The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – NATURE OF ACTIVITIES AND CONTINUANCE OF BUSINESS
Signal Bay, Inc., a Colorado corporation and its subsidiaries provide advisory, management and analytical testing services to the emerging legalized cannabis industry. Signal Bay, Inc. was originally incorporated in the State of New York, December 12, 1977 under the name 3171 Holding Corporation. On February 22, 1979 the name was changed to Electronomic Industries Corp. and on February 23, 1983 the name was changed to Quantech Electronics Corp. The Company was reincorporated in the State of Colorado on December 15, 2003. On August 29, 2014, the Company completed a reverse merger with Signal Bay Research, Inc., a Nevada Corporation, and assumed its operations. In September 2014, the Company changed its name from Quantech Electronics Corp. to Signal Bay, Inc. The Company has selected September 30 as its fiscal year end. Signal Bay, Inc. is domiciled in the State of Colorado, and its corporate headquarters is located in Bend, Oregon.
As a part of and prior to the consummation of the reverse merger, William Waldrop and Lori Glauser, principals of Signal Bay Research, Inc., purchased 28,811,933 shares of the Company (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. Signal Bay Research was acquired through the issuance of 254,188,067 shares of common stock and 5,000,000 shares of Series B Preferred Stock to Mr. Waldrop and Ms. Glauser, pro rata. After the reverse merger, William Waldrop and Lori Glauser individually each own 127,500,000 shares of common stock and 2,500,000 shares of Series B Preferred stock in the Company. Immediately prior to the reverse merger, neither William Waldrop nor Lori Glauser had any interest in the Company. Immediately after to the reverse, WB Partners owned less than 5% of the common stock. The company filed a Form 10-12G on November 25, 2014, and was determined to be a shell company by the SEC as per the Form 10-12G/A which went effective on January 24, 2015. On January 29, 2015, the company filed an 8-K stating it entered into a material agreement and was no longer a shell company.
After the reverse merger, Signal Bay Research, Inc. continues to operate as a wholly owned subsidiary providing compliance, research and advisory services for Signal Bay, Inc.
Signal Bay Services was formed on January 25, 2015, as the management services division of Signal Bay.
On September 17, 2015, Signal Bay entered into a share exchange agreement with CR Labs, Inc., an Oregon Corporation, pursuant to which the company issued 40,000,000 shares of the Company’s common stock resulting in exchange for 80% of the outstanding common stock of CR Labs, Inc.
EVIO Inc. was formed on April 4, 2016 to become the holding company for all laboratory operations.
EVIO Labs Eugene was formed on May 23, 2016, as a wholly owned subsidiary of EVIO Inc. Subsequently on May 24, 2016, EVIO Labs Eugene acquired all of the assets of Oregon Analytical Services, LLC, inclusive of client lists, equipment, trade names and personnel.
On June 1, 2016, EVIO Inc. entered into a share purchase agreement to purchase 80% of the outstanding common stock of Smith Scientific Industries, Inc. d/b/a Kenevir Research in Medford, OR.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
A summary of significant accounting policies of Signal Bay, Inc. (the “Company”) is presented to assist in understanding the Company’s financial statements. The accounting policies presented in these footnotes conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the accompanying financial statements. These financial statements and notes are representations of the Company’s management who are responsible for their integrity and objectivity.
Principles of Consolidation
The Company prepares its financial statements on the accrual basis of accounting. The accompanying consolidated financial statements include the accounts of the Company and its wholly and partially owned subsidiaries, all of which have a fiscal year end of September 30. All intercompany accounts, balances and transactions have been eliminated in the consolidation.
The Company consolidates its subsidiaries in accordance with ASC 810, and specifically ASC 810-10-15-8 which states, the usual condition for a controlling financial interest is ownership of a majority voting interest, and, therefore, as a general rule ownership by one reporting entity, directly or indirectly, or over 50% of the outstanding voting shares of another entity is a condition pointing toward consolidation."
SIGNAL BAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all short-term debt securities purchased with original maturity of three months or less to be cash equivalents. The Company did not have any cash equivalents as of September 30, 2016 or 2015.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded at their original invoice amounts. We regularly review collectability and establish an allowance for uncollectible amounts as necessary. Management has determined that a reserve for uncollectible amounts was not required in the periods presented.
Goodwill and Other Intangible Assets
Goodwill and indefinite-lived intangible assets are not amortized, but are evaluated for impairment annually or more often if indicators of a potential impairment are present. Our annual impairment tests are conducted at the beginning of the fourth quarter. We use a two-step process to quantitatively evaluate goodwill for impairment. In the first step, we compare the fair value of each reporting unit with the carrying amount of the reporting unit, including goodwill. If the estimated fair value of the reporting unit is less than the carrying amount of the reporting unit, we complete a second step to determine the amount of the goodwill impairment that we should record. In the second step, we determine an implied fair value of the reporting unit's goodwill by allocating the reporting unit's fair value to all of its assets and liabilities other than goodwill (including any unrecognized intangible assets). We compare the resulting implied fair value of the goodwill to the carrying amount and record an impairment charge for the difference. We test individual indefinite-lived intangible assets by comparing the estimated fair value with the book values of each asset.
The Company recognizes an acquired intangible apart from goodwill whenever the intangible arises from contractual or other legal rights, or whenever it can be separated or divided from the acquired entity and sold, transferred, licensed, rented or exchanged, either individually or in combination with a related contract, asset or liability. Such intangibles are amortized on a straight-line basis over their estimated useful lives unless the estimated useful life is determined to be indefinite.
Business Combinations.
We have adopted the amendment to ASC 805 for the accounting for business acquisitions both during the period of the acquisition and in subsequent periods. Among the more significant changes in the accounting for acquisitions are the following:
|
·
|
Contingent consideration is recorded at fair value as an element of purchase price with subsequent adjustments recognized in operations.
|
|
·
|
Subsequent decreases in valuation allowances on acquired deferred tax assets are recognized in operations after the measurement period.
|
|
·
|
Upon gaining control of an entity in which an equity method or cost basis investment was held, the carrying value of that investment is adjusted to fair value with the related gain or loss recorded in earnings.
|
Reclassification
Certain amounts in the 2015 financial statements have been reclassified to conform to the 2016 financial presentation. These reclassifications have no impact on net loss.
SIGNAL BAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates
The preparation of financial statements in accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. A change in managements’ estimates or assumptions may have a material impact on the financial condition and results of operations of the Company during the period in which such changes occurred. Actual results could differ from those estimates. The Company’s financial statements reflect all adjustments that management believes are necessary for the fair presentation of their financial condition and results of operations for the periods presented.
Revenue Recognition
It is the Company’s policy that revenues and gains will be recognized in accordance with ASC Topic 605-10-25, “Revenue Recognition.” Under ASC Topic 605-10-25, revenue earning activities are recognized upon the sale and delivery of its products and services. The Company generates revenue from consulting services provided to clients in the cannabis industry as well as testing of cannabis and cannabis derived oils for both medicinal and recreational consumption. The Company accepts orders for testing services which are generally completed within a week of receiving the order. Revenue is recognized from testing services upon delivery of the testing results to the client. Consulting engagements vary in length and scope but generally include reviewing regulatory filings, business plans and providing financial models to partners within the same industry. Revenue is recognized from consulting services upon completion of deliverables as outlined in the consulting agreement. The Company generated revenues of $560,961 and $125,199 during the years ended September 30, 2016 and 2015.
Cost of Revenue Recognition
The Company recognizes all costs incurred that are directly related to revenue generating activities as a cost of revenue. These costs include salaries and payroll taxes associated with lab employees, rent and utilities on lab facilities, depreciation of lab equipment and outsourced professional services utilized for consulting engagements. Cost of revenues totaled $501,888 and $92,292 during the years ended September 30, 2016 and 2015, respectively.
Stock-Based Compensation
The Company applies Topic 718 “Share-Based Payments” (“Topic 718”) to share-based compensation, which requires the measurement of the cost of services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. Compensation cost is recognized when the event occurs. The Black-Scholes option-pricing model is used to estimate the fair value of options granted.
