Quarterly Report (10-q)

Date : 04/19/2017 @ 4:19PM
Source : Edgar (US Regulatory)
Stock : Signal Bay, Inc. (QB) (SGBY)
Quote : 0.0128  -0.00135 (-9.54%) @ 4:00PM

Quarterly Report (10-q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 31, 2016

 

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________________ to ___________________ .

 

Commission File Number: 000-12350

 

SIGNAL BAY, INC.

 (Exact name of registrant as specified in its charter)

 

Colorado

 

47-1890509

(State of Incorporation)

 

(I.R.S. Employer Identification No.)

 

62930 O. B. Riley Rd, Suite 300, Bend, OR

 

97703

(Address of principal executive offices)

 

(Zip Code)

 

(541) 633-4568

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

¨

Non-accelerated filer

¨

Accelerated filer

¨

Smaller reporting company

x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

 

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

 

Title of Each Class

 

Outstanding as of April 19, 2017

Common stock, par value $0.0001 per share 

 

952,467,800

Class A Preferred Stock, par value $0.0001 per share

 

0

Class B Preferred Stock, par value $0.0001 per share

 

5,000,000

Class C Preferred Stock, par value $0.0001 per share

 

500,000

Class D Preferred Stock, par value $0.0001 per share

 

832,500

 

 
 
 
 

  SIGNAL BAY, INC.

FORM 10-Q

December 31, 2016

 

TABLE OF CONTENTS

 

PART I -- FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

 

3

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

24

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

30

 

Item 4.

Control and Procedures

 

30

 

PART II -- OTHER INFORMATION

 

Item 1.

Legal Proceedings

 

33

 

Item 1A.

Risk Factors

 

33

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

33

 

Item 3.

Defaults Upon Senior Securities

 

33

 

Item 4.

Mine Safety Disclosures

 

33

 

Item 5.

Other Information

 

33

 

Item 6.

Exhibits

 

34

 

 
2
 
 

 

PART I -- FINANCIAL INFORMATION

 

ITEM 1 – FINANCIAL STATEMENTS

 

SIGNAL BAY, INC.

UNAUDITED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

December 31,

2016

 

 

September 30,

2016

 

ASSETS

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash

 

$ 151,883

 

 

$ 57,486

 

Accounts receivable

 

 

241,521

 

 

 

9,483

 

Prepaid expenses

 

 

12,176

 

 

 

-

 

Other current asset

 

 

-

 

 

 

40,000

 

Note receivable

 

 

-

 

 

 

25,000

 

Total current assets

 

 

405,580

 

 

 

131,969

 

 

 

 

 

 

 

 

 

 

Fixed assets, net of accumulated depreciation of $96,523 and $68,610, respectively

 

 

409,974

 

 

 

205,842

 

Security deposits

 

 

9,271

 

 

 

6,476

 

Intangible assets, net of accumulated amortization of $74,243 and $49,319

 

 

638,658

 

 

 

426,301

 

Goodwill

 

 

2,415,057

 

 

 

1,415,408

 

 

 

 

 

 

 

 

 

 

Total assets

 

$ 3,878,540

 

 

$ 2,185,996

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$ 518,427

 

 

$ 223,316

 

Client deposits

 

 

151,049

 

 

 

22,500

 

Interest payable

 

 

41,610

 

 

 

27,197

 

Capital lease obligation, current

 

 

29,510

 

 

 

-

 

Derivative liability

 

 

190,280

 

 

 

775,246

 

Convertible notes payable, net of discounts of $33,130 and $121,496, respectively

 

 

120,171

 

 

 

257,605

 

Loan payable, current

 

 

45,688

 

 

 

77,375

 

Loans payable, related party, current

 

 

368,376

 

 

 

333,007

 

Total current liabilities

 

 

1,465,111

 

 

 

1,716,246

 

 

 

 

 

 

 

 

 

 

Capital lease obligation, net of current portion

 

 

75,610

 

 

 

-

 

Loans payable, related party, net of current portion

 

 

1,408,412

 

 

 

876,751

 

Total liabilities

 

 

2,949,133

 

 

 

2,592,997

 

 

 

 

 

 

 

 

 

 

Stockholders' equity (deficit)

 

 

 

 

 

 

 

 

Series A Convertible Preferred Stock, Par Value $0.0001; 1,840,000 authorized; 0 and 1,840,000 shares issued and outstanding at December 31, 2016 and September 30, 2016, respectively

 

 

-

 

 

 

184

 

Series B Convertible Preferred Stock, Par Value $0.0001; 5,000,000 authorized; 5,000,000 shares issued and outstanding at December 31, 2016 and September 30, 2016, respectively

 

 

500

 

 

 

500

 

Series C Convertible Preferred Stock, Par Value $0.0001; 500,000 authorized; 500,000 shares issued and outstanding at December 31, 2016 and September 30, 2016, respectively

 

 

50

 

 

 

50

 

Series D Convertible Preferred Stock, Par Value $.0001; 1,000,000 authorized; 832,500 and 48,000 shares issued and outstanding at December 31, 2016 and September 30, 2016, respectively

 

 

83

 

 

 

5

 

Common Stock, Par Value $.0001, 3,000,000,000 authorized; 946,192,800 and 850,064,268 issued and outstanding at December 31, 2016 and September 30, 2016, respectively

 

 

94,619

 

 

 

85,006

 

Additional Paid in Capital

 

 

5,499,334

 

 

 

3,351,452

 

Accumulated Deficit

 

 

(4,857,894 )

 

 

(4,032,177 )

Total stockholders' equity (deficit)

 

 

736,692

 

 

 

(594,980 )

Non-controlling interest

 

 

192,715

 

 

 

187,979

 

Total equity (deficit)

 

 

929,407

 

 

 

(407,001 )

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' equity (deficit)

 

$ 3,878,540

 

 

$ 2,185,996

 

 

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

 

 
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SIGNAL BAY, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

 

 

 

 

Three months ended

December 31,

 

Revenues

 

2016

 

 

2015

 

Testing services

 

$ 568,578

 

 

$ 39,638

 

Consulting services

 

 

99,878

 

 

 

131,086

 

Total revenue

 

 

668,456

 

 

 

170,724

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

 

 

 

 

 

 

Testing services

 

 

559,277

 

 

 

100,896

 

Consulting services

 

 

12,500

 

 

 

37,534

 

Depreciation and amortization

 

 

18,302

 

