 30, 2018 by $55,067 or 28.0%. Consulting services have historically been focused on assisting entrepreneurs with starting new cannabis businesses and attaining licenses. The Company attributes the decrease in consulting revenue to a reallocation of Company’s resources to support internal development. Consulting resources were re-deployed to focus on internal projects including identifying and performing due diligence on new acquisition targets, attaining and renewing permits and licenses, attaining ISO accreditations, and developing and deploying internal information systems and training. Consulting client are non-recurring short-term projects and cease once the Company has provided the client its agreed-upon deliverables.

~~Cost of revenues~~$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 ~~$2,364,102~~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 ~~$1,858,343~~$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 ~~the cost~~Other Expense of revenues during the nine months ended June 30, 2018 is the result of the increased direct costs associated with providing testing services from the acquisition of operating labs as well as lower revenue per test being completed while costs to perform tests have remained stagnant. Gross loss for the nine months ended June 30, 2018$2,104,764 was ~~$50,588 compared~~primarily due to a ~~gross profit of $420,054 during the nine months ended June 30, 2017.~~

~~Operating Expenses~~

Percentage of Revenue

2018

2017

Change

2018

2017

Selling, general and administrative

$ 5,023,122

1,478,007

$ 3,545,115

217 %

65 %
Depreciation and amortization

266,656

114,793

151,863

12 %

5 %

$ 5,289,778

$ 1,592,800

$ 3,696,978

229 %

70 %

Total operating expenses during the nine months ended June 30, 2018 were $5,289,778 compared to $1,592,800 during the nine months ended June 30, 2017. The Company experienced an increase of $3,696,978 in selling, general and administrative expenses during the nine months ended June 30, 2018 compared to the nine months ended June 30, 2017 due to increased business size due to acquisitions and organic growth that has occurred during the period of January 1, 2017 to March 31, 2018. Additionally, total stock based compensation included in selling, general and administrative expenses was $2,094,402 during the nine months ended June 30, 2018 compared to $358,794 during the same period in 2017. There was an increase of $151,863 in depreciation and amortization which was driven by the amortization of intangible assets and equipment associated with the acquisition completed during the period from January 1, 2017 to June 30, 2018.

~~Other Income (Expense)~~

Percentage of Revenue

2018

2017

Change

2018

2017

Interest expense, net of interest income

$ (2,897,264 )

(649,288 )

$ (2,247,976 )

-125%

-28%

Other income

-

105

(105 )

0 %

0 %
Loss on settlement of debt

(56,093 )

-

(56,093 )

-2%

0 %
Gain (loss) on change in fair market value of derivative liabilities

2,157,443

(34,386 )

2,191,829

93 %

-2%

$ (795,914 )

$ (683,569 )

$ (112,345 )

-34%

-30%

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~~Table of Contents~~

Total other income (expense) was a net expense of $795,914 during the nine months ended June 30, 2018 compared to a net expense of $683,569 during the nine months ended June 30, 2017. The increase in net expense of $112,345 is from the increasedecrease in the ~~gain~~loss on fair market value of derivatives ~~of $2,191,829 combined with an~~and increase in interest expense of $2,247,976 from the recognition of debt discounts associated with convertible and non-convertible notes payable as well as convertible debentures payable. Specifically, interest expense associated with the amortization of debt discounts was $2,561,024 during the nine months ended June 30, 2018 compared to $549,581 during the same period in 2017.expense.

Net Loss

~~Net Loss~~

Percentage of Revenue

2018

2017

Change

2018

2017

Net loss

$ (6,136,280 )

$ (1,856,315 )

$ (4,279,965 )

-265%

-81%

	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, ~~2018~~2019 was ~~$6,136,280~~$7,836,598 compared to ~~$1,856,315~~$6,136,280 during the nine months ended June 30, ~~2017.~~

2018. The increase in net loss is ~~directed from increased costs~~the result of ~~revenues of $505,759, increased operating costs of $3,696,978, and increase interest expense of $2,247,976 partially offset by an~~ increase in ~~revenues of $35,117~~interest and ~~an increase in the~~operating expenses and loss and decreased gain on change in fair market value of derivative liabilities ~~of $2,191,829.~~offset by increases in gross margin.