The Company accounts for equity-based transactions with non-employees under the provisions of ASC Topic No. 505-50, “Equity-Based Payments to Non-Employees” (“Topic No. 505-50”). Topic No. 505-50 establishes that equity-based payment transactions with non-employees shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes in accordance with ASC 740-10, “Accounting for Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year; and, (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if, based on the weight of available positive and negative evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
SIGNAL BAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ASC 740-10 prescribes a recognition threshold and measurement attribute for the financial statement recognition of a tax position taken or expected to be taken on a tax return. Under ASC 740-10, a tax benefit from an uncertain tax position taken or expected to be taken may be recognized only if it is “more likely than not” that the position is sustainable upon examination, based on its technical merits. The tax benefit of a qualifying position under ASC 740-10 would equal the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority having full knowledge of all the relevant information. A liability (including interest and penalties, if applicable) is established to the extent a current benefit has been recognized on a tax return for matters that are considered contingent upon the outcome of an uncertain tax position. Related interest and penalties, if any, are included as components of income tax expense and income taxes payable.
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
|
|
|
|
Laboratory and Computer Equipment
|
|
5 years
|
Furniture and Fixtures
|
|
7 years
|
Software
|
|
3 years
|
Domains
|
|
15 years
|
Impairment of Long-Lived Assets
The Company evaluates, on a periodic basis, long-lived assets to be held and used for impairment in accordance with the reporting requirements of ASC 360-10. The evaluation is based on certain impairment indicators, such as the nature of the assets, the future economic benefit of the assets, any historical or future profitability measurements, as well as other external market conditions or factors that may be present. If these impairment indicators are present or other factors exist that indicate that the carrying amount of the asset may not be recoverable, then an estimate of the undiscounted value of expected future operating cash flows is used to determine whether the asset is recoverable and the amount of any impairment is measured as the difference between the carrying amount of the asset and its estimated fair value. The fair value is estimated using valuation techniques such as market prices for similar assets or discounted future operating cash flows.
SIGNAL BAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial Instruments
Level 1 - Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 - 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 - 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 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.
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, 2015:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
200,460
|
|
|
$
|
200,460
|
|
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, 2016:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
775,246
|
|
|
$
|
775,246
|
|
Basic Earning (Loss) Per Share
The Company computes net income (loss) per share in accordance with Accounting Standards Codification (“ASC”) 260, "
Earnings per Share
." ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Given the net losses of the Company during the years ended September 30, 2016 and 2015, the effects of convertible equity and debt instruments were anti-dilutive resulting in basic and diluted loss per weighted average common shares outstanding equal.
SIGNAL BAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recently Issued Accounting Pronouncements
In April 7, 2015 the FASB issued Accounting Standards Update “ASU” 2015-03 on “Interest — Imputation of Interest (Subtopic 835-30)” To simplify presentation of debt issuance costs, the amendments in this Update would require that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. The recognition and measurement guidance for debt issuance costs would not be affected by the amendments in this Update. This ASU 2015-3 is effective for annual periods ending after December 15, 2015, and interim periods and annual periods thereafter. We reviewed the provisions of this ASU and determined there was an impact on our consolidated financial position and results of operations.
In May 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers," ("ASU 2014-09"). ASU 2014-09 supersedes the revenue recognition requirements in ASC 605 - Revenue Recognition ("ASC 605") and most industry-specific guidance throughout ASC 605. The standard requires that an entity 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. ASU 2014-09 is effective on December 15, 2017 and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application. The Company is currently evaluating the impact of the adoption of ASU 2014-09 on its consolidated financial position and results of operations.
In July 2015, the FASB issued ASU No. 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory," ("ASU 2015-11"). ASU 2015-11 amends the existing guidance to require that inventory should be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using last-in, first-out or the retail inventory method. ASU 2015- 11 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company is currently evaluating the effects of ASU 2015-11 on its consolidated financial position or results of operations.
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)" ("ASU 2016-02"). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. The ASU will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating ASU 2016-02 and its impact on its consolidated financial position or results of operations.
In March 2016, the FASB issued ASU No. 2016-08, "Revenue from Contracts with Customers - Principal versus Agent Considerations." This Update provides clarifying guidance regarding the application of ASU No. 2014-09 - Revenue From Contracts with Customers when another party, along with the reporting entity, is involved in providing a good or a service to a customer. In these circumstances, an entity is required to determine whether the nature of its promise is to provide that good or service to the customer (that is, the entity is a principal) or to arrange for the good or service to be provided to the customer by the other party (that is, the entity is an agent). The amendments in the Update clarify the implementation guidance on principal versus agent considerations. The Update is effective, along with ASU 2014-09, for annual and interim periods beginning after December 15, 2017. The adoption of ASU 2016- 08 is not expected to have a material impact on our consolidated financial position or results of operations.
In March 2016, the FASB issued ASU No. 2016-09, "Compensation - Stock Compensation (Topic 718)" ("ASU 2016- 09"). ASU 2016-09 requires an entity to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. The Company is currently evaluating ASU 2016-09 and its impact on its consolidated financial position or results from operations.
SIGNAL BAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recently Issued Accounting Pronouncements (continued)
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 reduce 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 is currently evaluating ASU 2016-10 and its impact on its consolidated financial statements or disclosures.
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.
Non-Controlling Interest
The Company reports the non-controlling interest in its majority owned subsidiaries in the consolidated balance sheets within the stockholders’ deficit section, separately from the Company’s stockholders’ deficit. Non-controlling interest represents the non-controlling interest holders’ proportionate share of the equity of the Company’s majority-owned subsidiaries. Non-controlling interest is adjusted for the non-controlling interest holders’ proportionate share of the earnings or losses and other comprehensive income (loss) and the non-controlling interest continues to be attributed its share of losses even if that attribution results in a deficit non-controlling interest balance.
Derivative Financial Instruments
Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments and measurement of their fair value for accounting purposes. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt under ASC 470, the Company will continue its evaluation process of these instruments as derivative financial instruments under ASC 815.
Once determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives.
Related Parties
The registrant follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.
Pursuant to Section 850-10-20 the Related parties include (a) affiliates of the registrant; (b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; (c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d) principal owners of the registrant; (e) management of the registrant; (f) other parties with which the registrant may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and (g) Other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
SIGNAL BAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: (a) the nature of the relationship(s) involved; (b) description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; (c) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and (d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
NOTE 3 – ACQUISITIONS
CR Labs, Inc.
On September 17, 2015 the Company performed a share exchange for 80% ownership of CR Labs, Inc., from its founders. CR Labs is an Oregon company engaged in providing analytical testing services for the medical marijuana industry in compliance with the Oregon Health Authority. The costs related to the transaction were $42,193 and were expensed during 2015.
The Company applied the acquisition method to the business combination and valued each of the assets acquired (cash, accounts receivable, and property, plant and equipment) and liabilities assumed (accounts payable) at fair value as of the acquisition date. The cash, accounts receivable and accounts payable were deemed to be recorded at fair value as of the acquisition date. The Company determined the fair value of property, plant and equipment to be historical book value. The preliminary allocation of the purchase price was based on estimates of the fair value of the assets and liabilities assumed. Under the purchase agreement, the Company issued 40,000,000 shares of common stock. These shares had an acquisition date fair value of $400,000. The following table shows the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
ASSETS ACQUIRED
|
|
|
|
|
CASH
|
|
$
|
2,970
|
|
|
ACCOUNT RECEIVABLE
|
|
|
3,550
|
|
|
PROPERTY PLANT AND EQUIPMENT
|
|
|
43,360
|
|
|
CUSTOMER LIST
|
|
|
67,428
|
|
|
GOODWILL
|
|
|
446,743
|
|
|
TOTAL ASSETS ACQUIRED
|
|
|
564,051
|
|
|
|
|
|
|
|
LIABILITIES ASSUMED
|
|
|
|
|
|
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|
|
|
(36,421
|
)
|
|
NOTES PAYABLE
|
|
|
(27,630
|
)
|
|
TOTAL LIABILITIES ASSUMED
|
|
|
(64,051
|
)
|
|
|
|
|
|
|
NONCONTROLLING INTEREST
|
|
|
(100,000
|
)
|
|
|
|
|
|
|
NET ASSETS ACQUIRED FROM CR LABS ACQUISITION
|
|
$
|
400,000
|
|
Oregon Analytical Services, LLC
On May 24, 2016 the Company through its subsidiary EVIO Inc., executed an asset purchase agreement to acquire 100% of the assets of Oregon Analytical Services, LLC. from its founder. Oregon Analytical Services, LLC was an Oregon company engaged in providing analytical testing services for the medical marijuana industry in compliance with the Oregon Health Authority. The costs related to the transaction were $2,780 and were expensed during the year ended September 30, 2016.