 

 

-

 

Total cost of revenue

 

 

590,079

 

 

 

138,430

 

 

 

 

 

 

 

 

 

 

Gross margin

 

 

78,377

 

 

 

32,294

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

435,158

 

 

 

123,809

 

Depreciation and amortization

 

 

34,535

 

 

 

12,030

 

Total operating expenses

 

 

469,693

 

 

 

135,839

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(391,316 )

 

 

(103,545 )

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

Interest expense

 

 

(323,422 )

 

 

(51,753 )

Loss on disposal of asset

 

 

-

 

 

 

(719 )

(Loss) gain on change in fair market value of derivative liabilities

 

 

(106,243 )

 

 

86,413

 

Total other income (expense)

 

 

(429,665 )

 

 

33,941

 

 

 

 

 

 

 

 

 

 

Net loss

 

$ (820,981 )

 

$ (69,604 )

Gain (loss) attributable to non-controlling interest

 

 

4,736

 

 

 

(4,721 )

Net loss attributable to Signal Bay, Inc.

 

$ (825,717 )

 

$ (64,883 )

 

 

 

 

 

 

 

 

 

Basic and diluted loss per common share

 

$ (0.00 )

 

$ (0.00 )

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

883,348,109

 

 

 

399,435,484

 

 

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

 

 
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SIGNAL BAY, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

Three months ended

December 31,

 

 

 

2016

 

 

2015

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$ (820,981 )

 

$ (69,604 )

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Stock based compensation

 

 

166,924

 

 

 

48,999

 

Loss on disposal of asset

 

 

-

 

 

 

719

 

Depreciation and amortization expense

 

 

52,837

 

 

 

12,030

 

Amortization of debt discount

 

 

293,316

 

 

 

51,250

 

Loss (gain) on derivative liability

 

 

106,243

 

 

 

(86,413 )

Reduction of security deposit for rent expense

 

 

2,095

 

 

 

-

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(210,271 )

 

 

4,805

 

Prepaid expenses

 

 

(11,876 )

 

 

5,000

 

Other current asset

 

 

40,000

 

 

 

-

 

Security deposits

 

 

(4,190 )

 

 

(6,476 )

Accounts payable and accrued liabilities

 

 

221,243

 

 

 

19,039

 

Interest payable

 

 

28,420

 

 

 

-

 

Customer deposits

 

 

128,549

 

 

 

18,975

 

Net cash used in operating activities

 

 

(7,691 )

 

 

(1,676 )

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchase of equipment

 

 

(26,314 )

 

 

(9,253 )

Net cash paid in acquisitions of subsidiaries

 

 

(6,930 )

 

 

-

 

Net cash used in investing activities

 

 

(33,244 )

 

 

(9,253 )

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from the issuance of series D preferred stock

 

 

114,500

 

 

 

-

 

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

 

 

70,000

 

 

 

-

 

Payment on loan payable

 

 

(31,687 )

 

 

-

 

Proceeds from notes payable - related party

 

 

80,000

 

 

 

-

 

Payments on notes payable - related party

 

 

(97,481 )

 

 

(3,263 )

Net cash provided by financing activities

 

 

135,332

 

 

 

(3,263 )

 

 

 

 

 

 

 

 

 

Net cash increase for period

 

 

94,397

 

 

 

(14,192 )

Cash balance, beginning of period

 

 

57,486

 

 

 

25,966

 

Cash balance, end of period

 

$ 151,883

 

 

$ 11,774

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$ -

 

 

$ 91

 

Cash paid for income tax

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Conversion of convertible note and accrued interest into common stock

 

$ 316,457

 

 

$ -

 

Conversion of Series A Preferred stock to common stock

 

$ 4,388

 

 

$ -

 

Reclassification of derivative liability to additional paid in capital

 

$ 889,509

 

 

$ -

 

Acquisition of Green Style Consulting assets through issuance of preferred shares and note payable

 

$ 260,000

 

 

$ -

 

Acquisition of Greenhaus Analytical Labs, LLC through issuance of preferred shares and note payable

 

$ 800,000

 

 

$ -

 

Debt discount from derivative liability

 

$ 198,300

 

 

$ -

 

Capital leases financed through accounts payable

 

$

105,120

 

 

$

-

 

 

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

 

 
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SIGNAL BAY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

 

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. 

 

On October 19, 2016, the Company entered into a Membership Interest Purchase Agreement to purchase 100% of the ownership of Greenhaus Analytical Labs, LLC.

 

On October 26, 2016, the Company entered in to an Asset Purchase Agreement with Green Style Consulting, LLC which was closed on November 1, 2016.

 

 
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Going Concern

 

The Company's financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company has negative working capital, recurring losses, and does not have an established source of revenues sufficient to cover its operating costs. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plan described in the preceding paragraph and eventually attain profitable operations. The accompanying financial statements do not include any adjustments that may be necessary if the Company is unable to continue as a going concern.

 

In the coming year, the Company’s foreseeable cash requirements will relate to continual development of the operations of its business, maintaining its good standing and making the requisite filings with the Securities and Exchange Commission, and the payment of expenses associated with operations and business developments. The Company may experience a cash shortfall and be required to raise additional capital.

 

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

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation:

 

The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s most recent Annual Financial Statements filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim period presented have been reflected herein. The results of operations for the interim period are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited consolidated financial statements for the most recent fiscal period, as reported in the Form 10-K, have been omitted

 

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 significant 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. 

 

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 could have a material impact on Signal Bay, Inc.’s financial condition and results of operations during the period in which such changes occurred. Actual results could differ from those estimates. Signal Bay, Inc.’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.

 

 
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Reclassification of Prior Period Presentation

 

Certain amounts have been reclassified on the September 30, 2016 balance sheet to conform to current period presentation. Specifically, websites and domains net of accumulated amortization of $31,178 have been reclassified on the balance sheet to be included in intangibles assets where previously they were included in fixed assets. These reclassifications have no impact on net loss.

 

Financial Instruments

 

Level 1 - applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

 

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

 

Level 3 - applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

 

The Company's financial instruments consist principally 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
December 31, 2016:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

$ -

 

 

$ -

 

 

$ 190,280

 

 

$ 190,280

 

 

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

 

 

Recently Issued Accounting Pronouncements

 

In February 2015, the FASB issued ASC 2015-02, "Consolidation (Topic 810) - Amendments to the Consolidation Analysis." This standard modifies existing consolidation guidance for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. ASU 2015-02 is effective for fiscal years beginning after December 15, 2015, and requires either a retrospective or a modified retrospective approach to adoption. Early adoption is permitted. The Company adopted has this standard and determined it does not have a significant impact on its consolidated financial statements.