Liquidity and Capital Resources

The following is a summary of the Company’s cash flows provided by (used in) operating, investing, and financing activities for the nine-month periods ended June 30, 2019 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 ~~had cash on hand~~used $2,356,864 in operating activities which consisted of ~~$1,254,443 as~~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, current assets of $1,785,452 and current liabilities of $4,853,332 creating a working capital deficit of $3,067,880. Current assets consisted of cash totaling $1,254,443, accounts receivable net of allowances totaling $300,215, prepaid expenses totaling $8,569, other current assets of $122,225 and current portions of notes receivable of $100,000. Current liabilities consisted of accounts payable and accrued liabilities of $825,445, client deposits of $117,268, deferred revenue of $30,573, convertible notes payable net of discounts of $500,000, derivative liabilities of $1,579,258, current capital lease obligations of $153,555, interest payable of $379,332, current portions of notes payable net of discounts of $1,011,986 and current portions of related party payables of $225,915.

The Company had cash on hand of $121,013 as of September 30, 2017, current assets of $627,572 and current liabilities of $4,428,578 creating a working capital deficit of $3,801,006. Current assets consisted of cash totaling $121,013, accounts receivable net of allowances totaling $229,564, prepaid expenses totaling $169,557, other current assets of $7,438 and current portion of a note receivable of $100,000. Current liabilities consisted of accounts payable and accrued liabilities of $773,053, client deposits of $119,281, deferred revenue of $40,800, convertible notes payable net of discounts of $1,212,720, current capital lease obligations of $37,990, interest payable of $133,697, derivative liabilities of $294,637, current portions of notes payable net of discounts of $1,503,545 and current portions of related party payables of $312,855.

The Company is uncertain of its ability to generate sufficient liquidity from its operations and its current revenues are inadequate to fund all operational costs. Additionally, in order to fund growth organically or through acquisitions, we will require additional capital. As a result, we may need to raise additional capital through future equity or debt financing. We anticipate our cash needs to be approximately $4,000,000 through December 31, 2018. If the Company is unable to raise additional capital through future debt of equity financing, then Company will need to slow its growth initiatives, dispose of assets or reduce its cash consuming operating costs.

~~Nine Months Ended June 30, 2018~~

~~The~~ Company used $3,733,471 ~~of cash~~ 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.~~($626,271).

~~Net cash used in investing activities totaled $2,458,053 during~~Investing Activities

During the nine months ended June 30, ~~2018~~2019, the Company used $92,548 in investing activities, which consisted of ~~$883,512~~the purchase of ~~cash used to purchase~~ equipment of $853,644 and ~~net cash~~the recovery of ~~$1,574,541 used in the acquisition~~notes payable of ~~subsidiaries.~~$761,096.

During the nine months ended June 30, 2018, the Company ~~generated~~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 ~~the exercise of warrants, $250,000 from the~~ issuance of ~~convertible notes payable,~~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.

30
~~Table of Contents~~

~~Nine Months Ended June 30, 2017~~Dividends

The Company ~~used $429,132 of cash in operating activities which consisted of a net loss of $1,856,315 non-cash losses of $1,134,617 and changes in working capital of $292,566.~~has never declared dividends.

Net cash used in investing activities total $55,656 during the nine months ended June 30, 2017. The Company paid net cash of $6,930 in asset purchases and acquisitions and paid $48,726 for the purchase of equipment.

During the nine months ended June 30, 2017, the Company generated cash of $577,285 from financing activities. The Company received $114,500 of cash from the sale of series D preferred stock, $640,000 in cash from convertible notes payable, repayments of notes payable of $56,396, repayments of capital leases of $10,152, proceeds from the sale of common stock of $70,000 and net repayments on related party notes payable of $180,667.

~~Dividends~~

~~The Company declared $0 of dividends during the nine months ending June 30, 2018 and 2017.~~

Critical Accounting Policies and Estimates.