The Company applied the acquisition method as a business combination and valued each of the assets acquired and liabilities assumed at fair value as of the acquisition date. The notes payable was deemed to be recorded at fair value as of the acquisition date. The Company determined the fair value of property, plant and equipment to be market value. The preliminary allocation of the purchase price was based on estimates of the fair value of the assets and liabilities assumed. Under the purchase agreement, the Company issued a promissory note in the amount of $700,000 which is due and payable by May 23, 2010, the company is required to make annual payments of $100,000 if the minimum trailing revenue for EVIO Labs Eugene exceeds $700,000 annually during the term of the promissory note, the Company issued another promissory note in the amount of $72,500 in connection with the acquisition, and 200,000 shares of Preferred Series C Stock. These shares had an acquisition date fair value of $80,000. The following table shows the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
SIGNAL BAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – ACQUISITIONS (CONTINUED)
Oregon Analytical Services, LLC (continued)
ASSETS ACQUIRED
|
|
|
|
|
PROPERTY PLANT AND EQUIPMENT
|
|
$
|
123,143
|
|
|
CUSTOMER LIST
|
|
|
227,595
|
|
|
GOODWILL
|
|
|
529,262
|
|
|
TOTAL ASSETS ACQUIRED
|
|
|
880,000
|
|
|
|
|
|
|
|
LIABILITIES ASSUMED
|
|
|
|
|
|
NOTES PAYABLE
|
|
|
(27,500
|
)
|
|
TOTAL LIABILITIES ASSUMED
|
|
|
(27,500
|
)
|
|
|
|
|
|
|
NET ASSETS ACQUIRED FROM OAS ACQUISITION
|
|
$
|
852,500
|
|
Smith Scientific Industries, Inc.
On June 1, 2016 the Company through its subsidiary EVIO Inc. executed a share purchase agreement for 80% ownership of Smith Scientific Industries, Inc. d/b/a Kenevir Research., from a related party, Anthony Smith, Company Director. Smith Scientific Industries is an Oregon company engaged in providing analytical testing services for the medical marijuana industry in compliance with the Oregon Health Authority. The costs related to the transaction were $2,780 and were expensed during 2016.
The Company applied the acquisition method to the business combination and valued each of the assets acquired and liabilities assumed at fair value as of the acquisition date. The cash and accounts payable were deemed to be recorded at fair value as of the acquisition date. The Company determined the fair value of property, plant and equipment to be historical book value. The preliminary allocation of the purchase price was based on estimates of the fair value of the assets and liabilities assumed. Under the purchase agreement, the Company issued a promissory note for $336,000, with required $25,000 to be paid at closing, $75,000 to be paid in two installments within 180 days, and the remaining balance in three annual installments of $58,475, and 300,000 shares of Preferred Series C Stock. These shares had an acquisition date fair value of $135,000. The following table shows the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
ASSETS ACQUIRED
|
|
|
|
|
CASH
|
|
$
|
9,055
|
|
|
PROPERTY PLANT AND EQUIPMENT
|
|
|
11,076
|
|
|
CUSTOMER LIST
|
|
|
145,847
|
|
|
GOODWILL
|
|
|
439,402
|
|
|
TOTAL ASSETS ACQUIRED
|
|
|
605,380
|
|
|
|
|
|
|
|
LIABILITIES ASSUMED
|
|
|
|
|
|
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|
|
|
(430
|
)
|
|
NOTES PAYABLE
|
|
|
(16,200
|
)
|
|
TOTAL LIABILITIES ASSUMED
|
|
|
(16,630
|
)
|
|
|
|
|
|
|
NONCONTROLLING INTEREST
|
|
|
(117,750
|
)
|
|
|
|
|
|
|
NET ASSETS ACQUIRED FROM SMITH SCIENTIFIC ACQUISITION
|
|
$
|
471,000
|
|
SIGNAL BAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – ACQUISITIONS (CONTINUED)
In accordance with ASC 805-10-50, the Company is providing the following unaudited pro-forma to present a summary of the combined results of the Company’s consolidated operations with all acquisitions. as if the acquisitions had been completed as of the beginning of the reporting period. Adjustments were made to eliminate any inter-company transactions in the periods presented.
SIGNAL BAY, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
Year ended September 30,
|
|
Revenues
|
|
2016
|
|
|
2015
|
|
Testing services
|
|
$
|
616,874
|
|
|
$
|
348,195
|
|
Consulting services
|
|
|
255,282
|
|
|
|
123,642
|
|
Total revenue
|
|
|
872,156
|
|
|
|
471,837
|
|
Cost of revenue
|
|
|
592,131
|
|
|
|
372,154
|
|
Gross profit
|
|
|
280,025
|
|
|
|
99,683
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
834,669
|
|
|
|
1,357,288
|
|
Depreciation and amortization
|
|
|
64,683
|
|
|
|
24,549
|
|
Total operating expenses
|
|
|
899,352
|
|
|
|
1,381,837
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(619,327
|
)
|
|
|
(1,282,154
|
)
|
|
|
|
|
|
|
|
|
|
Other expense
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
310,261
|
|
|
|
38,587
|
|
Loss on disposal of asset
|
|
|
720
|
|
|
|
-
|
|
Loss on change in fair market value of derivative liabilities
|
|
|
1,434,540
|
|
|
|
120,460
|
|
Total other expense
|
|
|
1,745,521
|
|
|
|
159,047
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,364,848
|
)
|
|
$
|
(1,441,201
|
)
|
Future Amortization
The future amortization associated with the intangible assets acquired in the above mentioned acquisitions is as follows:
For the years ended September 30,
|
|
Amortization
|
|
2017
|
|
$
|
88,174
|
|
2018
|
|
|
88,174
|
|
2019
|
|
|
88,174
|
|
2020
|
|
|
88,174
|
|
2021
|
|
|
45,999
|
|
Thereafter
|
|
|
-
|
|
Total
|
|
$
|
398,695
|
|
NOTE 4 – GOING CONCERN
The Company's consolidated 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 a 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.
SIGNAL BAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – GOING CONCERN (CONTINUED)
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 5 – RELATED PARTY TRANSACTIONS
During the years ended September 30, 2016 and 2015, the Company received loans from its Chief Operating Officer totaling $26,000 and $70,000 and made repayments totaling $14,295 and $0. There was $91,705 and $80,000 due as of September 30, 2016 and 2015, respectively and are included in the accompanying consolidated balance sheets as a current portion of notes payable to related parties. The loans carry a 0% interest rate and are due on demand.
During the years ended September 30, 2016 and 2015, the Company incurred total expenses of $60,026 and $64,300 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 September 30, 2016 or 2015.
On June 22, 2015, the Company purchased a 4% ownership of Libra Wellness Center, LLC from Lori J Glauser, our COO for $40,000. Libra Wellness Center, LLC subsequently obtained additional financing resulting in our ownership being diluted to 1.5%. The $40,000 was to be paid in one installment due no later than April 1, 2016. On June 16, 2016, the Company was engaged by Libra Wellness Center, LLC to provide advisory services in the amount of $12,750. The Company received regulatory approval to sell its interest in Libra Wellness Center on September 29, 2016. As of September 30, 2016, the company had not received payment for the divesture resulting in a $40,000 receivable as of September 30, 2016.
During the years ended September 30, 2016 and 2015 the Company made repayments to Eric Ezrine, a shareholder of CR Labs, on an outstanding note payable totaling $13,285 and $1,076, respectively. The loans carry an interest rate of 0% per annum. There was $13,269 and $26,554 due as of September 30, 2016 and 2015, respectively. Additionally, the Company entered into a severance agreement with Mr. Ezrine whereby it agreed to make payments totaling $44,500 through August 2018. There was $44,500 accrued as of September 30, 2016.
Through March 31, 2016, our executive, administrative and operating offices were located at 2996 Panorama Ridge Dr. Henderson, NV 89052. The office space was being provided by one of our Directors at no cost to the Company.