 

 
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In September 2015, the FASB issued ASU 2015-16, “Business Combinations (Topic 805) – Simplifying the Accounting for Measurement-Period Adjustments.” This update eliminates the requirement to restate prior period financial statements for measurement period adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. The new standard should be applied prospectively to measurement period adjustments that occur after the effective date. The new standard is effective for interim and annual periods beginning after December 15, 2015 and early adoption is permitted. The Company has adopted this guidance and the adoption of this guidance did not have an impact on the Company’s results of operations, financial position, or cash flows for the three months ended December 31, 2016 or 2015.

 

Management believes recently issued accounting pronouncements will have no impact on the financial statements of the Company.

 

NOTE 3 – ACQUISITIONS

 

Greenhaus Analytical Labs, LLC (or “GHA”)

 

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.

 

The Company applied the acquisition method to the business combination and valued each of the assets acquired (cash, accounts receivable, prepaid expenses, security deposits, customer lists, certain testing licenses and property, plant and equipment) and liabilities assumed (accounts payable, related party payables and notes 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 460,000 shares of Series “D” preferred stock, valued at $460,000 and a $340,000 promissory note for total consideration of $800,000. The following table shows the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

 

ASSETS ACQUIRED

 

 

 

CASH

 

$ 13,070

 

ACCOUNTS RECEIVABLE

 

 

21,767

 

PREPAID EXPENSES

 

 

300

 

SECURITY DEPOSITS

 

 

700

 

PROPERTY PLANT AND EQUIPMENT

 

 

81,311

 

LICENSE

 

 

132,668

 

CUSTOMER LIST

 

 

43,562

 

GOODWILL

 

 

800,000

 

TOTAL ASSETS ACQUIRED

 

$ 1,093,378

 

 

 

 

 

 

LIABILITIES ASSUMED

 

 

 

 

ACCOUNTS PAYABLE

 

$ (73,866 )

RELATED PARTY PAYABLES

 

 

(194,512 )

NOTES PAYABLE

 

 

(25,000 )

TOTAL LIABILITIES ASSUMED

 

 

(293,378 )

 

 

 

 

 

NET ASSETS ACQUIRED FROM GHA ACQUISITION

 

$ 800,000

 

 

 
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Green Style Consulting, LLC

 

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.

 

The Company applied the acquisition method to the business combination and valued each of the assets acquired (customer lists and property, plant and equipment) at fair value as of the acquisition date. The property, plant and equipment 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 210,000 shares of Series “D” preferred stock, valued at $210,000, a cash payment of $20,000 and a $50,000 promissory note for total consideration of $280,000. Additionally, the Company has agreed to pay the sellers 20% of Evio California, Inc.’s net profits effective November 1, 2016 for a period of three years ending October 31, 2019. The following table shows the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

 

ASSETS ACQUIRED

 

 

 

PROPERTY PLANT AND EQUIPMENT

 

$ 19,300

 

CUSTOMER LIST

 

 

61,051

 

GOODWILL

 

 

199,649

 

TOTAL ASSETS ACQUIRED

 

$ 280,000

 

 

 

 

 

 

LIABILITIES ASSUMED

 

 

-

 

NET ASSETS ACQUIRED FROM GREEN STYLE ACQUISITION

 

$ 280,000

 

 

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

 

 

 

 

 

 

 

Three months ended December 31,

 

Revenues

 

2016

 

 

2015

 

Testing services

 

$ 608,774

 

 

$ 71,142

 

Consulting services

 

 

99,878

 

 

 

131,086

 

Total revenue

 

 

708,652

 

 

 

202,228

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

 

 

 

 

 

 

Testing services

 

 

596,813

 

 

 

123,732

 

Consulting services

 

 

12,500

 

 

 

37,534

 

Total cost of revenue

 

 

609,313

 

 

 

161,266

 

 

 

 

 

 

 

 

 

 

Gross margin

 

 

99,339

 

 

 

40,962

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

439,259

 

 

 

156,535

 

Depreciation and amortization

 

 

28,660

 

 

 

12,030

 

Total operating expenses

 

 

467,919

 

 

 

168,565

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(368,580 )

 

 

(127,603 )

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

Interest expense

 

 

(323,878 )

 

 

(52,775 )

Loss on disposal of asset

 

 

-

 

 

 

(719 )

(Loss) gain on change in fair market value of derivative liabilities

 

 

(106,243 )

 

 

86,413

 

Total other income (expense)

 

 

(430,121 )

 

 

32,919

 

 

 

 

 

 

 

 

 

 

Net loss

 

$ (798,701 )

 

$ (94,684 )

 

 
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Future Amortization

 

The future amortization associated with the intangible assets acquired in the above mentioned and prior acquisitions is as follows:

 

For the years ended September 30,

 

Amortization

 

2017

 

$ 101,723

 

2018

 

 

135,630

 

2019

 

 

135,630

 

2020

 

 

135,630

 

2021

 

 

93,455

 

Thereafter

 

 

3,955

 

Total

 

$ 606,023

 

 

NOTE 4 – RELATED PARTY TRANSACTIONS

 

Through September 30, 2016, the Company received loans from its Chief Operating Officer totaling $96,000. Through September 30, 2016, the Company made repayments totaling $4,295. There were no repayments made during the three months ended December 31, 2016. There was $91,705 due as of December 31, 2016 and September 30, 2016, and is 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 three months ended December 31, 2016 and 2015, the Company incurred total expenses of $14,548 and $21,400 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 December 31, 2016 or September 30, 2016.

 

During the three months ended December 31, 2016, the Company received loans from its Chief Executive Officer totaling $80,000. The loans are non-interest bearing and due on demand. There was $80,000 due as of December 31, 2016.