While our significant accounting policies are more fully described in notes to our consolidated financial statements appearing elsewhere in this Form 10-Q, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we used in the preparation of our financial statements.

Revenue Recognition

~~EVIO currently~~In 2018 the Company recognizes revenue under ASC 606, Revenue from Contracts with Customers. The core principle of the ~~sale~~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

In 2017 the Company’s policy was that revenues and gains will be recognized in accordance with ASC ~~605~~Topic 605102, “Revenue Recognition.” Under ASC Topic 6051025, revenue earning activities are recognized upon the sale and ~~will adopt ASC 606 with the beginning~~delivery of its ~~next fiscal year on October 1, 2018.~~ products and services.

The Company ~~first identifies~~generates revenue from consulting services, licensing agreements and testing of cannabis and cannabis products for both medicinal and recreational consumption.

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.

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 ~~contract and reduces~~consulting agreement.

The Company recognizes revenue from right of use license agreements upon transfer of control of the ~~cost and complexity then evaluates whether promised goods and services are distinct. Specifically as it relates to~~functional intellectual property. In certain licensing agreements, ~~whereby licensees have access to certain intellectual property of~~ the Company ~~revenue is recognized ratably over the term of the agreement. In agreements were training and other support is required, revenue us~~may receive royalty revenues based upon performance metrics which are recognized as ~~services are performed.~~earned over time.

Stock Based Compensation

~~Pursuant~~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 ~~Accounting Standards Codification (“ASC”) 505,~~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 ~~guidelines~~Black Scholes option pricing model, which was developed for ~~recording stock issued for services require~~use in estimating the fair value of options. Option pricing models require the ~~shares~~input of highly complex and subjective variables including the expected life of options granted ~~be based on~~and the ~~fair value of the services received or the publicly traded share price~~expected volatility of the Company’s ~~registered shares on~~stock price over a period equal to or greater than the ~~date the shares were granted (irrespective~~expected life of the fact that the shares granted were unregistered), whichever is more readily determinable. This position has been further clarified by the issuance of ASC 820. ASC 820 defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date”. Accordingly, the Company elected the application of these guidelines. EVIO has determined that the fair value of all common stock issued for goods or services is more readily determinable based on the publicly traded share price on the date of grant.options.

~~Emerging Growth Company Status~~

We are an “emerging growth company” as defined under the Jumpstart Our Business Startups Act, commonly referred to as the JOBS Act. We will remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, which would occur if the market value of our ordinary shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.

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~~Table of Contents~~

As an “emerging growth company,” we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to:

not being required to comply with the auditor attestation requirements of section 404(b) of the Sarbanes-Oxley Act (we also will not be subject to the auditor attestation requirements of Section 404(b) as long as we are a “smaller reporting company,” which includes issuers that had a public float of less than $ 75 million as of the last business day of their most recently completed second fiscal quarter);

~~reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and~~

~~exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.~~

In addition, Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Under this provision, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. In other words, an “emerging growth company” can delay the adoption of such accounting standards until those standards would otherwise apply to private companies until the first to occur of the date the subject company (i) is no longer an “emerging growth company” or (ii) affirmatively and irrevocably opts out of the extended transition period provided in Securities Act Section 7(a) (2) (B). The Company has elected to take advantage of this extended transition period and, as a result, our financial statements may not be comparable to the financial statements of other public companies. Accordingly, until the date that we are no longer an “emerging growth company” or affirmatively and irrevocably opt out of the exemption provided by Securities Act Section 7(a) (2) (B), upon the issuance of a new or revised accounting standard that applies to your financial statements and has a different effective date for public and private companies, clarify that we will disclose the date on which adoption is required for non-emerging growth companies and the date on which we will adopt the recently issued accounting standard.

Accounting and Audit Plan

In the next twelve months, we anticipate spending approximately ~~$70,000~~$180,000 - ~~$85,000~~$240,000 to pay for our accounting and audit requirements.

