The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND NATURE OF ACTIVITIES
EVIO, INC. (formerly Signal Bay, Inc.), a Colorado corporation and its subsidiaries provide analytical testing and advisory services to the emerging legalized cannabis industry. EVIO, Inc. was originally incorporated in the State of New York, December 12, 1977 under the name 3171 Holding Corporation. On February 22, 1979, the name was changed to Electronomic Industries Corp. and on February 23, 1983 the name was changed to Quantech Electronics Corp. The Company was reincorporated in the State of Colorado on December 15, 2003. On August 29, 2014, the Company completed a reverse merger with Signal Bay Research, Inc., a Nevada Corporation, and assumed its operations. In September 2014, the Company changed its name from Quantech Electronics Corp. to Signal Bay, Inc. then to EVIO, INC. in August 2017. The Company has selected September 30 as its fiscal year end. The Company is domiciled in the State of Colorado, and its corporate headquarters are located in 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 80% of the issued and outstanding common stock from WB Partners. The merger between the Company and Signal Bay Research was finalized and closed contemporaneously with the share purchase. As part of this share purchase, Mr. Waldrop and Ms. Glauser became the officers and directors of the Company. Immediately after the reverse, WB Partners owned less than 5% of the common stock. The company filed a Form 10-12G on November 25, 2014, and was determined to be a shell company by the SEC as per the Form 10-12G/A which went effective on January 24, 2015. On January 29, 2015, the company filed an 8-K stating it entered into a material agreement and was no longer a shell company.
After the reverse merger, Signal Bay Research, Inc. continues to operate as a wholly owned subsidiary providing compliance, research and advisory services for Signal Bay, Inc.
Signal Bay Services was formed on January 25, 2015, as the management services division of EVIO.
On September 17, 2015, EVIO entered into a share exchange agreement with CR Labs, Inc., an Oregon Corporation, pursuant to which the Company acquired 80% of the outstanding common stock of CR Labs, Inc.
EVIO Inc. was formed on April 4, 2016 to become the holding company for all laboratory operations.
EVIO Labs Eugene was formed on May 23, 2016, as a wholly owned subsidiary of EVIO Inc. Subsequently on May 24, 2016, EVIO Labs Eugene acquired all of the assets of Oregon Analytical Services, LLC, inclusive of client lists, equipment, trade names and personnel.
On June 1, 2016, EVIO Inc. entered into a share purchase agreement to purchase 80% of the outstanding common stock of Smith Scientific Industries, Inc. d/b/a Kenevir Research in Medford, OR.
On October 19, 2016, the Company entered into a Membership Interest Purchase Agreement to purchase 100% of the ownership of GreenHaus Analytical Labs, LLC.
On October 26, 2016, the Company entered in to an Asset Purchase Agreement with Green Style Consulting, LLC which was closed on November 1, 2016.
The Company entered in to an Membership Interest Purchase Agreement with Viridis Analytics MA, LLC which was closed on August 1, 2017.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
A summary of significant accounting policies of EVIO, INC. (the “Company”) is presented to assist in understanding the Company’s financial statements. The accounting policies presented in these footnotes conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the accompanying financial statements. These financial statements and notes are representations of the Company’s management who are responsible for their integrity and objectivity.
Principles of Consolidation
The Company prepares its consolidated financial statements on the accrual basis of accounting. The accompanying consolidated financial statements include the accounts of the Company and its wholly and partially owned subsidiaries, all of which have a fiscal year end of September 30. All intercompany accounts, balances and transactions have been eliminated in the consolidation.
The Company consolidates its subsidiaries in accordance with ASC 810, and specifically ASC 810-10-15-8 which states, the usual condition for a controlling financial interest is ownership of a majority voting interest, and, therefore, as a general rule ownership by one reporting entity, directly or indirectly, or over 50% of the outstanding voting shares of another entity is a condition pointing toward consolidation.”
EVIO, INC.
(FORMERLY SIGNAL BAY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all short-term debt securities purchased with original maturity of three months or less to be cash equivalents. The Company did not have any cash equivalents as of September 30, 2017 or 2016.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded at their original invoice amounts. We regularly review collectability and establish an allowance for uncollectible amounts as necessary based on our experience with historical collectability. Management has determined that a reserve for uncollectible amounts was not required in the periods presented.
Notes Receivable
The Company accounts investments for notes receivable in accordance with ASC 320. On September 6, 2017, the Company entered in a note receivable with an unrelated entity for $1,300,000. The note, as amended, is due on September 6, 2024 and carries interest at a rate of 8% per annum. The note, as amended, requires minimum principal payments of $100,000 plus accrued interest on each anniversary date with the unpaid principal and interest being due on September 6, 2024. The Company evaluated the collectability of the note receivable as of September 30, 2017 and determined the full balance is collectible and no reserve for write off was recorded. As of September 30, 2017, there was $1,300,000 of principal, of which $100,000 was current and $1,200,000 was long term, and $6,838 of interest due.