 

During the three months ended December 31, 2016 the Company made repayments to Eric Ezrine, a shareholder of CR Labs, on an outstanding note payable totaling $3,574. The loans carry an interest rate of 0% per annum. There was $9,695 and $13,269 due as of December 31, 2016 and September 30, 2016, respectively. Additionally, the Company entered into a severance agreement with Mr. Ezrine whereby it agreed to make payments totaling $44,500 through August 2018. The Company made repayments of $4,000 during the three months ended December 31, 2016. There was $40,500 and $44,500 accrued as of December 31, 2016 and 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 three months ended December 31, 2016, the Company repaid $13,808 to Sara Lausmann, Vice President Client Services. The total amount owed is $723,776 and $737,584 as of December 31, 2016 and September 30, 2016, respectively. As of December 31, 2016 and September 30, 2016, $23,776 and $37,584 and $700,000 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 $22,642 and $13,521 due as of December 31, 2016 and September 30, 2016, respectively.

 

 
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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 three months ended December 31, 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 $286,000 and $311,000 of principal due as of December 31, 2016 and September 30, 2016 and $8,859 and $5,155 of accrued interest due as of December 31, 2016 and September 30, 2016, respectively.

 

On October 19, 2016, the Company assumed a $194,512 payable due to Henry Grimmett, and officer of Greenhaus and current Director of the Company, with its acquisition of Greenhaus Analytical Services, LLC. The note bears interest at 0% per annum and requires repayments of $25,000 quarterly. During the three months ended December 31, 2016, the Company made repayments totaling $11,100. There was a total of $183,412 due as of December 31, 2016 of which $100,000 is current and $83,412 is long term.

 

On October 19, 2016, the Company entered into a $340,000 note payable as part of its acquisition of Greenhaus Analytical Services, LLC. The note carries interest at a rate of 6% per annum and matures on October 16, 2020. There was $340,000 of principal and $4,248 of accrued interest due as of December 31, 2016.

 

On November 1, 2016, the Company entered into a $50,000 note payable to Green Style Consulting, LLC as part of the asset purchase agreement . Green Style Consulting, LLC Managing Member is our General Manager Northern California, who was hired by the Company concurrent to the asset purchase. The note carries interest at a rate of 5% per annum and matures on October 31, 2018. During the three months ended December 31, 2016, the Company made repayments of $1,000. There was $49,000 of principal and $411 of accrued interest due as of December 31, 2016.

 

Through September 30, 2016, the Company borrowed a total of $16,200 from our Chief Science Officer to fund operations. The loans are non-interest bearing, due on demand and as such are included in current liabilities. During the three months ended December 31, 2016, the Company made repayments totaling $3,000. There was $13,200 and $16,200 due as of December 31, 2016 and September 30, 2016, respectively.

 

NOTE 5 – EQUITY TRANSACTIONS

 

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.

 

 
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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.

 

All 1,840,000 outstanding Series A Convertible Stock was converted into 43,875,385 of common shares during the three months ended December 31, 2016.

 

The Company has 0 and 1,840,000 shares of Series A Convertible Stock issued and outstanding as December 31, 2016 and September 30, 2016, respectively.

 

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.

 

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 December 31, 2016 and September 30, 2016.

 

 
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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.

 

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 shares of Series C Convertible Stock issued and outstanding as of December 31, 2016 and September 30, 2016.

 

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.

 

 
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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. During the three months ended December 31, 2016, the Company issued 114,500 shares of Series D Preferred Stock for cash proceeds of $114,500 and 670,000 shares of Series D Preferred Stock, valued at $670,000, in conjunction with the acquisitions as discussed in Note 3 .

 

There were 832,500 and 48,000 shares of Series D Convertible Stock issued and outstanding as of December 31, 2016 and September 30, 2016, respectively.

 

Common Stock

 

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.

 

During the three months ended December 31, 2016, the Company issued 7,976,150 common shares valued at $149,716 for services; 43,875,285 common shares for the conversion of 1,840,000 shares of Series A Preferred Stock; 41,851,494 common shares for the conversion of $302,450 of outstanding principal on convertible notes payable and 2,425,603 for the conversion of $14,006 of convertible accrued interest. All conversions of outstanding principal and accrued interest on convertible notes payable were done so at contractual terms.

 

There were 946,192,800 and 850,064,268 shares of common stock issued and outstanding at December 31, 2016 and September 30, 2016, respectively.

 

 
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NOTE 6 – LOANS PAYABLE

 

The Company had the following loans payable outstanding as of December 31, 2016 and September 30, 2016:

 

 

 

December 31,

2016

 

 

September 30,

2016

 

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.

 

$ 23,188

 

 

$ 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.

 

 

22,500

 

 

 

27,500

 

 

 

 

45,688

 

 

 

77,375

 

Less: current portion of loans payable

 

 

45,688

 

 

 

77,375

 

 

 

 

 

 

 

 

 

 

Long-term portion of loans payable

 

$ -

 

 

$ -

 

 

As of December 31, 2016 and September 30, 2016, the Company accrued interest of $1,998 and $638, respectively.

 

NOTE 7 – CONVERTIBLE DEBT

 

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

 

 

 
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The following table summarizes all convertible notes outstanding as of December 31, 2016:

 

Holder

 

Issue Date

 

Due Date

 

Principal

 

 

Unamortized

Debt

Discount

 

 

Carrying

Value

 

 

Accrued

Interest

 

Noteholder 1

 

8/26/2016

 

8/26/2017

 

 

76,650

 

 

 

(4,336 )

 

 

72,314

 

 

 

2,137

 

Noteholder 3

 

9/19/2016

 

5/19/2017

 

 

76,650

 

 

 

(28,794 )

 

 

47,856

 

 

 

1,730

 

 

 

 

 

 

 

$ 153,300

 

 

$ (33,130 )

 

$ 120,170

 

 

$ 3,867

 

 

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 was 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. During the three months ended December 31, 2016, the noteholder converted all outstanding principal and interest in exchange for a total of 11,157,314 common shares. There was $0 and $76,650 of principal and $0 and $2,268 of accrued interest due at December 31, 2016 and September 30, 2016, respectively.

 

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 which was funded on December 1, 2016 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 was 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 bifurcated the conversion feature of the note and recorded a derivative liability upon the note qualifying for conversion rights on December 13, 2016. During the three months ended December 31, 2016, the noteholder converted all outstanding principal and interest in exchange for a total of 7,164,083 common shares. There was $0 and $0 of principal and $0 and $0 of accrued interest due at December 31, 2016 and September 30, 2016, respectively.

   

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 and $76,650 of principal and $2,137 and $588 of accrued interest due at December 31, 2016 September 30, 2016, respectively.