~~Off-balance sheet arrangements~~

~~On March 31, 2017, the Company entered into a long term operating lease requiring monthly payments of $10,275 for a period of 48 months terminating on March 31, 2021.~~

We have no other significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

Our Website.

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

32
~~Table of Contents~~

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4 – CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

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

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

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

(b) Changes in Internal Control over Financial Reporting

There were no changes in Internal Controls over Financial Reporting during the nine months ended June 30, ~~2018.~~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.

33
~~Table of Contents~~
PART II — OTHER INFORMATION

~~PART II -- OTHER INFORMATION~~

ITEM 1. LEGAL PROCEEDINGS

~~None.~~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. This case is still in process.

On August 29, 2018, 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 17^th 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.

ITEM 1A. RISK FACTORS

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

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

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

There was no other information during the quarter ended June 30, ~~2018,~~2019, which was not previously disclosed in our filings during that period.

34
~~Table of Contents~~

ITEM 6. EXHIBITS

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

35
~~Table of Contents~~

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 ~~August 16, 2018.~~November 15, 2019.

	EVIO, INC.

	By:	/s/ William Waldrop
		William Waldrop
		Chief Executive Officer

By:	/s/ ~~David Kane~~Paul Wright
	~~David Kane~~	Paul Wright
	Acting Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on ~~August 16 , 2018.~~November 15, 2019.

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

	By:	/s/ Lori Glauser
		Lori Glauser
		Director

	By:	/s/ Anthony Smith
		Anthony Smith
		~~Director~~

	~~By:~~	~~/s/ Felipe Capusano~~
		~~Felipe Capusano~~
		Director

EVIO, INC.
CONSOLIDATED BALANCE SHEETS

	June 30, 2018			September 30, 2017
	(unaudited)
ASSETS

Current assets
Cash	$	1,254,443		$	121,013
Accounts receivable, net of allowance of $128,237 and $74,782, respectively		300,215			229,564
Prepaid expenses		8,569			169,557
Other current assets		122,225			7,438
Note receivable, current portion		100,000			100,000
Total current assets		1,785,452			627,572

Property and equipment, net of accumulated depreciation of $457,629 and $213,447, respectively		1,871,229			547,073
Security deposits		580,506			92,892
Note receivable, net of current portion		1,200,000			1,200,000
Deposits, related party		180,000			-
Intangible assets, net of accumulated amortization, net of accumulated amortization of $369,828 and $189,475, respectively		1,808,877			592,260
Goodwill		6,343,593			2,958,137

Total assets	$	13,769,657		$	6,017,934

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
Accounts payable and accrued liabilities	$	825,445		$	773,053
Client deposits		117,268			119,281
Deferred revenue		30,573			40,800
Interest payable		379,332			133,697
Capital lease obligation, current		153,555			37,990
Derivative liability		1,579,258			294,637
Convertible notes payable, net of discounts of $0 and $208,680, respectively		500,000			1,212,720
Loans payable, current, net of discounts of $74 and $127,662, respectively		1,011,986			1,503,545
Loans payable, related party, current		255,915			312,855
Total current liabilities		4,853,332			4,428,578

Convertible debentures payable, net of discounts of $5,682,529 and $0, respectively		900,471			-
Capital lease obligation, net of current portion		276,866			52,777
Loans payable, net of current portion		46,448			59,832
Convertible loans payable, related party, net of current portion, net of discounts of $26,660 and $0, respectively		58,340			-
Loans payable, related party, net of current portion, net of discounts of $30,465 and $42,044, respectively		1,083,530			1,251,306
Total liabilities		7,218,987			5,792,493