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. During the year ended September 30, 2016, the Company repaid $34,916 to Sara Lausmann, Vice President Client Services. The total amount owed is $737,584 and $0 as of September, 2016 and September 30, 2015, respectively. As of September 30, 2016, $37,584 and $700,000 are included in the accompanying consolidated balance sheets as current and long-term portions of notes payable to related party, respectively. The notes carry interest at a rate of 5% per annum and had accrued interest totaling $13,521 due as of September 30, 2016.
On June 1, 2016, the company executed a share purchase agreement with Anthony Smith, for the purchase of 80% of Smith Scientific Industries for $636,000. The terms of the purchase required the issuance of 300,000 shares of Series C Preferred Stock, valued at $135,000 and $336,000 in a promissory note. During the year ended September 30, 2016, the Company repaid $25,000 to Anthony Smith, our Chief Science Officer. The note carries interest at a rate of 5% per annum. There was $311,000 and $0 of principal due as of September 30, 2016 and 2015 and $5,155 and $0 of accrued interest due as of September 30, 2016 and 2015, respectively.
During the year ended 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. There was $16,200 and $0 due as of September 30, 2016 and 2015, respectively.
SIGNAL BAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – 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. Initially, there will be no dividends due or payable on the Series A Preferred Stock. Any future terms with respect to dividends shall be determined by the Board consistent with the Corporation’s Certificate of Incorporation. Any and all such future terms concerning dividends shall be reflected in an amendment to this Certificate, which the Board shall promptly file or cause to be filed.
All shares of the Series A Preferred Stock shall rank (i) senior to the Corporation’s Common Stock and any other class or series of capital stock of the Corporation hereafter created, (ii) pari passu with any class or series of capital stock of the Corporation hereafter created and specifically ranking, by its terms, on par with the Series A Preferred Stock and (iii) junior to any class or series of capital stock of the Corporation hereafter created specifically ranking, by its terms, senior to the Series A Preferred Stock, in each case as to distribution of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary.
The Series A Preferred shall have no liquidation preference over any other class of stock.
Except as otherwise required by law, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock or any other class or series of preferred stock) for the taking of any corporate action.
Conversion at the Option of the Holder. From 12 months from the date of issuance, each holder of shares of Series A Preferred Stock may, at any time and from time to time, convert (an “Optional Conversion”) each of its shares of Series A Preferred Stock into fully paid and nonassessable shares of Common Stock at a rate equal to 4.9% of the Common Stock.
For a period of 18 months after the Preferred is convertible, the conversion price of the Series A Preferred will be subject to adjustment to prevent dilution in the event that the Company issues additional shares at a purchase price less than the applicable conversion price. The conversion price will be subject to adjustment on a weighted basis that takes into account issuances of additional shares. At the expiration of the antidilution period, the conversion rate in Section VI (A) above shall be equal to a conversion rate equal to 4.9% on the Common Stock. For example, if on the date of expiration of the antidilution clause there are 500,000,000 shares of Common Stock issued and outstanding then each Series A Preferred Stock shall convert at a rate of 13.24 common shares for each 1 Series Preferred Share.
The company has evaluated the Series A Preferred Stock in accordance with ASC 815 and has determined their conversion options were for equity and ASC 815 does not apply.
The company has evaluated the Series A Preferred Stock in accordance with FASB ASC Subtopic 470-20, and has determined that there is no beneficial conversion feature that must be accounted.
The Company has 1,840,000 shares of Series A Convertible Stock issued and outstanding as September 30, 2016 and 2015.
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.
Initially, there will be no dividends due or payable on the Series B Preferred Stock. Any future terms with respect to dividends shall be determined by the Board consistent with the Corporation’s Certificate of Incorporation. Any and all such future terms concerning dividends shall be reflected in an amendment to this Certificate, which the Board shall promptly file or cause to be filed.
All shares of the Series B Preferred Stock shall rank (i) senior to the Corporation’s Common Stock and any other class or series of capital stock of the Corporation hereafter created, (ii) pari passu with any class or series of capital stock of the Corporation hereafter created and specifically ranking, by its terms, on par with the Series B Preferred Stock and (iii) junior to any class or series of capital stock of the Corporation hereafter created specifically ranking, by its terms, senior to the Series B Preferred Stock, in each case as to distribution of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary.
The Series B Preferred shall have no liquidation preference over any other class of stock.
SIGNAL BAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – STOCKHOLDERS’ EQUITY (CONTINUED)
Series B Convertible Preferred Stock (continued)
Each holder of outstanding shares of Series B Preferred Stock shall be entitled to the number of votes equal to one hundred (100) Common Shares. Except as provided by law, or by the provisions establishing any other series of Preferred Stock, holders of Series B Preferred Stock and of any other outstanding series of Preferred Stock shall vote together with the holders of Common Stock as a single class.
Each holder of shares of Series B Preferred Stock may, at any time and from time to time, convert (an “Optional Conversion”) each of its shares of Series B Preferred Stock into a 100 of fully paid and nonassessable shares of Common Stock; provided, however, that any Optional Conversion must involve the issuance of at least 100 shares of Common Stock.
In the event of a reverse split the conversion ratio shall not change. However, in the event a forward split shall occur then the conversion ratio shall be modified to be increased by the same ratio as the forward split.
The company has evaluated the Series B Preferred Stock in accordance with ASC 815 and has determined their conversion options were for equity and ASC 815 does not apply.
The company has evaluated the Series B Preferred Stock in accordance with FASB ASC Subtopic 470-20, and has determined that there is no beneficial conversion feature that must be accounted.
The Company has 5,000,000 shares of Series B Convertible Stock issued and outstanding as of September 30, 2016 and 2015.
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.
Initially, there will be no dividends due or payable on the Series C Preferred Stock. Any future terms with respect to dividends shall be determined by the Board consistent with the Corporation’s Certificate of Incorporation. Any and all such future terms concerning dividends shall be reflected in an amendment to this Certificate, which the Board shall promptly file or cause to be filed.
All shares of the Series C Preferred Stock shall rank (i) senior to the Corporation’s Common Stock and any other class or series of capital stock of the Corporation hereafter created, (ii) pari passu with any class or series of capital stock of the Corporation hereafter created and specifically ranking, by its terms, on par with the Series B Preferred Stock and (iii) junior to any class or series of capital stock of the Corporation hereafter created specifically ranking, by its terms, senior to the Series B Preferred Stock, in each case as to distribution of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary.
In any liquidation, dissolution, or winding up of the Corporation, the holders of the Series C Preferred Stock shall be entitled to receive (a) in preference to the holders of the Common Stock (b) on a pari passu basis to any sum that the holders of the Series B Preferred Stock shall be entitled to receive, but (c) subordinate in preference to any sum that the holders of any shares of any other series of the Corporation's Preferred Stock shall be entitled, an amount equal to $1 per share (subject to appropriate adjustment in the event of any stock dividend, forward stock split, or other similar recapitalization). After payment of such sums, (i) the holders of the Series A Preferred Stock and (ii) the holders of the Common Stock, shall be entitled to receive any remaining assets of the Corporation on a pro rata, as-converted basis assuming conversion of the Series A Preferred Stock into Common Stock at the then- current Conversion Rate.
Each holder of outstanding shares of Series C Preferred Stock shall be entitled to the number of votes equal to five hundred (500) Common Shares. Except as provided by law, or by the provisions establishing any other series of Preferred Stock, holders of Series B Preferred Stock and of any other outstanding series of Preferred Stock shall vote together with the holders of Common Stock as a single class.
Each holder of shares of Series C Preferred Stock may, at any time and from time to time, convert (an “Optional Conversion”) each of its shares of Series C Preferred Stock into a 500 of fully paid and nonassessable shares of Common Stock; provided, however, that any Optional Conversion must involve the issuance of at least 10,000 shares of Common Stock.
In the event of a reverse split the conversion ratio shall not change. However, in the event a forward split shall occur then the conversion ratio shall be modified to be increased by the same ratio as the forward split.
SIGNAL BAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – STOCKHOLDERS’ EQUITY (CONTINUED)
Series C Convertible Preferred Stock (continued)
The company has evaluated the Series C Preferred Stock in accordance with ASC 815 and has determined their conversion options were for equity and ASC 815 does not apply.