 

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. During the three months ended December 31, 2016, the noteholder elected to convert all outstanding principal and interest due in exchange for a total of 3,334,387 common shares. There was $0 and $45,000 of principal and $0 and $1,282 of accrued interest due at December 31, 2016 and September 30, 2016, respectively.

 

 
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Noteholder 3

 

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. During the three months ended December 31, 2016, the noteholder elected to convert all outstanding principal and interest due in exchange for a total of 9,885,621 common shares. There was $0 and $27,500 of principal and $0 and $1,454 of accrued interest due at December 31, 2016 and September 30, 2016, respectively.

 

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. During the three months ended December 31, 2016, the noteholder elected to convert all outstanding principal and interest due in exchange for a total of 12,735,692 common shares. There was $0 and $76,650 of principal and $0 and $2,252 of accrued interest due at December 31, 2016 and September 30, 2016, respectively.

 

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 and $76,650 of principal and $1,730 and $185 of accrued interest due at December 31, 2016 and September 30, 2016, respectively.

 

 
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NOTE 8 – DERIVATIVE LIABILITY

 

As of December 31, 2016 and September 30, 2016 the Company had a $190,280 and $775,246 derivative liability balance on the balance sheets and recorded a loss from derivative liability fair value adjustments of $106,243 and gain of $86,413 during the three months ended December 31, 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 $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.

 

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.

 

During the three months ended December 31, 2016, the noteholder elected to convert all outstanding principal and interest due. At December 31, 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 $55,525 loss from change in fair value of derivatives and a write off due to conversion of $179,115 for the three months ended December 31, 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 279%, (3) risk-free interest rate of .48%, (4) expected life of 0.46 of a year, and (5) estimated fair value of the Company’s common stock of $0.0221 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.

 

During the three months ended December 31, 2016, the noteholder elected to convert all outstanding principal and interest due. At December 31, 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 $39,489 gain from change in fair value of derivatives and a write off due to conversion of $286,339 for the three months ended December 31, 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 260%, (3) risk-free interest rate of .63%, (4) expected life of 0.49 of a year, and (5) estimated fair value of the Company’s common stock of $0.0285 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.

 

 
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The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using 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 December 31, 2016 the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $190,280 and recorded a $135,548 gain from change in fair value of derivatives for the three months ended December 31, 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 170%, (3) risk-free interest rate of .62%, (4) expected life of 0.38 of a year, and (5) estimated fair value of the Company’s common stock of $0.028 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 18, 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 45% 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 $279,490 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $76,650 which was up to the face value of the convertible note with the excess fair value at initial measurement of $202,840 being recognized as a loss on derivative fair value measurement.

 

During the three months ended December 31, 2016, the noteholder elected to convert all outstanding principal and interest due. At December 31, 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 $22,645 gain from change in fair value of derivatives and write off $256,845 due to conversion for the three months ended December 31, 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 260%, (3) risk-free interest rate of .63%, (4) expected life of 0.48 of a year, and (5) estimated fair value of the Company’s common stock of $0.0285 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 18, 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 45% 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 $136,874 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $76,650 which was up to the face value of the convertible note with the excess fair value at initial measurement of $60,224 being recognized as a loss on derivative fair value measurement.

 

During the three months ended December 31, 2016, the noteholder elected to convert all outstanding principal and interest due. At December 31, 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 $31,054 gain from change in fair value of derivatives and write off $105,820 due to conversion for the three months ended December 31, 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 245%, (3) risk-free interest rate of .66%, (4) expected life of 0.43 of a year, and (5) estimated fair value of the Company’s common stock of $0.0209 per share. 

 

 
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As discussed in Note 7 – Convertible Notes Payable , the Company issued a $45,000 Convertible Promissory Notes to an unrelated party that matures on May 23, 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 28% discount from the lowest trading price in the ten 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 $69,650 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $45,000 which was up to the face value of the convertible note with the excess fair value at initial measurement of $24,650 being recognized as a loss on derivative fair value measurement.

 

During the three months ended December 31, 2016, the noteholder elected to convert all outstanding principal and interest due. At December 31, 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 $8,260 gain from change in fair value of derivatives and write off $61,390 due to conversion for the three months ended December 31, 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 253%, (3) risk-free interest rate of .63%, (4) expected life of 0.46 of a year, and (5) estimated fair value of the Company’s common stock of $0.0264 per share. 

 

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 derivative liabilities included in the balance sheet at December 31, 2016:

 

Fair Value of Embedded Derivative Liabilities:

 

 

 

Balance, September 30, 2016

 

$ 775,246

 

Initial measurement of derivative liabilities

 

 

486,014

 

Change in fair market value

 

 

(181,471 )

Write off due to conversion

 

 

(889,509 )

Balance, December 31, 2016

 

$ 190,280

 

 

The following table summarizes the loss on derivative liability included in the income statement for the three months ended December 31, 2016 and 2015, respectively.

 

 

 

December 31,

 

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

Day one loss due to derivatives on convertible debt

 

$ 287,714

 

 

$ -

 

Change in fair value of derivatives

 

 

(181,471 )

 

 

(86,413 )

Total derivative expense (gain)

 

$ 106,243

 

 

$ (86,413 )

 

 
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NOTE 9 – 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 regulated 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 December 31, 2016, EVIO Labs has five operating labs: CR Labs, Inc. d/b/a EVIO Labs, Bend; EVIO Labs Eugene d/b/a Oregon Analytical Services; Smith Scientific Industries d/b/a Kenevir Research; Greenhaus Analytical Labs, LLC and Green Style Consulting LLC d/b/a EVIO Labs California. EVIO Labs clients are located in Oregon and California and consist of growers, processors and dispensaries. Operating under the rules of the appropriate state governing bodies, EVIO Labs certifies products have been tested and are free from pesticides and other containments before resale to patients and consumer in the States of Oregon and California.