Stockholders' equity
Series A Convertible Preferred Stock, Par Value $0.0001; 1,850,000 authorized; 0 shares issued and outstanding at June 30, 2018 and September 30, 2017, respectively		-			-
Series B Convertible Preferred Stock, Par Value $0.0001; 5,000,000 authorized; 5,000,000 shares issued and outstanding at June 30, 2018 and September 30, 2017, respectively		500			500
Series C Convertible Preferred Stock, Par Value $0.0001; 500,000 authorized; 500,000 shares issued and outstanding at June 30, 2018 and September 30, 2017, respectively		50			50
Series D Convertible Preferred Stock, Par Value $.0001; 1,000,000 authorized; 552,500 and 832,500 shares issued and outstanding at June 30, 2018 and September 30, 2017, respectively		55			83
Common Stock, Par Value $.0001, 1,000,000,000 authorized; 19,719,903 and 10,732,922 issued and outstanding at June 30, 2018 and September 30, 2017, respectively		1,972			1,073
Additional Paid In Capital		18,073,657			7,657,982
Other Comprehensive Income		(317,132	)		-
Accumulated Deficit		(13,458,754	)		(7,592,371	)
Total stockholders' equity		4,300,348			67,317
Non-controlling interest		2,250,322			158,124
Total equity		6,550,670			225,441

Total liabilities and stockholders' equity	$	13,769,657		$	6,017,934

EVIO, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

	Three months ended June 30,						Nine months ended June 30,
	2018			2017			2018			2017
Revenues
Testing services	$	595,701		$	767,873		$	2,172,061		$	2,081,877
Consulting services		38,637			9,345			141,453			196,520
Total revenue		634,338			777,218			2,313,514			2,278,397

Cost of revenue
Testing services		754,647			592,273			2,115,487			1,717,997
Consulting services		4,729			33,373			93,721			65,378
Depreciation and amortization		70,075			28,618			154,894			74,968
Total cost of revenue		829,451			654,264			2,364,102			1,858,343

Gross margin		(195,113	)		122,954			(50,588	)		420,054

Operating expenses
Selling, general and administrative		1,989,753			582,113			5,023,122			1,478,007
Depreciation and amortization		125,500			40,413			266,656			114,793
Total operating expenses		2,115,253			622,526			5,289,778			1,592,800

Loss from operations		(2,310,366	)		(499,572	)		(5,340,366	)		(1,172,746	)

Other income (expense)
Interest expense, net of interest income		(1,510,076	)		(227,879	)		(2,897,264	)		(649,288	)
Other income		-			105			-			105
Loss on settlement of debt and account payable		-			-			(56,093	)		-
Gain (loss) on change in fair market value of derivative liabilities		363,349			156,892			2,157,443			(34,386	)
Total other income (expense)		(1,146,727	)		(70,882	)		(795,914	)		(683,569	)

Net loss	$	(3,457,093	)	$	(570,454	)	$	(6,136,280	)	$	(1,856,315	)
Gain (loss) attributable to non-controlling interest		(257,101	)		(14,453	)		(269,897	)		(5,163	)
Net loss attributable to EVIO, Inc.	$	(3,199,992	)	$	(556,001	)	$	(5,866,383	)	$	(1,851,152	)

Basic and diluted loss per common share	$	(0.19	)	$	(0.06	)	$	(0.41	)	$	(0.20	)

Weighted average common shares outstanding		18,067,853			9,762,199			15,030,353			9,356,613

EVIO, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

	Three months ended June 30,						Nine months ended June 30,
	2018			2017			2018			2017
Net loss	$	(3,199,992	)	$	(556,001	)	$	(5,866,383	)	$	(1,851,152	)

Other comprehensive income
Foreign currency translation adjustment		(317,132	)		-			(317,132	)		-
Total other comprehensive income		(317,132	)		-			(317,132	)		-

Comprehensive loss	$	(3,517,124	)	$	(556,001	)	$	(6,183,515	)	$	(1,851,152	)