Goodwill and Other Intangible Assets
Goodwill and indefinite-lived intangible assets are not amortized, but are evaluated for impairment annually or more often if indicators of a potential impairment are present. Our annual impairment tests are conducted at the beginning of the fourth quarter. We use a two-step process to quantitatively evaluate goodwill for impairment. In the first step, we compare the fair value of each reporting unit with the carrying amount of the reporting unit, including goodwill. If the estimated fair value of the reporting unit is less than the carrying amount of the reporting unit, we complete a second step to determine the amount of the goodwill impairment that we should record. In the second step, we determine an implied fair value of the reporting unit’s goodwill by allocating the reporting unit’s fair value to all of its assets and liabilities other than goodwill (including any unrecognized intangible assets). We compare the resulting implied fair value of the goodwill to the carrying amount and record an impairment charge for the difference. We test individual indefinite-lived intangible assets by comparing the estimated fair value with the book values of each asset.
The Company recognizes an acquired intangible apart from goodwill whenever the intangible arises from contractual or other legal rights, or whenever it can be separated or divided from the acquired entity and sold, transferred, licensed, rented or exchanged, either individually or in combination with a related contract, asset or liability. Such intangibles are amortized on a straight-line basis over their estimated useful lives unless the estimated useful life is determined to be indefinite. The Company’s intangible assets consist of client lists (amortized over five years), websites and domain names (amortized over 15 years) and testing licenses (amortized over 5 years).
Business Combinations
We have adopted the amendment to ASC 805 for the accounting for business acquisitions both during the period of the acquisition and in subsequent periods. Among the more significant changes in the accounting for acquisitions are the following:
|
·
|
Contingent consideration is recorded at fair value as an element of purchase price with subsequent adjustments recognized in operations.
|
|
·
|
Subsequent decreases in valuation allowances on acquired deferred tax assets are recognized in operations after the measurement period.
|
|
·
|
Upon gaining control of an entity in which an equity method or cost basis investment was held, the carrying value of that investment is adjusted to fair value with the related gain or loss recorded in earnings.
|
Reclassification
Certain amounts in the 2016 financial statements have been reclassified to conform to the 2017 financial presentation. These reclassifications have no impact on net loss.
EVIO, INC.
(FORMERLY SIGNAL BAY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates
The preparation of financial statements in accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. A change in managements’ estimates or assumptions may have a material impact on the financial condition and results of operations of the Company during the period in which such changes occurred. Actual results could differ from those estimates. The Company’s financial statements reflect all adjustments that management believes are necessary for the fair presentation of their financial condition and results of operations for the periods presented.
Revenue Recognition
It is the Company’s policy that revenues and gains will be recognized in accordance with ASC Topic 605-10-25, “Revenue Recognition.” Under ASC Topic 605-10-25, revenue earning activities are recognized upon the sale and delivery of its products and services. The Company generates revenue from consulting services provided to clients in the cannabis industry, licensing agreements as well as testing of cannabis and cannabis products for both medicinal and recreational consumption. The Company accepts orders for testing services which are generally completed within two weeks of receiving the order. Revenue is recognized from testing services upon delivery of the testing results to the client. Consulting engagements vary in length and scope but generally include reviewing regulatory filings, business plans and providing financial models to partners within the same industry. Revenue is recognized from consulting services upon completion of deliverables as outlined in the consulting agreement. The Company recognizes revenues from license agreements as deliverables within the agreement are met, typically training, providing the licensee with access to trademarks and other licensed materials and ongoing remote support. The Company generated revenues of $3,021,030 and $560,961 during the years ended September 30, 2017 and 2016 and had deferred revenues of $40,800 and $0 as of September 30, 2017 and 2016.
Cost of Revenue Recognition
The Company recognizes all costs incurred that are directly related to revenue generating activities as a cost of revenue. These costs include salaries and payroll taxes associated with lab employees, rent and utilities on lab facilities, depreciation of lab equipment and outsourced professional services utilized for consulting engagements. Cost of revenues totaled $2,456,523 and $527,055 during the years ended September 30, 2017 and 2016, respectively.
Stock-Based Compensation
The Company applies Topic 718 “Share-Based Payments” (“Topic 718”) to share-based compensation, which requires the measurement of the cost of services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. Compensation cost is recognized when the event occurs. The Black-Scholes option-pricing model is used to estimate the fair value of options granted.