 

Three months ended December 31, 2016

 

Corporate

 

 

Consulting

Services

 

 

Testing

Services

 

 

Total

Consolidated

 

Revenue

 

$ -

 

 

$ 99,878

 

 

$ 568,578

 

 

$ 668,456

 

Segment gain (loss) from operations

 

 

(215,342 )

 

 

12,365

 

 

 

(188,339 )

 

 

(391,316 )

Total assets

 

 

50,562

 

 

 

143,370

 

 

 

3,684,608

 

 

 

3,878,540

 

Capital expenditures

 

 

-

 

 

 

(1,038 )

 

 

(25,276 )

 

 

(26,314 )

Depreciation and amortization

 

 

-

 

 

 

5,974

 

 

 

46,863

 

 

 

52,837

 

 

Three months ended December 31, 2015

 

Corporate

 

 

Consulting

Services

 

 

Testing

Services

 

 

Total

Consolidated

 

Revenue

 

$ -

 

 

$ 131,086

 

 

$ 39,638

 

 

$ 170,724

 

Segment loss from operations

 

 

-

 

 

 

(81,070 )

 

 

(22,475 )

 

 

(103,545 )

Total assets

 

 

-

 

 

 

648,206

 

 

 

59,498

 

 

 

707,704

 

Capital expenditures

 

 

-

 

 

 

-

 

 

 

9,253

 

 

 

9,253

 

Depreciation and amortization

 

 

-

 

 

 

9,293

 

 

 

2,737

 

 

 

12,030

 

 

NOTE 10 – STOCK OPTIONS AND WARRANTS

 

The following table summarizes all stock option and warrant activity for the three months ended December 31, 2016:

 

 

 

Shares

 

 

Weighted-
Average
Exercise Price
Per Share

 

Outstanding, September 30, 2016

 

 

31,500,000

 

 

$ 0.004

 

Granted

 

 

4,000,000

 

 

 

0.013

 

Exercised

 

 

-

 

 

 

-

 

Forfeited

 

 

(1,000,000 )

 

 

0.004

 

Expired

 

 

-

 

 

 

-

 

Outstanding, December 31, 2016

 

 

34,500,000

 

 

$ 0.005

 

 

 
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The following table discloses information regarding outstanding and exercisable options and warrants at December 31, 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

 

 

 

30,500,000

 

 

$ 0.004

 

 

 

4.62

 

 

 

-

 

 

$ -

 

$ 0.013

 

 

 

4,000,000

 

 

 

0.013

 

 

 

4.80

 

 

 

-

 

 

 

-

 

Total

 

 

 

34,500,000

 

 

$ 0.005

 

 

 

4.65

 

 

 

-

 

 

$ -

 

 

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:

 

 

 

December 31, 2016

 

Expected term of options granted

 

5 years

 

Expected volatility

 

409-425

%

Risk-free interest rate

 

1.14–1.24

%

Expected dividend yield

 

0 %

 

The Company recognized stock option expense of $17,208 and $0 during the three months ended December 31, 2016 and 2015, respectively.

 

NOTE 11 – SUBSEQUENT EVENTS

 

On March 2, 2017, the Company entered into a convertible note payable which matures on March 2, 2018 for $125,000. The note carries interest at 8% per annum and is convertible into common stock of the Company after six months from issuance at a rate equal to 65% (representing a 35% discount) of the lowest trading price in the fifteen trading days immediately prior to conversion. The note may be repaid by the Company during the first six months from issuance at a rate of 115% of the outstanding balance if repaid during the first 90 days and 135% of the outstanding balance if repaid after 90 day but before 180 days.

 

On March 2, 2017, the Company entered into a separate convertible note payable which matures on March 2, 2018 for $125,000. The note carries interest at 8% per annum and is convertible into common stock of the Company after six months from issuance at a rate equal to 65% (representing a 35% discount) of the lowest trading price in the fifteen trading days immediately prior to conversion. The note may be repaid by the Company during the first six months from issuance at a rate of 115% of the outstanding balance if repaid during the first 90 days and 135% of the outstanding balance if repaid after 90 day but before 180 days.

 

On March 12, 2017, the holders of a majority of the Series B and C preferred stock of the Company elected to amend the Series B and C preferred stock designations to remove anti-reverse stock split provisions. The conversion of preferred stock to common stock shall now be downwardly adjusted upon a reverse stock split by the Company.

 

In February 2017, the Company issued 2,000,000 shares of common stock for cash proceeds of $20,000.

 

On various dates through April 19, 2017, the Company issued a total of 3,750,000 shares of common stock for services valued at $95,250 to consultants and a total of 525,000 shares of common stock valued at $13,219 under its employee Equity Incentive Plan.

 

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

 

NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

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

 

 

·

our future operating results;

 

·

our business prospects;

 

·

our contractual arrangements and relationships with third parties;

 

·

the dependence of our future success on the general economy;

 

·

our possible financings; and

 

·

the adequacy of our cash resources and working capital.

 

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

 

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

 

You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto, included elsewhere in this report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to those differences include those discussed below and elsewhere in this report, particularly in the “Risk Factors” section.

 

Critical Accounting Policies and Estimates. 

 

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

  

Business of Registrant

 

Signal Bay, Inc., a Colorado corporation and its subsidiaries (“Signal Bay”, the “Company”, the "Registrant", “we”, “our”, or “us”) provide advisory, management and analytical testing services to the emerging legalized cannabis industry. Our three business units are described below:

 

 
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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 took over 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 are located in Bend, Oregon.

 

Signal Bay Research provides industry research, business and market intelligence, and consulting services. We also publish industry information via online media, research reports, and publications. Our media properties include CANNAiQ.com, a business to business information portal and MarijuanaMath.com a general interest informational website for the cannabis industry. Signal Bay also offers the Cannabis Consultant Marketplace (CCM), a network of cannabis industry consultants.

 

Signal Bay Services provides operating services for licensed cannabis businesses. Signal Bay Services was engaged in a Management Services Agreement with Libra Wellness Center, LLC, a licensed cannabis production and processing establishment, to operate their marijuana processing facility in North Las Vegas, Nevada.

  

The Company provides analytical testing services to the cannabis industry under the EVIO Labs brand. As of December 31, 2016, EVIO Labs has five operating labs: CR Labs, Inc. d/b/a EVIO Labs, Bend; EVIO Labs Eugene d/b/a Oregon Analytical Services; Smith Scientific Industries d/b/a Kenevir Research; Greenhaus Analytical Labs, LLC and Green Style Consulting LLC d/b/a EVIO Labs California. EVIO Labs clients are located in Oregon and California and consist of growers, processors and dispensaries. Operating under the rules of the appropriate state governing bodies, EVIO Labs certifies products have been tested and are free from pesticides and other containments before resale to patients and consumer in the States of Oregon and California.