The company has evaluated the Series C Preferred Stock in accordance with FASB ASC Subtopic 470-20, and has determined that there is no beneficial conversion feature that must be accounted.
During the year ended September 30, 2016, the Company issued 300,000 shares of Series C Preferred Stock for the acquisition of Smith Scientific Industries, Inc. and 200,000 shares of Series C Preferred Stock for the acquisition of the assets of Oregon Analytical Services.
There were 500,000 and 0 shares of Series C Convertible Stock issued and outstanding as of September 30, 2016 and 2015.
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.
Initially, there will be no dividends due or payable on the Series D Preferred Stock. Any future terms with respect to dividends shall be determined by the Board consistent with the Corporation’s Certificate of Incorporation. Any and all such future terms concerning dividends shall be reflected in an amendment to this Certificate, which the Board shall promptly file or cause to be filed.
All shares of the Series D Preferred Stock shall rank (i) senior to the Corporation’s Common Stock and any other class or series of capital stock of the Corporation hereafter created, (ii) pari passu with any class or series of capital stock of the Corporation hereafter created and specifically ranking, by its terms, on par with the Series B Preferred Stock and (iii) junior to any class or series of capital stock of the Corporation hereafter created specifically ranking, by its terms, senior to the Series B Preferred Stock, in each case as to distribution of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary.
In any liquidation, dissolution, or winding up of the Corporation, the holders of the Series D Preferred Stock shall be entitled to receive (a) in preference to the holders of the Common Stock (b) on a pari passu basis to any sum that the holders of the Series B Preferred Stock shall be entitled to receive, but (c) subordinate in preference to any sum that the holders of any shares of any other series of the Corporation's Preferred Stock shall be entitled, an amount equal to $1 per share (subject to appropriate adjustment in the event of any stock dividend, forward stock split, or other similar recapitalization). After payment of such sums, (i) the holders of the Series A Preferred Stock and (ii) the holders of the Common Stock, shall be entitled to receive any remaining assets of the Corporation on a pro rata, as-converted basis assuming conversion of the Series A Preferred Stock into Common Stock at the then- current Conversion Rate.
Each holder of outstanding shares of Series D Preferred Stock shall be entitled to the number of votes equal to two hundred fifty (250) Common Shares. Except as provided by law, or by the provisions establishing any other series of Preferred Stock, holders of Series B Preferred Stock and of any other outstanding series of Preferred Stock shall vote together with the holders of Common Stock as a single class.
Each holder of shares of Series D Preferred Stock may, at any time and from time to time, convert (an “Optional Conversion”) each of its shares of Series D Preferred Stock into a 250 of fully paid and nonassessable shares of Common Stock; provided, however, that any Optional Conversion must involve the issuance of at least 50,000 shares of Common Stock.
In the event of a reverse split the conversion ratio shall not change. However, in the event a forward split shall occur then the conversion ratio shall be modified to be increased by the same ratio as the forward split.
The company has evaluated the Series D Preferred Stock in accordance with ASC 815 and has determined their conversion options were for equity and ASC 815 does not apply.
The company has evaluated the Series C Preferred Stock in accordance with FASB ASC Subtopic 470-20, and has determined that there is no beneficial conversion feature that must be accounted.
During the year ended September 30, 2016, the Company issued 48,000 shares of Series D Preferred Stock for cash proceeds of $48,000.
There were 48,000 and 0 shares of Series D Convertible Stock issued and outstanding as of September 30, 2016 and 2015.
SIGNAL BAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – STOCKHOLDERS’ EQUITY (CONTINUED)
Common Stock
During the year ended September 30, 2015, the Company issued 6,460,001 common shares for cash proceeds of $79,500; 7,500,000 common shares for software purchases totaling $89,583; 37,043,750 common shares valued at $886,829 under the Company’s employee equity incentive plan; 12,000,000 common shares for the conversion of $150,000 of notes payable; 3,500,000 common shares valued at $60,900 for a financing commitment; 40,000,000 common shares valued at $400,000 for an acquisition and 2,000,000 common shares for services valued at $31,000.
During the year ended September 30, 2016, the Company issued 6,087,500 common shares valued at $46,473 under its employee equity incentive plan; 401,032,581 common shares for the conversion of $207,367 of outstanding principal on convertible notes payable; 1,468,582 common shares for the conversion of $4,135 of convertible accrued interest and 42,827,010 common shares for services valued at $138,447. All conversions of outstanding principal and accrued interest on convertible notes payable were done so at contractual terms.
There were $850,064,268 and 398,648,595 shares of common stock issued and outstanding at September 30, 2016 and 2015, respectively.
NOTE 7
– LOANS PAYABLE
The Company had the following loans payable outstanding as of September 30, 2016 and September 30, 2015:
|
|
September 30,
2016
|
|
|
September 30,
2015
|
|
On July 22, 2016, the Company entered into a Purchase and Sale of Future Receivables agreement (the “Agreement”) with 1 Global Capital, LLC (“1GC”) for $50,000. The Agreement calls for 160 daily payments of $437.50, due on business days, for total payments of $70,000. The Company recognized an original debt discount of $20,000 as interest expense.
|
|
$
|
49,875
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
On May 24, 2016, the Company assumed a $27,500 Promissory note with annual interest of 5%, as part of the acquisition of Oregon Analytical Services (see note 3). The note is due on demand and requires quarterly payments.
|
|
|
27,500
|
|
|
|
-
|
|
|
|
|
77,375
|
|
|
|
-
|
|
Less: current portion of loans payable
|
|
|
77,375
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Long-term portion of loans payable
|
|
$
|
-
|
|
|
$
|
-
|
|
As of September 30, 2016 and 2015, the Company accrued interest of $638 and $0, respectively. During the periods ended September 30, 2016 and 2015, the Company recorded interest expense of $20,638 and $0, respectively.
NOTE 8 – CONVERTIBLE NOTES PAYABLE
The following table summarizes all convertible notes outstanding as of September 30, 2016:
Holder
|
|
Issue Date
|
|
Due Date
|
|
Principal
|
|
|
Unamortized Debt Discount
|
|
|
Carrying Value
|
|
|
Accrued Interest
|
|
Noteholder 1
|
|
5/17/2016
|
|
5/18/2017
|
|
$
|
76,650
|
|
|
$
|
(5,867
|
)
|
|
$
|
70,783
|
|
|
$
|
2,268
|
|
Noteholder 1
|
|
8/26/2016
|
|
8/26/2017
|
|
|
76,650
|
|
|
|
(6,650
|
)
|
|
|
70,000
|
|
|
|
588
|
|
Noteholder 2
|
|
5/22/2016
|
|
5/23/2017
|
|
|
45,000
|
|
|
|
-
|
|
|
|
45,000
|
|
|
|
1,282
|
|
Noteholder 3
|
|
3/20/2016
|
|
3/21/2017
|
|
|
27,500
|
|
|
|
(12,959
|
)
|
|
|
14,541
|
|
|
|
1,454
|
|
Noteholder 3
|
|
5/18/2016
|
|
5/19/2017
|
|
|
76,650
|
|
|
|
(48,510
|
)
|
|
|
28,140
|
|
|
|
2,252
|
|
Noteholder 3
|
|
9/19/2016
|
|
5/19/2017
|
|
|
76,650
|
|
|
|
(47,510
|
)
|
|
|
29,140
|
|
|
|
185
|
|
|
|
|
|
|
|
$
|
379,100
|
|
|
$
|
(121,496
|
)
|
|
$
|
257,604
|
|
|
$
|
8,029
|
|
SIGNAL BAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 – CONVERTIBLE NOTES PAYABLE (CONTINUED)
Noteholder 1
On May 17, 2016, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $76,650 of which $6,650 was an original issue discount resulting in cash proceeds to the Company of $70,000 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 May 18, 2017. The Note is convertible into the Company's common stock commencing 180 days from the date of issuance at a conversion price equal to 55% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. 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 “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than conversion price of these notes. If these provisions are triggered, the conversion price of the note will be reduced. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with ASC 815, the Company will bifurcate the conversion feature of the note and record a derivative liability upon the note qualifying for conversion rights on November 17, 2016. The Company may prepay the note during the first six months it is outstanding. There was $76,650 of principal and $2,268 of accrued interest due at September 30, 2016.