The Company accounts for equity-based transactions with non-employees under the provisions of ASC Topic No. 505-50, “Equity-Based Payments to Non-Employees” (“Topic No. 505-50”). Topic No. 505-50 establishes that equity-based payment transactions with non-employees shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes in accordance with ASC 740-10, “Accounting for Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year; and, (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if, based on the weight of available positive and negative evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
ASC 740-10 prescribes a recognition threshold and measurement attribute for the financial statement recognition of a tax position taken or expected to be taken on a tax return. Under ASC 740-10, a tax benefit from an uncertain tax position taken or expected to be taken may be recognized only if it is “more likely than not” that the position is sustainable upon examination, based on its technical merits. The tax benefit of a qualifying position under ASC 740-10 would equal the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority having full knowledge of all the relevant information. A liability (including interest and penalties, if applicable) is established to the extent a current benefit has been recognized on a tax return for matters that are considered contingent upon the outcome of an uncertain tax position. Related interest and penalties, if any, are included as components of income tax expense and income taxes payable.
Capital Leases
The Company accounts for capital leases in accordance with ACS 840-30. During the year ended September 30, 2017, the Company entered into three separate long-term leases for equipment that contain a $1 buyout option upon lease termination. The Company determined these were capital leases based on the minimum buy out price and capitalized the net present value of the leases with totaled $116,800 as equipment. As of September 30, 2017, there was a total of $111,501 of future payments due through December 2019 of which $20,734 are financing charges leaving a total principal balance of $90,967 as of September 30, 2017. Of this amount, $37,990 is current and $52,777 is long term as of September 30, 2017. Future annual payments required under the capital leases through termination are as follows:
Year ended September 30,
|
|
Principal
|
|
|
Interest
|
|
|
Total
|
|
2018
|
|
$
|
37,990
|
|
|
$
|
15,082
|
|
|
$
|
53,072
|
|
2019
|
|
|
41,922
|
|
|
|
5,354
|
|
|
|
47,276
|
|
2020
|
|
|
10,855
|
|
|
|
298
|
|
|
|
11,153
|
|
Total
|
|
$
|
90,767
|
|
|
$
|
20,734
|
|
|
$
|
111,501
|
|
There were no capital lease obligations or equipment financed through capital leases as of September 30, 2016.
EVIO, INC.
(FORMERLY SIGNAL BAY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Concentration of Credit Risk
Instruments that potentially subject the Company to concentration of credit risk consist principally of cash deposits, notes receivable and accounts receivable. As of September 30, 2017, the Company did not hold cash at any financial institution in excess of the amount insured by the Federal Deposit Insurance Corporation (“FDIC”) of up to $250,000. As of September 30, 2017, the Company had a note receivable totaling $1,300,000 due from a single entity.
As of September 30, 2017, the Company had total accounts receivable net of allowances of $229,564. Three separate clients comprised a total of 41% of this balance as follows:
|
|
Balance
|
|
|
Percent of
Total
|
|
Customer 1
|
|
$
|
42,878
|
|
|
|
14
|
%
|
Customer 2
|
|
|
45,635
|
|
|
|
15
|
%
|
Customer 3
|
|
|
37,540
|
|
|
|
12
|
%
|
All others
|
|
|
178,294
|
|
|
|
59
|
%
|
Total
|
|
|
304,347
|
|
|
|
100
|
%
|
Allowance for doubtful accounts
|
|
|
(74,783
|
)
|
|
|
|
|
Net accounts receivable
|
|
$
|
229,564
|
|
|
|
|
|
Property and Equipment
Property and equipment are carried at cost. Expenditures for maintenance and repairs are expensed in the period incurred. Renewals and betterments that materially extend the life of the assets are capitalized. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income for the period.
Depreciation is computed for financial statement purposes on a straight-line basis over estimated useful lives of the related assets and the modified accelerated cost recovery system for federal income tax purposes. The estimated useful lives of depreciable assets are:
|
|
Estimated
|
|
|
Useful Lives
|
|
|
|
Laboratory and Computer Equipment
|
|
5 years
|
Furniture and Fixtures
|
|
7 years
|
Software
|
|
3 years
|
Domains
|
|
15 years
|
Impairment of Long-Lived Assets
The Company evaluates, on a periodic basis, long-lived assets to be held and used for impairment in accordance with the reporting requirements of ASC 360-10. The evaluation is based on certain impairment indicators, such as the nature of the assets, the future economic benefit of the assets, any historical or future profitability measurements, as well as other external market conditions or factors that may be present. If these impairment indicators are present or other factors exist that indicate that the carrying amount of the asset may not be recoverable, then an estimate of the undiscounted value of expected future operating cash flows is used to determine whether the asset is recoverable and the amount of any impairment is measured as the difference between the carrying amount of the asset and its estimated fair value. The fair value is estimated using valuation techniques such as market prices for similar assets or discounted future operating cash flows.