 
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RESULTS OF OPERATIONS

 

Revenues and Costs of Revenues

 

 

 

 

 

 

 

 

 

Percentage of Revenue

 

 

 

2016

 

 

2015

 

 

Change

 

 

2016

 

 

2015

 

Testing services

 

$ 568,578

 

 

$ 39,638

 

 

$ 528,940

 

 

 

85 %

 

 

23 %

Consulting services

 

 

99,878

 

 

 

131,086

 

 

 

(31,208 )

 

 

15 %

 

 

77 %

Total revenue

 

$ 668,456

 

 

$ 170,724

 

 

$ 497,732

 

 

 

100 %

 

 

100 %

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Testing services

 

$ 577,579

 

 

$ 100,896

 

 

 

476,683

 

 

 

86 %

 

 

59 %

Consulting services

 

 

12,500

 

 

 

37,534

 

 

 

(25,034 )

 

 

2 %

 

 

22 %

Total cost of revenue

 

 

590,079

 

 

 

138,430

 

 

 

451,649

 

 

 

88 %

 

 

81 %

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

$ 78,377

 

 

$ 32,294

 

 

$ 46,083

 

 

 

12 %

 

 

19 %

 

Revenues for the three months ended December 31, 2016 were $668,456 compared to $170,724 for the three months ended December 31, 2015. The increase in revenues during the three months ended December 31, 2016 is the result increased advisory services performed in the current period as compared to the prior period as well as increased testing services resulting from acquisitions completed during the three months ended December 31, 2016. Cost of revenues for the three months ended December 31, 2016 were $590,079 compared to $138,430 for the three months ended December 31, 2015. The increase in the cost of revenues during the three months ended December 31, 2016 is the result of the increased direct costs associated with providing testing services, increased costs of revenue associated with performing additional testing services and hiring additional consultants to support the increased advisory services. Gross profit for the three months ended December 31, 2016 was $78,377 compared to $32,294 during the three months ended December 31, 2015. The Company experienced an increase of $58,583, or 143%, in gross profit primarily attributable to the increased advisory services during the three months ended December 31, 2016 when compared to the three months ended December 31, 2015.

 

Operating Expenses

 

 

 

 

 

 

 

 

 

Percentage of Revenue

 

 

 

2016

 

 

2015

 

 

Change

 

 

2016

 

 

2015

 

Selling, general and administrative

 

$ 435,158

 

 

$ 123,809

 

 

$ 311,349

 

 

 

65 %

 

 

73 %

Depreciation and amortization

 

 

34,535

 

 

 

12,030

 

 

 

22,505

 

 

 

5 %

 

 

7 %

 

 

$ 469,693

 

 

$ 135,839

 

 

$ 333,854

 

 

 

70 %

 

 

80 %

 

Total operating expenses during the three months ended December 31, 2016 were $469,693 compared to $135,839 during the three months ended December 31, 2015. The Company experienced an increase of $333,854 or 246% in selling, general and administrative expenses during the three months ended December 31, 2016 compared to the three months ended December 31, 2015 due to increased business size due to acquisitions and organic growth that has occurred during the period of January 1, 2016 to October 1, 2016. There was an increase of $22,505 in depreciation and amortization which was driven by the amortization of intangible assets associated with the acquisitions completed during the period from January 1, 2016 to December 31, 2016

 

 
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Other Expenses (Income)

 

 

 

 

 

 

 

 

 

Percentage of Revenue

 

 

 

2016

 

 

2015

 

 

Change

 

 

2016

 

 

2015

 

Interest expense

 

$ 323,422

 

 

$ 51,753

 

 

$ 271,669

 

 

 

48 %

 

 

30 %

Loss on disposal of asset

 

 

-

 

 

 

719

 

 

 

(719 )

 

 

0 %

 

 

0 %

Loss (gain) on change in fair market value of derivative liabilities

 

 

106,243

 

 

 

(86,413 )

 

 

192,656

 

 

 

16 %

 

 

-51

 

 

$ 429,665

 

 

$ (33,941 )

 

$ 463,606

 

 

 

64 %

 

 

-20

 

Total other expenses (income) was a net expense of $429,665 during the three months ended December 31, 2016 compared to a net gain of $33,941 during the three months ended December 31, 2015. The increase in net expense of $463,606 is from the increase in the loss on fair market value of derivatives of $192,656 and increases in interest expense from the recognition of debt discounts associated with convertible notes payable.

 

Net Loss

 

 

 

 

 

 

 

 

 

Percentage of Revenue

 

 

 

2016

 

 

2015

 

 

Change

 

 

2016

 

 

2015

 

Net loss

 

$ (820,981 )

 

$ (69,604 )

 

$ (751,377 )

 

 

-123

 

 

-41

 

Net loss during the three months ended December 31, 2016 was $820,981 compared to $69,604 during the three months ended December 31, 2015. The increase in net loss is directed from the increase in other expenses partially offset by an increase in revenues as described above.

 

Liquidity and Capital Resources

 

The Company had cash on hand of $151,883 as of December 31, 2016, current assets of $405,580 and current liabilities of $1,193,406 creating a working capital deficit of $787,826. Current assets consisted of cash totaling $151,883, accounts receivable of $241,521 and prepaid expenses totaling $12,176. Current liabilities consisted of accounts payable and accrued liabilities of $518,427, client deposits of $151,049, current portions of capital lease obligations of $29,510, convertible notes payable net of discounts of $120,171, interest payable of $41,610, derivative liabilities of $190,280, current portions of notes payable of $45,688 and current portions of related party payables of $96,671.

 

The Company used $7,691 of cash in operating activities which consisted of a net loss of $820,981, non-cash losses of $621,415 and changes in working capital of $191,875.

 

Net cash used in investing activities total $33,244 during the three months ended December 31, 2016. The Company acquired net cash of $13,070 in asset purchases, paid $26,314 for the purchase of equipment and used net cash in acquisitions of $20,000.

 

During the three months ended December 31, 2016, the Company generated cash of $135,332 from financing activities. The Company received $114,500 of cash from the sale of series D preferred stock, $70,000 in cash from convertible notes payable, repayments of notes payable of $31,687 and net repayments on related party notes payable of $17,481.

 

 
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Dividends

 

During the three months ended December 31, 2016 and 2015, the Company declared $0 in dividends. 

 

Critical Accounting Policies and Estimates. 

 

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

 

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

 

Revenue Recognition:

 

Signal Bay recognizes revenue from the sale of services in accordance with ASC 605. Revenue will be recognized only when all of the following criteria have been met:

 

 

*  Persuasive evidence of an arrangement exists;

 

 

 

 

*  Delivery has occurred or services have been rendered.