On August 26, 2016, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $76,650 of which $6,650 was an original issue discount resulting in cash proceeds to the Company of $70,000 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 26, 2017. The Note is convertible into the Company's common stock commencing 180 days from the date of issuance at a conversion price equal to 55% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. 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 “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than conversion price of these notes. If these provisions are triggered, the conversion price of the note will be reduced. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with ASC 815, the Company will bifurcate the conversion feature of the note and record a derivative liability upon the note qualifying for conversion rights on February 26, 2016. The Company may prepay the note during the first six months it is outstanding. There was $76,650 of principal and $588 of accrued interest due at September 30, 2016.
Noteholder 2
On May 23, 2016, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $45,000 resulting in cash proceeds to the Company of $45,000 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 May 23, 2017. The Note is convertible into the Company's common stock commencing 180 days from the date of issuance at a conversion price equal to 72% of the lowest trade price of the Company's common stock for the ten prior trading days including the date of conversion. 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 “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than conversion price of these notes. If these provisions are triggered, the conversion price of the note will be reduced. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with ASC 815, the Company will bifurcate the conversion feature of the note and record a derivative liability upon the note qualifying for conversion rights on November 23, 2016. The Company may prepay the note during the first 90 days it is outstanding for a sum of 115% of the unpaid principal and accrued interest outstanding and within the next 90 days at a rate of 130% of the unpaid principal and accrued interest outstanding. The note may not be prepaid after 180 days from issuance. There was $45,000 of principal and $1,282 of accrued interest due at September 30, 2016.
SIGNAL BAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 – CONVERTIBLE NOTES PAYABLE (CONTINUED)
Noteholder 3
On March 21, 2016, an unrelated party purchased from an existing convertible noteholder outstanding principal of $115,019. The Note is due on March 21, 2017 and carries an interest rate of 0% per annum. The Note is convertible into the Company's common stock at a conversion price equal to 50% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. 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 “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than conversion price of these notes. If these provisions are triggered, the conversion price of the note will be reduced. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with ASC 815, the Company bifurcated the conversion feature of the note and recorded a derivative liability upon issuance. During the year ended September 30, 2016, the Company issued a total of 338,493,893 common shares for the conversion of $115,019 of principal. There was $0 of principal and $0 of accrued interest due at September 30, 2016.
On March 21, 2016 the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $27,500 of which $2,500 was an original issue discount resulting in cash proceeds to the Company of $25,000 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 March 21, 2017. The Note is convertible into the Company's common stock commencing from the date of issuance at a conversion price equal to 50% of the lowest trade price of the Company's common stock for the twenty-five prior trading days including the date of conversion. 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 “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than conversion price of these notes. If these provisions are triggered, the conversion price of the note will be reduced. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with ASC 815, the Company bifurcated the conversion feature of the note and recorded a derivative liability upon the note qualifying for conversion rights. The Company may prepay the note during the first 180 days it is outstanding at a graduated scale of 100% of the principal amount if repaid within 30 days from issuance; 110% of the principal during the next 30 days; 120% of the principal during the next 30 days; 130% of the principal during the next 30 days; 140% of the principal during the next 30 days and 150% of the principal during the next 30 days. The note may not be prepaid after 180 days without the expressed written consent of the noteholder. There was $27,500 of principal and $1,454 of accrued interest due at September 30, 2016.
On May 19, 2016, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $76,650 of which $6,650 was an original issue discount resulting in cash proceeds to the Company of $70,000 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 May 19, 2017. The Note is convertible into the Company's common stock commencing from the date of issuance at a conversion price equal to 55% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. 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 “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than conversion price of these notes. If these provisions are triggered, the conversion price of the note will be reduced. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with ASC 815, the Company bifurcated the conversion feature of the note and recorded a derivative liability upon the note qualifying for conversion rights. The Company may prepay the note during the first 180 days it is outstanding at a rate of 115% of the outstanding principal amount during the first 90 days from issuance and 135% of the principal amount during the next 90 days. The note may not be prepaid without the consent of the noteholder after 180 days. There was $76,650 of principal and $2,252 of accrued interest due at September 30, 2016.
On September 19, 2016, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $76,650 of which $6,650 was an original issue discount and $7,000 was paid to a third party on our behalf resulting in cash proceeds to the Company of $63,000 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 May 19, 2017. The Note is convertible into the Company's common stock commencing from the date of issuance at a conversion price equal to 55% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. 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 “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than conversion price of these notes. If these provisions are triggered, the conversion price of the note will be reduced. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with ASC 815, the Company bifurcated the conversion feature of the note and recorded a derivative liability upon the note qualifying for conversion rights. The Company may prepay the note during the first 180 days it is outstanding at a rate of 115% of the outstanding principal amount during the first 90 days from issuance and 135% of the principal amount during the next 90 days. The note may not be prepaid without the consent of the noteholder after 180 days. There was $76,650 of principal and $185 of accrued interest due at September 30, 2016.
SIGNAL BAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 – CONVERTIBLE NOTES PAYABLE (CONTINUED)
Noteholder 4
On February 19, 2016, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $25,000 resulting in cash proceeds to the Company of $25,000 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 February 19, 2017. The Note is convertible into the Company's common stock commencing from the date of issuance at a conversion price equal to 50% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. 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 “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than conversion price of these notes. If these provisions are triggered, the conversion price of the note will be reduced. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with ASC 815, the Company bifurcated the conversion feature of the note and recorded a derivative liability upon the note qualifying for conversion rights. During the year ended September 30, 2016 the Company issued 10,638,298 shares of common stock for the conversion of $25,000 of principal and 479,906 shares of common stock for the conversion of $1,128 of accrued interest payable. There was $0 of principal and $0 of accrued interest due at September 30, 2016.
On February 19, 2016, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $25,000 of which $2,000 was an original issue discount resulting in cash proceeds to the Company of $23,000 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 February 19, 2017. The Note is convertible into the Company's common stock commencing from the date of issuance at a conversion price equal to 50% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. 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 “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than conversion price of these notes. If these provisions are triggered, the conversion price of the note will be reduced. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with ASC 815, the Company bifurcated the conversion feature of the note and recorded a derivative liability upon the note qualifying for conversion rights. During the year ended September 30, 2016 the Company issued 10,204,082 shares of common stock for the conversion of $25,000 of principal. There was $0 of principal and $0 of accrued interest due at September 30, 2016.
Noteholder 5
On July 23, 2015, Signal Bay, Inc. (the "Company") executed a convertible promissory note with a principal amount of $102,500 (the "Note") to St. George Investments, LLC. ("Lender"). The Note was funded on July 23, 2015 (Purchase Date). The Company may repay this note at any time. This note shall be deemed paid in full if Company pays to Lender (a) the sum of $91,250 (meaning Borrower would receive a $11,250 discount) on or before the date that is ninety (90) days from the Purchase Price Date, or (b) the sum of $97,500 (meaning Borrower would receive a $5,000 discount) on any date after the date that is ninety (90) days from the Purchase Price Date but on or before the date that is one hundred thirty-five (135) days from the Purchase Price Date (the "Prepayment Opportunity Date"). If Borrower does not repay the entire Outstanding Balance of this Note on or before the Prepayment Opportunity Date, it shall receive no prepayment discount and must pay the entire Outstanding Balance of this Note in full on or before the Maturity Date. Lender has the right at any time following an Event of Default, at its election, to convert (each instance of conversion is referred to herein as a "Conversion") all or any part of the Outstanding Balance into shares ("Conversion Shares") of fully paid and non-assessable common stock, $0.0001 par value per share ("Common Stock"), of Borrower as per the following conversion formula: the number of Conversion Shares equals the amount being converted (the "Conversion Amount") divided by the Conversion Price. The conversion price (the "Conversion Price") for each Conversion (as defined below) shall be equal to the product of 70% (the "Conversion Factor") multiplied by the average of the three (3) lowest Closing Bid Prices in the twenty (20) Trading Days immediately preceding the applicable Conversion. On March 31, 2016, Tangiers Global LLC Purchased $115,019 of the note from St. George Investments, resulting in a balance of $25,071 owing to St. George Investments. During the year ended September 30, 2016, principal and interest of $85,348 and $3,008, respectively, was converted into 162,246,500 shares of common stock. There was $0 of principal and $0 of accrued interest due as of September 30, 2016.