Financial Instruments
Level 1 - Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 - Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3 - Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company’s financial instruments consist principally of cash, accounts payable, and accrued liabilities. Pursuant to ASC 820 and 825, the fair value of cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
The following table sets forth by level with the fair value hierarchy the Company’s financial assets and liabilities measured at fair value on September 30, 2017:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
294,637
|
|
|
$
|
294,637
|
|
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
|
|
EVIO, INC.
(FORMERLY SIGNAL BAY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Basic Earning (Loss) Per Share
The Company computes net income (loss) per share in accordance with Accounting Standards Codification (“ASC”) 260, “
Earnings per Share
.” ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Given the net losses of the Company during the years ended September 30, 2017 and 2016, the effects of convertible equity and debt instruments were anti-dilutive resulting in basic and diluted loss per weighted average common shares outstanding equal. There was a total of 10,433,939 and 8,560,321 common stock equivalents excluded from diluted earnings per share for the years ended September 30, 2017 and 2016.
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.
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 years ended September 30, 2017 or 2016.
In March 2016, the FASB issued ASU 2016-09,
”Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
.
”
The amendments in this update simplify several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. The Company adopted the new guidance on January 1, 2017. The primary impact of adoption was the recognition of excess tax benefits in our provision for income taxes rather than paid-in capital. However, as the Company has a full valuation allowance against its deferred tax asset, a corresponding adjustment was recorded to increase the valuation allowance.
In January 2017, the FASB issued ASU 2017-04, “
Intangibles—Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment”.
The amendments in this update simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. This update is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 31, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing after January 1, 2017. The Company notes that this guidance applies to its reporting requirements and will implement the new guidance accordingly in performing goodwill impairment testing; however, the Company does not believe this update will have a material impact on the consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, “
Business Combinations (Topic 805): Clarifying the Definition of a Business,
” which revises the definition of a business. This update is effective for annual periods beginning after December 15, 2017, including interim periods within those years. Early adoption is permitted. The Company notes that this guidance will impact its acquisitions beginning January 1, 2018.
Management believes recently issued accounting pronouncements will have no impact on the financial statements of the Company.
EVIO, INC.
(FORMERLY SIGNAL BAY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recently Issued Accounting Pronouncements (continued)
In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” (“ASU 2016-1O”). The amendments in this update clarify the following two aspects to Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. The entity first identifies the promised goods or services in the contract and reduce the cost and complexity. An entity evaluates whether promised goods and services are distinct. Topic 606 includes implementation guidance on determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The Company is currently evaluating ASU 2016-10 and its impact on its consolidated financial statements or disclosures.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our financial statements upon adoption.
Non-Controlling Interest
The Company reports the non-controlling interest in its majority owned subsidiaries in the consolidated balance sheets within the stockholders’ deficit section, separately from the Company’s stockholders’ deficit. Non-controlling interest represents the non-controlling interest holders’ proportionate share of the equity of the Company’s majority-owned subsidiaries. Non-controlling interest is adjusted for the non-controlling interest holders’ proportionate share of the earnings or losses and other comprehensive income (loss) and the non-controlling interest continues to be attributed its share of losses even if that attribution results in a deficit non-controlling interest balance.
Derivative Financial Instruments
Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments and measurement of their fair value for accounting purposes. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt under ASC 470, the Company will continue its evaluation process of these instruments as derivative financial instruments under ASC 815.
Once determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives. At September 30, 2017, the Company effected a change in accounting estimate and adopted a Monte Carlo simulation model to value outstanding derivative liabilities as of September 30, 2017.
Related Parties
The registrant follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.
Pursuant to Section 850-10-20 the Related parties include (a) affiliates of the registrant; (b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; (c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d) principal owners of the registrant; (e) management of the registrant; (f) other parties with which the registrant may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and (g) Other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: (a) the nature of the relationship(s) involved; (b) description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; (c) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and (d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
EVIO, INC.
(FORMERLY SIGNAL BAY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – ACQUISITIONS
Completed During the Year Ended September 30, 2016
CR Labs, Inc.
On September 17, 2015 the Company performed a share exchange for 80% ownership of CR Labs, Inc., from its founders. CR Labs is an Oregon company engaged in providing analytical testing services for the medical marijuana industry in compliance with the Oregon Health Authority. The costs related to the transaction were $42,193 and were expensed during 2015.