EVIO, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine months ended June 30,
	2018			2017
Cash flows from operating activities
Net loss	$	(6,136,280	)	$	(1,856,315	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock based compensation		1,644,386			358,794
Common stock issued for services		450,016			-
Loss on settlement of debt		52,343			-
Loss on settlement of account payable		3,750			-
(Gain) loss on derivative liability		(2,157,443	)		34,386
Amortization of debt discount		2,561,024			549,581
Depreciation and amortization expense		421,550			189,761
Bad debt expense		53,454			-
Reduction of security deposit for rent expense		-			2,095
Changes in operating assets and liabilities:
Accounts receivable		(54,989	)		(114,643	)
Prepaid expenses		165,787			28,858
Other current asset		(71,400	)		40,000
Security deposits		(467,614	)		(75,186	)
Accounts payable and accrued liabilities		(323,907	)		274,051
Interest payable		323,165			84,359
Deferred revenue		(15,300	)		-
Deposits, related party		(180,000	)		-
Customer deposits		(2,013	)		55,127
Net cash used in operating activities		(3,733,471	)		(429,132	)

Cash flows from investing activities
Net cash paid in acquisitions of subsidiaries		(1,574,541	)		(6,930	)
Purchase of equipment		(883,512	)		(48,726	)
Net cash used in investing activities		(2,438,053	)		(55,656	)

Cash flows from financing activities
Repayments of capital leases		(58,103	)		(10,152	)
Proceeds from issuance of convertible debenture		6,136,120			-
Proceeds from exercise of common stock warrants		7,999			-
Proceeds from issuance of common stock		2,041,501			70,000
Proceeds from the issuance of series D preferred stock		-			114,500
Proceeds from convertible notes, net of original issue discounts and fees		250,000			640,000
Payment on loan payable		(612,531	)		(56,396	)
Proceeds from notes payable - related party		-			80,100
Payments on notes payable - related party		(246,526	)		(260,767	)
Net cash provided by financing activities		7,518,460			577,285

Effect of foreign currency translation adjustment		(193,506	)		-

Net cash increase for period		1,133,430			92,497
Cash balance, beginning of period		121,013			57,486
Cash balance, end of period	$	1,254,443		$	149,983

Supplemental disclosure of cash flow information:
Cash paid for interest	$	171,722		$	15,348
Cash paid for income tax	$	-		$	-

Supplemental disclosure of non-cash investing and financing activities:
Conversion of convertible note and accrued interest into common stock	$	2,272,373		$	501,292
Reclassification of derivative liability to additional paid in capital	$	2,342,112		$	1,188,126
Settlement of account payable for common stock	$	18,750		$	-
Common stock issued for settlement of note payable	$	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	$	5,784,175		$	641,637
Debt discounts recorded for original issue discounts on convertible debentures	$	472,480		$	-
Vehicles financed through notes payable	$	-		$	75,165
Equipment financed through capital leases	$	385,208		$	105,120
Conversion of Series A Preferred stock to common stock	$	-		$	4,388
Acquisition of C3 Labs through issuance of note payable and convertible note payable	$	600,000		$	-
Acquisition of Leaf Detective through issuance of convertible note payable	$	500,000		$	-
Acquisition of Greenstyle Consulting assets through issuance of preferred shares, cash and note payable	$	-		$	260,000
Acquisition of GreehHaus through issuance of preferred shares and note payable	$	-		$	800,000

	Level 1		Level 2		Level 3		Total
Liabilities
Derivative financial instruments	$	-	$	-	$	1,579,258	$	1,579,258

Year ended September 30,	Principal		Interest		Total
2018	$	37,022	$	7,463	$	44,485
2019		152,912		20,569		173,481
2020		122,850		9,379		132,229
2021		117,637		2,343		119,980
Total	$	430,421	$	39,754	$	470,175

For the years ended September 30,	Amortization
2018	$	102,585
2019		410,339
2020		387,513
2021		316,214
2022		218,460
Thereafter		373,766
Total	$	1,808,877

ASSETS ACQUIRED
Cash	$	20,468
Accounts receivable		5,110
Other current assets		3,461
Security deposits		20,000
Equipment		244,875
License		247,000
Customer list		112,000
Non-compete agreement		88,000
Goodwill		291,697
TOTAL ASSETS ACQUIRED	$	1,032,611

LIABILITIES ASSUMED
Accounts payable		4,314
Deferred rent		28,297
TOTAL LIABILITIES ASSUMED		32,611