SIGNAL BAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 – DERIVATIVE LIABILITIES
As of September 30, 2016 and 2015 the Company had a $775,246 and $200,460 derivative liability balance on the balance sheets and recorded a loss from derivative liability fair value adjustments of $1,434,540 and $120,460 during the years ended September 30, 2016 and 2015, respectively. The derivative liability activity comes from convertible notes payable as follows:
As discussed in
Note 7 – Convertible Notes Payable
, the Company issued a $102,500 Convertible Promissory Notes to an unrelated party that matured on January 23, 2016. The note bears interest at a rate of 22% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 50% discount from the lowest trading price in the twenty trading days prior to conversion. 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. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the issuance date of the note was $200,460 which was recorded as a derivative liability on the balance sheet.
During the year ended September 30, 2016, the noteholder elected to assign $115,019 of principal to an unrelated party and converted all of the remaining outstanding principal and accrued interest to common stock. At September 30, 2016, 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 $26,730 gain from change in fair value of derivatives and a write off of derivative liability due to conversion of $58,711 for the year ended September 30, 2016. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 289%, (3) risk-free interest rate of .23%, (4) expected life of 0.24 of a year, and (5) estimated fair value of the Company’s common stock of $0.0013 per share.
As discussed in
Note 7 – Convertible Notes Payable
, the Company issued a $25,000 Convertible Promissory Notes to an unrelated party that matures on February 19, 2017. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 50% discount from the lowest trading price in the twenty trading days prior to conversion. 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. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the issuance date of the note was $48,841 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $25,000 which was up to the face value of the convertible note with the excess fair value at initial measurement of $23,841 being recognized as a loss on derivative fair value measurement.
During the year ended September 30, 2016, the noteholder elected to convert all outstanding principal and accrued interest to common stock. At September 30, 2016 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 $115,343 loss from change in fair value of derivatives and a write off of derivative liability due to conversion of $164,184 for the year ended September 30, 2016. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 272%, (3) risk-free interest rate of .49%, (4) expected life of 0.43 of a year, and (5) estimated fair value of the Company’s common stock of $0.0172 per share.
SIGNAL BAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 – DERIVATIVE LIABILITIES (CONTINUED)
As discussed in
Note 7 – Convertible Notes Payable
, the Company issued a $25,000 Convertible Promissory Notes to an unrelated party that matures on February 19, 2017. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 50% discount from the lowest trading price in the twenty trading days prior to conversion. 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. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the issuance date of the note was $88,643 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $25,000 which was up to the face value of the convertible note with the excess fair value at initial measurement of $88,643 being recognized as a loss on derivative fair value measurement.
During the year ended September 30, 2016, the noteholder elected to convert all outstanding principal and accrued interest to common stock. At September 30, 2016 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 $0 loss from change in fair value of derivatives and a write off of derivative liability due to conversion of $88,643 for the year ended September 30, 2016. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 273%, (3) risk-free interest rate of .48%, (4) expected life of 0.42 of a year, and (5) estimated fair value of the Company’s common stock of $0.0103 per share.
As discussed in
Note 7 – Convertible Notes Payable
, the Company issued a $115,019 Convertible Promissory Notes to an unrelated party that matures on March 21, 2017. The note bears interest at a rate of 0% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 50% discount from the lowest trading price in the twenty trading days prior to conversion. 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. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the issuance date of the note was $115,019 which was transferred from the existing convertible noteholder. Due to changes in certain features of the note, the Company recorded an additional derivative liability of $38,767 which was recorded as a loss on the fair value measurement resulting in a total derivative liability of $153,786.
During the year ended September 30, 2016, the noteholder elected to convert all outstanding principal and accrued interest to common stock. At September 30, 2016 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 $609,430 loss from change in fair value of derivatives and a write off of derivative liability due to conversion of $763,216 for the year ended September 30, 2016. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 294%, (3) risk-free interest rate of .47%, (4) expected life of 0.56 of a year, and (5) estimated fair value of the Company’s common stock of $0.0089 per share.
As discussed in
Note 7 – Convertible Notes Payable
, the Company issued a $27,500 Convertible Promissory Notes to an unrelated party that matures on March 21, 2017. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 50% discount from the lowest trading price in the twenty trading days prior to conversion. 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. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
SIGNAL BAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 – DERIVATIVE LIABILITIES (CONTINUED)
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the issuance date of the note was $36,769 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $25,000 which was up to the face value of the convertible note with the excess fair value at initial measurement of $11,769 being recognized as a loss on derivative fair value measurement.
At September 30, 2016 the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $123,590 and recorded a $86,821 loss from change in fair value of derivatives for the year ended September 30, 2016. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 284%, (3) risk-free interest rate of .45%, (4) expected life of 0.47 of a year, and (5) estimated fair value of the Company’s common stock of $0.0174 per share.
As discussed in
Note 7 – Convertible Notes Payable
, the Company issued a $76,500 Convertible Promissory Notes to an unrelated party that matures on May 19, 2017. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 50% discount from the lowest trading price in the twenty trading days prior to conversion. 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. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the issuance date of the note was $166,260 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $70,000 which was up to the face value of the convertible note with the excess fair value at initial measurement of $96,260 being recognized as a loss on derivative fair value measurement.
At September 30, 2016 the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $325,828 and recorded a $159,568 loss from change in fair value of derivatives for the year ended September 30, 2016. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 316%, (3) risk-free interest rate of .45%, (4) expected life of 0.63 of a year, and (5) estimated fair value of the Company’s common stock of $0.0174 per share.
As discussed in
Note 7 – Convertible Notes Payable
, the Company issued a $76,500 Convertible Promissory Notes to an unrelated party that matures on May 19, 2017. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 50% discount from the lowest trading price in the twenty trading days prior to conversion. 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. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the issuance date of the note was $255,582 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $70,000 which was up to the face value of the convertible note with the excess fair value at initial measurement of $185,582 being recognized as a loss on derivative fair value measurement.
At September 30, 2016 the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $325,828 and recorded a $70,246 loss from change in fair value of derivatives for the year ended September 30, 2016. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 316%, (3) risk-free interest rate of .45%, (4) expected life of 0.63 of a year, and (5) estimated fair value of the Company’s common stock of $0.0174 per share.
SIGNAL BAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 – DERIVATIVE LIABILITIES (CONTINUED)
The following table summarizes the derivative liabilities included in the balance sheet at September 30, 2015:
Fair Value of Embedded Derivative Liabilities:
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|
Balance, September 30, 2014
|
|
$
|
-
|
|
Initial measurement of derivative liabilities
|
|
|
126,987
|
|
Change in fair market value
|
|
|
73,473
|
|
Write off due to conversion
|
|
|
-
|
|
Balance, September 30, 2015
|
|
$
|
200,460
|
|
The following table summarizes the derivative liabilities included in the balance sheet at September 30, 2016:
Fair Value of Embedded Derivative Liabilities:
|
|
|
|
Balance, September 30, 2015
|
|
$
|
200,460
|
|
Initial measurement of derivative liabilities
|
|
|
634,862
|
|
Change in fair market value
|
|
|
1,014,678
|
|
Write off due to conversion
|
|
|
(1,074,754
|
)
|
Balance, September 30, 2016
|
|
$
|
775,246
|
|
The following table summarizes the loss on derivative liability included in the income statement for the financial years ended September 30, 2016 and 2015, respectively.
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Day one loss due to derivatives on convertible debt
|
|
$
|
419,862
|
|
|
$
|
24,487
|
|
Change in fair value of derivatives
|
|
|
1,014,678
|
|
|
|
95,973
|
|
Total derivative expense
|
|
$
|
1,434,540
|
|
|
$
|
120,460
|
|
NOTE 10
– INCOME TAXES
We did not provide any current or deferred U.S. federal income tax provision or benefit for any of the periods presented because we have experienced operating losses since inception. When it is more likely than not that a tax asset cannot be realized through future income the Company must allow for this future tax benefit. We provided a full valuation allowance on the net deferred tax asset, consisting of net operating loss carry forwards, because management has determined that it is more likely than not that we will not earn income sufficient to realize the deferred tax assets during the carry forward period.