The Company applied the acquisition method to the business combination and valued each of the assets acquired (cash, accounts receivable, and property, plant and equipment) and liabilities assumed (accounts payable) at fair value as of the acquisition date. The cash, accounts receivable and accounts payable were deemed to be recorded at fair value as of the acquisition date. The Company determined the fair value of property, plant and equipment to be historical book value. The preliminary allocation of the purchase price was based on estimates of the fair value of the assets and liabilities assumed. Under the purchase agreement, the Company issued 40,000,000 shares of common stock. These shares had an acquisition date fair value of $400,000. The following table shows the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
ASSETS ACQUIRED
|
|
|
|
CASH
|
|
$
|
2,970
|
|
ACCOUNT RECEIVABLE
|
|
|
3,550
|
|
PROPERTY PLANT AND EQUIPMENT
|
|
|
43,360
|
|
CUSTOMER LIST
|
|
|
67,428
|
|
GOODWILL
|
|
|
446,743
|
|
TOTAL ASSETS ACQUIRED
|
|
|
564,051
|
|
|
|
|
|
|
LIABILITIES ASSUMED
|
|
|
|
|
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|
|
|
(36,421
|
)
|
NOTES PAYABLE
|
|
|
(27,630
|
)
|
TOTAL LIABILITIES ASSUMED
|
|
|
(64,051
|
)
|
|
|
|
|
|
NONCONTROLLING INTEREST
|
|
|
(100,000
|
)
|
NET ASSETS ACQUIRED FROM CR LABS ACQUISITION
|
|
$
|
400,000
|
|
Oregon Analytical Services, LLC
On May 24, 2016 the Company through its subsidiary EVIO Inc., executed an asset purchase agreement to acquire 100% of the assets of Oregon Analytical Services, LLC. from its founder. Oregon Analytical Services, LLC was an Oregon company engaged in providing analytical testing services for the medical marijuana industry in compliance with the Oregon Health Authority. The costs related to the transaction were $2,780 and were expensed during the year ended September 30, 2016.
The Company applied the acquisition method as a business combination and valued each of the assets acquired and liabilities assumed at fair value as of the acquisition date. The notes payable was deemed to be recorded at fair value as of the acquisition date. The Company determined the fair value of property, plant and equipment to be market value. The preliminary allocation of the purchase price was based on estimates of the fair value of the assets and liabilities assumed. Under the purchase agreement, the Company issued a promissory note in the amount of $700,000 which is due and payable by May 23, 2010, the company is required to make annual payments of $100,000 if the minimum trailing revenue for EVIO Labs Eugene exceeds $700,000 annually during the term of the promissory note, the Company issued another promissory note in the amount of $72,500 in connection with the acquisition, and 200,000 shares of Preferred Series C Stock. These shares had an acquisition date fair value of $80,000. The following table shows the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
ASSETS ACQUIRED
|
|
|
|
PROPERTY PLANT AND EQUIPMENT
|
|
$
|
123,143
|
|
CUSTOMER LIST
|
|
|
227,595
|
|
GOODWILL
|
|
|
529,262
|
|
TOTAL ASSETS ACQUIRED
|
|
|
880,000
|
|
|
|
|
|
|
LIABILITIES ASSUMED
|
|
|
|
|
NOTES PAYABLE
|
|
|
(27,500
|
)
|
TOTAL LIABILITIES ASSUMED
|
|
|
(27,500
|
)
|
|
|
|
|
|
NET ASSETS ACQUIRED FROM OAS ACQUISITION
|
|
$
|
852,500
|
|
EVIO, INC.
(FORMERLY SIGNAL BAY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – ACQUISITIONS (CONTINUED)
Smith Scientific Industries, Inc.
On June 1, 2016 the Company through its subsidiary EVIO Inc. executed a share purchase agreement for 80% ownership of Smith Scientific Industries, Inc. d/b/a Kenevir Research., from a related party, Anthony Smith, Company Director. Smith Scientific Industries is an Oregon company engaged in providing analytical testing services for the medical marijuana industry in compliance with the Oregon Health Authority. The costs related to the transaction were $2,780 and were expensed during 2016.