Non-controlling interest		(400,000	)
NET ASSETS ACQUIRED	$	600,000

ASSETS ACQUIRED
Cash	$	371,278
Accounts receivable		65,815
Prepaid expenses and other current assets		38,415
Equipment		40,774
Intellectual property		334,719
Websites and domain names		18,299
Customer list		521,539
Non-compete agreement		97,302
Goodwill		2,716,027
TOTAL ASSETS ACQUIRED	$	4,204,167

LIABILITIES ASSUMED
Accounts payable		108,207
Capital lease obligation		12,826
Related party payables		153,755
Deferred revenue		5,189
TOTAL LIABILITIES ASSUMED		279,977

Non-controlling interest		(1,962,095	)
NET ASSETS ACQUIRED	$	1,962,095

ASSETS ACQUIRED
Lab supplies	$	7,715
Equipment		14,925
Goodwill		477,900
TOTAL ASSETS ACQUIRED	$	500,000

Nine months ended June 30, 2018	Corporate			Consulting Services			Testing Services			Total Consolidated
Revenue	$	-		$	141,453		$	2,172,061		$	2,313,514
Segment income (loss) from operations		(2,033,171	)		(2,059,269	)		(1,247,926	)		(5,340,366	)
Total assets		1,899,440			372,224			11,497,993			13,769,657
Capital expenditures		-			(1,038	)		(882,474	)		(883,512	)
Depreciation and amortization		-			11,246			410,304			421,550

Nine months ended June 30, 2017	Corporate			Consulting Services			Testing Services			Total Consolidated
Revenue	$	-		$	196,520		$	2,081,877		$	2,278,397
Segment income (loss) from operations		(589,258	)		(192,898	)		(390,590	)		(1,172,746	)
Total assets		85,877			240,459			3,644,591			3,970,927
Capital expenditures		-			(1,038	)		(47,688	)		(48,726	)
Depreciation and amortization		-			17,922			171,839			189,761

Three months ended June 30, 2018	Corporate			Consulting Services			Testing Services			Total Consolidated
Revenue	$	-		$	38,637		$	595,701		$	634,338
Segment income (loss) from operations		(573,239	)		(1,083,993	)		(653,134	)		(2,310,366	)
Total assets		1,899,440			372,224			11,497,993			13,769,657
Capital expenditures		-			-			(351,998	)		(351,998	)
Depreciation and amortization		-			4,075			191,500			195,575

Three months ended June 30, 2017	Corporate			Consulting Services			Testing Services			Total Consolidated
Revenue	$	-		$	9,345		$	767,873		$	777,218
Segment income (loss) from operations		(210,554	)		(197,546	)		(91,472	)		(499,572	)
Total assets		85,877			240,459			3,644,591			3,970,927
Capital expenditures		-			-			(2,962	)		(2,962	)
Depreciation and amortization		-			5,975			63,056			69,031

	Shares			Weighted- Average Exercise Price Per Share
Outstanding, September 30, 2017		655,000		$	0.902
Granted		4,268,049			0.795
Exercised		(13,333	)		0.600
Forfeited		(70,000	)		0.891
Expired		-			-
Outstanding, June 30, 2018		4,839,716		$	0.809

Year ending September 30,
2018		168,657
2019		639,375
2020		609,812
2021		417,809
2022		291,974
2023		132,660
Total	$	2,260,290

	·●	~~165,000 common shares valued at $178,250 subject to the vesting requirements of certain agreements with employees.~~
	·	~~5,000 common shares valued at $5,450 for services performed.~~
	·	~~208,332~~25,000 common shares for the conversion of ~~$125,000~~10,000 shares of Series D Preferred Stock.

	●	58,245 common shares for the settlement of $21,000 of accounts payable.

	●	12,500 common shares valued at $6,624 for the vesting of restricted stock grants for officers and directors

	●	688,017 common shares for services valued at $192,390

	●	1,201,420 common shares for the conversion of $357,222 of outstanding principal on convertible ~~debentures.~~notes payable.

	●	381,351 common shares for the settlement of $165,000 of outstanding interest and penalties on convertible notes payable.