 

 

 

 

* The price is fixed or determinable; and

 

 

 

 

*  Collectability is reasonably assured.

  

Stock Based Compensation

 

Pursuant to Accounting Standards Codification (“ASC”) 505, the guidelines for recording stock issued for services require the fair value of the shares granted be based on the fair value of the services received or the publicly traded share price of the Company’s registered shares on the date the shares were granted (irrespective of the fact that the shares granted were unregistered), whichever is more readily determinable. This position has been further clarified by the issuance of ASC 820. ASC 820 defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date”. Accordingly, the Company elected the application of these guidelines. Signal Bay has determined that the fair value of all common stock issued for goods or services is more readily determinable based on the publicly traded share price on the date of grant.

 

Emerging Growth Company Status

 

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

 

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

 

 

·

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

 

 

·

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

 

 

·

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

 

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

 

Accounting and Audit Plan

 

In the next twelve months, we anticipate spending approximately $50,000 - $60,000 to pay for our accounting and audit requirements.

 

Off-balance sheet arrangements

 

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

 

Our Website

 

Our websites can be found at www.signalbay.com and www.eviolabs.com.

 

 
29
 
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ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

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

 

ITEM 4 – CONTROLS AND PROCEDURES

 

(a) Evaluation of Disclosure Controls and Procedures

 

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

 

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

 

The reason we believe our disclosure controls and procedures are not effective is because:

 

 

1.

No independent directors;

 

2.

No segregation of duties;

 

3.

No audit committee; and

 

4.

Ineffective controls over financial reporting.

 

As of December 31, 2016, the Company has not taken any remediation actions to address these weaknesses in our controls even though they were identified during the year. The Company’s management hired, as soon as its financial position permitted it to do so, additional staff in its accounting department to be able to segregate the duties. The Company expects that the expense will be approximately $100,000 per year which would allowed the Company to hire two new staff members.

 

This 10-Q does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to Rule 308(b) of Regulation S-K.

 

 
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Management’s Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:

 

 

1.

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

 

 

2.

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and

 

 

3.

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2016. Based on this assessment, management concluded that the Company did not maintain effective internal controls over financial reporting as a result of the identified material weakness in our internal control over financial reporting described below. In making this assessment, management used the framework set forth in the report entitled Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company's internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring.

 

Identified Material Weakness

 

A material weakness in our internal control over financial reporting is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected.

 

Management identified the following material weakness during its assessment of internal controls over financial reporting as of December 31, 2016:

 

Independent Directors : The Company intends to obtain at least 3 independent directors at its 2017 annual shareholder meeting. The cost associated to the addition in minimal and not deemed material.

 

 
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No Segregation of Duties : Ineffective controls over financial reporting: The Company hired additional staff members, either as employees or consultants, during October and November 2016. These additional staff members will be responsible for making sure that information required to be disclosed in our reports filed and submitted under the Exchange Act is recorded, processed, summarized and reported as and when required and will the staff members will have segregated responsibilities with regard to these responsibilities. The costs associated with the hiring the additional staff members will increase the Company's Sales, General and Administration (SG&A) Expense. It is anticipated the cost of the new staff members will be approximately $70,000 per year. As of December 31, 2016, we had no full-time employees with the requisite expertise in the key functional areas of finance and accounting. As a result, there is a lack of proper segregation of duties necessary to ensure that all transactions are accounted for accurately and in a timely manner.

 

No audit committee : After the election of the independent directors at the 2017 annual shareholder meeting, the Company expects that an Audit Committee will be established. The cost associated to the addition an audit committee are minimal and not deemed material.

 

Written Policies & Procedures : We need to prepare written policies and procedures for accounting and financial reporting to establish a formal process to close our books monthly on an accrual basis and account for all transactions, including equity transactions, and prepare, review and submit SEC filings in a timely manner.

 

Management’s Remediation Initiatives

 

As our resources allow, we will add financial personnel to our management team. We plan to prepare written policies and procedures for accounting and financial reporting to establish a formal process to close our books monthly on an accrual basis and account for all transactions, including equity transactions. We will also create an audit committee made up of our independent directors.

 

As of December 31, 2016, the Company has not taken any remediation actions to address these weaknesses in our controls even though they were identified during preceding periods. The Company’s management expects, once it is in the financial position to do so, to hire additional staff in its accounting department to be able to segregate the duties. The Company expects that the expense will be approximately $100,000 per year which would allow the Company to hire 2 new staff members.

 

(b) Changes in Internal Control Over Financial Reporting

 

We need to prepare written policies and procedures for accounting and financial reporting to establish a formal process to close our books monthly on an accrual basis and account for all transactions, including equity transactions, and prepare, review and submit SEC filings in a timely manner.

 

There were no changes in the Company's internal controls over financial reporting during the most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.

 

 
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PART II -- OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

None.

 

ITEM 1A. RISK FACTORS

 

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

 

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

 

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

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not Applicable.

 

ITEM 5. OTHER INFORMATION

 

There was no other information during the quarter ended December 31, 2016, which was not previously disclosed in our filings during that period.

 

 
33
 
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ITEM 6. EXHIBITS

 

31.1

 

Certifications pursuant to Section 302 of Sarbanes Oxley Act of 2002

31.2

 

Certifications pursuant to Section 302 of Sarbanes Oxley Act of 2002

32.1

 

Certifications pursuant to Section 906 of Sarbanes Oxley Act of 2002

32.2

 

Certifications pursuant to Section 906 of Sarbanes Oxley Act of 2002

101.INS

 

XBRL Instance Document

101.SCH

 

XBRL Taxonomy Extension Schema

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase

101.LAB

 

XBRL Taxonomy Extension Label Linkbase

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase

 

 

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Table of Contents

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on April 19, 2017.

 

 

SIGNAL BAY, INC.

 

By:

/s/ William Waldrop

 

William Waldrop

 

Chief Executive Officer

 

 

By:

/s/ Christian Carnell

 

Christian Carnell

 

Chief Financial Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on April 19, 2017.

 

 

By:

/s/ William Waldrop

 

William Waldrop

 

Director & Principal Executive Officer

 

By:

/s/ Lori Glauser

 

Lori Glauser

 

Director

 

By:

/s/ Anthony Smith

 

Anthony Smith

 

Director

 

By:

/s/ Henry Grimmett

 

Henry Grimmett

 

Director

 

 

35

 

 

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