The Company applied the acquisition method to the business combination and valued each of the assets acquired and liabilities assumed at fair value as of the acquisition date. The cash and accounts payable were deemed to be recorded at fair value as of the acquisition date. The Company determined the fair value of property, plant and equipment to be historical book value. The preliminary allocation of the purchase price was based on estimates of the fair value of the assets and liabilities assumed. Under the purchase agreement, the Company issued a promissory note for $336,000, with required $25,000 to be paid at closing, $75,000 to be paid in two installments within 180 days, and the remaining balance in three annual installments of $58,475, and 300,000 shares of Preferred Series C Stock. These shares had an acquisition date fair value of $135,000. The following table shows the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
ASSETS ACQUIRED
|
|
|
|
CASH
|
|
$
|
9,055
|
|
PROPERTY PLANT AND EQUIPMENT
|
|
|
11,076
|
|
CUSTOMER LIST
|
|
|
145,847
|
|
GOODWILL
|
|
|
439,402
|
|
TOTAL ASSETS ACQUIRED
|
|
|
605,380
|
|
|
|
|
|
|
LIABILITIES ASSUMED
|
|
|
|
|
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|
|
|
(430
|
)
|
NOTES PAYABLE
|
|
|
(16,200
|
)
|
TOTAL LIABILITIES ASSUMED
|
|
|
(16,630
|
)
|
|
|
|
|
|
NONCONTROLLING INTEREST
|
|
|
(117,750
|
)
|
|
|
|
|
|
NET ASSETS ACQUIRED FROM SMITH SCIENTIFIC ACQUISITION
|
|
$
|
471,000
|
|
Completed During the Year Ended September 30, 2017
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 contracts/relationships, 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 allocation of the purchase price was based on an independent valuation 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 with a discounted value of $284,723 for total consideration of $744,723. Portions of the note payable may be converted to common stock of the Company at certain dates as follows: 25% on April 16, 2018; 25% on October 16, 2019 and 25% on October 15, 2020. Each conversion may occur at the option of the holder at a price equal to a 20% discount from the lowest trading price in the prior five trading days.
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
|
|
|
256,000
|
|
CUSTOMER CONTRACTS/RELATIONSHIPS
|
|
|
11,500
|
|
GOODWILL
|
|
|
653,453
|
|
TOTAL ASSETS ACQUIRED
|
|
$
|
1,038,101
|
|
|
|
|
|
|
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
|
|
$
|
744,723
|
|
The license and customer contracts/relationships acquired will be amortized over their expected useful lives of five years.
EVIO, INC.
(FORMERLY SIGNAL BAY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – ACQUISITIONS (CONTINUED)
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 Asset Purchase Agreement also requires a portion of net profit be paid to the seller through November 2019.
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 allocation of the purchase price was based on an independent valuation of fair value of the assets and liabilities assumed based. 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, a $50,000 promissory note which carried a premium of $7,415 and a share of future monthly profit valued at $15,810 for total consideration of $303,225. The note payable may be converted to common stock of the Company at certain dates as follows: 50% on November1, 2017 and 50% on November 1, 2018. Each conversion may occur at the option of the holder at a price equal to a 20% discount from the lowest trading price in the prior five trading days. 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. There were no monthly net profits from the date of acquisition to September 30, 2017.
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 CONTRACTS/RELATIONSHIPS
|
|
|
14,800
|
|
GOODWILL
|
|
|
269,125
|
|
TOTAL ASSETS ACQUIRED
|
|
$
|
303,225
|
|
|
|
|
|
|
LIABILITIES ASSUMED
|
|
|
-
|
|
NET ASSETS ACQUIRED FROM GREEN STYLE ACQUISITION
|
|
$
|
303,225
|
|
The customer contracts/relationships acquired will be amortized over the expected useful life of five years.
Viridis Analytics MA, LLC (or “Viridis”)
On July 31, 2017, the Company entered into a Membership Interest Purchase Agreement to purchase 100% of the ownership of Viridis Analytics MA, LLC for $500,000 cash and a $500,000 promissory note.
The Company applied the acquisition method to the business combination and valued each of the assets acquired (cash, accounts receivable, other current assets, a website, customer contracts/relationships, a lab lease with favorable market terms and property, plant and equipment) at fair value as of the acquisition date.. The allocation of the purchase price was based on an independent valuation of fair value of the assets acquired. Under the purchase agreement, the Company paid $500,000 of cash and a $500,000 promissory note with a discounted value of $364,382 for total consideration of $864,382. The following table shows the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
ASSETS ACQUIRED
|
|
|
|
CASH
|
|
$
|
1,914
|
|
ACCOUNTS RECEIVABLE
|
|
|
65,776
|
|
OTHER CURRENT ASSET
|
|
|
600
|
|
PROPERTY PLANT AND EQUIPMENT
|
|
|
152,126
|
|
WEBSITE
|
|
|
7,215
|
|
CUSTOMER CONTRACTS/RELATIONSHIPS
|
|
|
13,500
|
|
FAVORABLE LEASE
|
|
|
3,100
|
|
GOODWILL
|
|
|
620,151
|
|
TOTAL ASSETS ACQUIRED
|
|
$
|
864,382
|
|
|
|
|
|
|
LIABILITIES ASSUMED
|
|
$
|
-
|
|
|
|
|
|
|
NET ASSETS ACQUIRED FROM VIRIDIS ACQUISITION
|
|
$
|
864,382
|
|
The customer contracts/relationships acquired will be amortized over their expected useful lives of five years while the favorable lease will be amortized through the remaining contractual term of six months.