SIGNAL BAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10
– INCOME TAXES (CONTINUED)
The Company has not taken a tax position that, if challenged, would have a material effect on the financial statements for the years ended September 30, 2016 and 2015 applicable under FASB ASC 740. We did not recognize any adjustment to the liability for uncertain tax position and therefore did not record any adjustment to the beginning balance of accumulated deficit on the balance sheet. All tax returns for the Company remain open.
The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before provision for income taxes. The sources and tax effects of the differences for the periods presented are as follows:
Income tax provision at the federal statutory rate
|
|
|
35
|
%
|
Effect on operating losses
|
|
(35
|
%)
|
|
|
|
-
|
|
Net deferred tax assets consisted of the following:
|
|
September 30, 2016
|
|
|
September 30, 2015
|
|
Net operating loss carry forward
|
|
$
|
728,834
|
|
|
$
|
527,441
|
|
Valuation allowance
|
|
|
(728,834
|
)
|
|
|
(527,441
|
)
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
A reconciliation of income taxes computed at the statutory rate is as follows:
|
|
September 30, 2016
|
|
|
September 30, 2015
|
|
Computed federal income tax expense at statutory rate of 35%
|
|
$
|
(893,232
|
)
|
|
$
|
(527,411
|
)
|
Depreciation and amortization
|
|
|
31,309
|
|
|
|
-
|
|
Common stock issued for services
|
|
|
48,456
|
|
|
|
-
|
|
Common stock issued under employee incentive plan
|
|
|
16,266
|
|
|
|
-
|
|
Stock option expense
|
|
|
2,756
|
|
|
|
-
|
|
Amortization of debt discounts
|
|
|
73,033
|
|
|
|
-
|
|
Default penalties on convertible notes payable
|
|
|
17,930
|
|
|
|
-
|
|
Change in derivative liability
|
|
|
502,089
|
|
|
|
-
|
|
Change in valuation allowance
|
|
|
201,393
|
|
|
|
527,441
|
|
Income tax expense
|
|
$
|
-
|
|
|
$
|
-
|
|
SIGNAL BAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 under its brand Signal Bay Research. Consulting clients are located in states that have state managed medical and/or recreational programs. Signal Bay Research 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 September 30, 2016, EVIO Labs has three operating labs, CR Labs, Inc. d/b/a EVIO Labs, Bend, EVIO Labs Eugene d/b/a Oregon Analytical Services and Smith Scientific Industries d/b/a Kenevir Research. EVIO Labs clients are located in Oregon and consist of growers, processors and dispensaries. Operating under the rules of the Oregon Health Authority, EVIO Labs certifies products have been tested and are free from pesticides and other containments before resale to patients and consumer in the State of Oregon.
Year ended September 30, 2016
|
|
Corporate
|
|
|
Consulting Services
|
|
|
Testing Services
|
|
|
Total Consolidated
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
255,282
|
|
|
$
|
305,679
|
|
|
$
|
560,961
|
|
Segment loss from operations
|
|
|
(300,814
|
)
|
|
|
(252,512
|
)
|
|
|
(239,222
|
)
|
|
|
(792,548
|
)
|
Total assets
|
|
|
47,911
|
|
|
|
113,873
|
|
|
|
2,024,212
|
|
|
|
2,185,996
|
|
Capital expenditures
|
|
|
-
|
|
|
|
-
|
|
|
|
(11,699
|
)
|
|
|
(11,699
|
)
|
Depreciation and amortization
|
|
|
-
|
|
|
|
23,688
|
|
|
|
65,766
|
|
|
|
89,454
|
|
Year ended September 30, 2015
|
|
Corporate
|
|
|
Consulting Services
|
|
|
Testing Services
|
|
|
Total Consolidated
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
122,364
|
|
|
$
|
2,835
|
|
|
$
|
125,199
|
|
Segment loss from operations
|
|
|
-
|
|
|
|
(1,282,921
|
)
|
|
|
(14,416
|
)
|
|
|
(1,297,337
|
)
|
Total assets
|
|
|
-
|
|
|
|
678,234
|
|
|
|
50,489
|
|
|
|
728,723
|
|
Capital expenditures
|
|
|
-
|
|
|
|
5,694
|
|
|
|
-
|
|
|
|
5,694
|
|
Depreciation and amortization
|
|
|
-
|
|
|
|
16,601
|
|
|
|
409
|
|
|
|
17,010
|
|
SIGNAL BAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 – CONCENTRATIONS OF RISK
The Company had revenues of $560,961 and $125,199 for the years ended September 30, 2016 and 2015, respectively. The Company had two customers that represented 93% of revenue for year ended September 30, 2015. The Company did not have any customer that represented greater than 10% of revenues during the year ended September 30, 2016.
NOTE 13 – STOCK OPTIONS AND WARRANTS
The following table summarizes all stock option and warrant activity for the year ended September 30, 2016 and 2015:
|
|
Shares
|
|
|
Weighted-
Average
Exercise Price
Per Share
|
|
Outstanding, September 30, 2015
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
31,500,000
|
|
|
|
0.004
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding, September 30, 2016
|
|
|
31,500,000
|
|
|
$
|
0.004
|
|
The following table discloses information regarding outstanding and exercisable options and warrants at September 30, 2016:
|
|
|
Outstanding
|
|
|
Exercisable
|
|
Exercise
Prices
|
|
|
Number of
Option Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining Life
(Years)
|
|
|
Number of
Option Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
$
|
0.004
|
|
|
|
31,500,000
|
|
|
$
|
0.004
|
|
|
|
4.88
|
|
|
|
-
|
|
|
$
|
0.004
|
|
|
|
|
|
|
31,500,000
|
|
|
$
|
0.004
|
|
|
|
4.88
|
|
|
|
-
|
|
|
$
|
0.004
|
|
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:
|
|
September 30,
2016
|
|
Expected term of options granted
|
|
5 years
|
|
Expected volatility
|
|
|
409
|
%
|
Risk-free interest rate
|
|
|
1.14
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
SIGNAL BAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 – SUBSEQUENT EVENTS
On various dates from October 1, 2016 through February 8, 2017, the Company issued 9,269,900 shares of common stock for services valued at $166,273; 968,750 common shares valued at $25,381 to its employees under the employee equity incentive program; 41,851,494 common shares for the conversion of $302,450 of principal on convertible notes and 2,425,603 common shares for the conversion of $14,006 of accrued interest. All conversions of convertible note principal and accrued interest were done at contractual rates.
The Company issued 114,500 shares of Series D Preferred Stock for cash proceeds of $114,500.
On October 19, 2016, the Company issued a total of 4,500,000 incentive stock options to its employees under the employee equity incentive program. The options vest 50% upon the one year anniversary with the remaining 50% upon the two year anniversary, carry an exercise price of $0.013 per share and expire on October 19, 2021.
On October 19, 2016, the Company entered into a Membership Interest Purchase Agreement to purchase 100% of the ownership of Greenhaus Analytical Labs, LLC. for 460,000 shares of Series “D” preferred stock and a $340,000 promissory note. In conjunction with the acquisition, the Company entered into an employment agreement with Greenhaus founder Henry Grimmett. The term of the agreement is for 15 months at a rate of $4,000 per month. Mr. Henry Grimmett was also appointed to the Company’s Board of Directors. The Company also executed a $240,000 promissory note guaranteeing repayment of loan to company from Mr. Grimmett.
On October 26, 2016, the Company entered in to an Asset Purchase Agreement with Green Style Consulting, LLC. Effective, November 1, 2016, the company owned all assets of Green Style Consulting, LLC d/b/a Green Style Analytics, including 1,300 client names, analytical testing equipment, brands/websites, and the vanity toll-free number 844-420-TEST for 210,000 shares of Series “D” preferred stock, $20,000 cash down payment and a $50,000 promissory note.
On December 21, 2016, the Company received a conversion request from the Series A Convertible Preferred Shareholder. The shareholder converted 100% of the 1,840,000 Series A Preferred Shares in exchange for 43,875,285 common shares. Upon conversion of the Series A Convertible Shares, the Board of Directors voted to retire the Series A Preferred Stock.