EVIO, INC.
(FORMERLY SIGNAL BAY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – ACQUISITIONS (CONTINUED)
In accordance with ASC 805-10-50, the Company is providing the following unaudited pro-forma to present a summary of the combined results of the Company’s consolidated operations with all acquisitions. as if the acquisitions had been completed as of the beginning of the reporting period. Adjustments were made to eliminate any inter-company transactions in the periods presented.
EVIO, INC.
|
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
Year ended September 30,
|
|
Revenues
|
|
2017
|
|
|
2016
|
|
Testing services
|
|
$
|
2,802,199
|
|
|
$
|
743,306
|
|
Consulting services
|
|
|
324,803
|
|
|
|
255,282
|
|
Total revenue
|
|
|
3,127,002
|
|
|
|
998,588
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
Testing services
|
|
|
2,469,863
|
|
|
|
592,929
|
|
Consulting services
|
|
|
70,505
|
|
|
|
110,135
|
|
Depreciation and amortization
|
|
|
103,854
|
|
|
|
35,312
|
|
Total cost of revenue
|
|
|
2,644,222
|
|
|
|
738,376
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
482,780
|
|
|
|
260,212
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
2,739,462
|
|
|
|
982,881
|
|
Depreciation and amortization
|
|
|
211,565
|
|
|
|
64,683
|
|
Total operating expenses
|
|
|
2,951,027
|
|
|
|
1,074,564
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(2,468,247
|
)
|
|
|
(787,352
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(1,011,606
|
)
|
|
|
(316,745
|
)
|
Loss on settlement of debt
|
|
|
(22,170
|
)
|
|
|
-
|
|
Loss on disposal of asset
|
|
|
-
|
|
|
|
(720
|
)
|
Impairment loss
|
|
|
(200,000
|
)
|
|
|
|
|
Gain (loss) on change in fair market value of derivative liabilities
|
|
|
(285,887
|
)
|
|
|
(1,434,540
|
)
|
Total other income (expense)
|
|
|
(1,519,663
|
)
|
|
|
(1,752,005
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,987,910
|
)
|
|
$
|
(2,539,357
|
)
|
NOTE 4 – GOING CONCERN
The Company’s consolidated financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company has negative working capital, recurring losses, and does not have a source of revenues sufficient to cover its operating costs. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
EVIO, INC.
(FORMERLY SIGNAL BAY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – GOING CONCERN (CONTINUED)
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plan described in the preceding paragraph and eventually attain profitable operations. The accompanying financial statements do not include any adjustments that may be necessary if the Company is unable to continue as a going concern.
In the coming year, the Company’s foreseeable cash requirements will relate to continual development of the operations of its business, maintaining its good standing and making the requisite filings with the Securities and Exchange Commission, and the payment of expenses associated with operations and business developments. The Company may experience a cash shortfall and be required to raise additional capital.
Historically, it has mostly relied upon internally generated funds such as shareholder loans and advances to finance its operations and growth. Management may raise additional capital by retaining net earnings or through future public or private offerings of the Company’s stock or through loans from private investors, although there can be no assurance that it will be able to obtain such financing. The Company’s failure to do so could have a material and adverse effect upon it and its shareholders.
NOTE 5 – INTANGIBLE ASSETS
The Company’s intangible assets consist of customer lists, testing licenses, favorable leases and websites. The components of intangible assets as of September 30, 2017 and 2016 consist of:
|
|
2017
|
|
|
2016
|
|
Customer list
|
|
$
|
480,670
|
|
|
$
|
440,870
|
|
License
|
|
|
256,000
|
|
|
|
-
|
|
Favorable lease
|
|
|
3,100
|
|
|
|
-
|
|
Website
|
|
|
41,965
|
|
|
|
34,750
|
|
Total
|
|
|
781,735
|
|
|
|
475,620
|
|
Accumulated amortization
|
|
|
(189,475
|
)
|
|
|
(49,319
|
)
|
Net value
|
|
$
|
592,260
|
|
|
$
|
426,301
|
|
The Company estimates amortization to be recorded on existing intangible assets through the year ended September 30, 2022 to be:
For the years ended September 30,
|
|
Amortization
|
|
2018
|
|
$
|
151,717
|
|
2019
|
|
|
149,651
|
|
2020
|
|
|
149,651
|
|
2021
|
|
|
107,476
|
|
2022
|
|
|
9,722
|
|
Total
|
|
$
|
568,217
|
|
NOTE 6 – PROPERTY AND EQUIPMENT
The Company’s property and equipment consisted of the following as of September 30, 2017 and 2016:
|
|
2017
|
|
|
2016
|
|
Furniture and Equipment
|
|
$
|
146,870
|
|
|
$
|
21,551
|
|
Laboratory Equipment
|
|
|
439,071
|
|
|
|
188,531
|
|
Software
|
|
|
58,333
|
|
|
|
59,049
|
|
Leasehold Improvements
|
|
|
41,081
|
|
|
|
5,321
|
|
Vehicles
|
|
|
75,165
|
|
|
|
-
|
|
Total
|
|
|
760,520
|
|
|
|
274,452
|
|
Accumulated depreciation
|
|
|
(213,447
|
)
|
|
|
(68,610
|
)
|
Net value
|
|
$
|
547,073
|
|
|
$
|
205,842
|
|
The Company capitalized a total of $116,800 of equipment purchased through capital leases as disclosed in
Note 2 – Summary of Significant Accounting Policies
and recorded depreciation expense of $32,445 and $0 on that equipment during the years ended September 30, 2017 and 2016, respectively.
During the year ended September 30, 2017, the Company purchased a software license for $200,000 in cash which was initially capitalized as a fixed asset. The Company relied on the representation of the seller regarding the assignability of the license. However, independent verification of the assignability was not obtained. As a result, the Company recognized a $200,000 impairment loss on the write off of the asset.
EVIO, INC.
(FORMERLY SIGNAL BAY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 – 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 $14,295. There were repayments totaling $7,500 made during the year ended September 30, 2017. There was $84,205 and $91,705 due as of September 30, 2017 and 2016, respectively, 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 years ended September 30, 2017 and 2016, the Company incurred total expenses of $42,192 and $60,026, respectively, for management consulting services performed by Newport Commercial Advisors, an entity fully owned and controlled by our Chief Executive Officer. There was not a balance payable to Newport Commercial Advisors as of September 30, 2017 or 2016.
On June 22, 2015, the Company purchased a 4% ownership of Libra Wellness Center, LLC from Lori J Glauser, our COO for $40,000. Libra Wellness Center, LLC subsequently obtained additional financing resulting in our ownership being diluted to 1.5%. The $40,000 was to be paid in one installment due no later than April 1, 2016. On June 16, 2016, the Company was engaged by Libra Wellness Center, LLC to provide advisory services in the amount of $12,750. The Company received regulatory approval to sell its interest in Libra Wellness Center on September 29, 2016. As of September 30, 2016, the Company had not received payment for the divesture resulting in a $40,000 receivable as of September 30, 2016. This amount was collected in full during the year ended September 30, 2017 resulting in a balance of $0 as of September 30, 2017.
During the year ended September 30, 2017, the Company received loans from its Chief Executive Officer totaling $80,100 and made repayments totaling $75,650. The loans are non-interest bearing and due on demand. There was $4,450 due as of September 30, 2017.
During the years ended September 30, 2017 and 2016 the Company made repayments to Eric Ezrine, a shareholder of CR Labs, on an outstanding note payable totaling $13,139 and $0, respectively. The loans carry an interest rate of 0% per annum. There was $130 and $13,269 due as of September 30, 2017 and 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 $22,050 during the year ended September 30, 2017. There was $22,450 and $44,500 accrued as of September 30, 2017 and 2016, respectively.
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 years ended September 30, 2017 and 2016, the Company repaid $47,714 and $34,916, respectively, to Sara Lausmann, Vice President Client Services. The total amount owed is $689,870 and $737,584 as of September 30, 2017 and 2016, respectively. As of September 30, 2017 and 2016, $89,870 and $37,584 and $600,000 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 $47,409 and $13,521 due as of September 30, 2017 and 2016, respectively.
On June 1, 2016, the Company executed a share purchase agreement with Anthony Smith, for the purchase of 80% of Smith Scientific Industries for $636,000. The terms of the purchase required the issuance of 300,000 shares of Series C Preferred Stock, valued at $135,000 and $336,000 in a promissory note. During the year ended September 30, 2017, the Company repaid $50,000 to Anthony Smith, our Chief Science Officer. The note carries interest at a rate of 5% per annum. There was $261,000 and $311,000 of principal due as of September 30, 2017 and 2016 and $18,846 and $5,155 of accrued interest due as of September 30, 2017 and 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 year ended September 30, 2017, the Company made repayments totaling $25,100. There was a total of $169,412 due as of September 30, 2017 of which $100,000 is current and $69,412 is long term.
As discussed in Note 3 - Acquisitions, 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 carried a debt discount of $55,277. The note carries interest at a rate of 6% per annum and matures on October 16, 2020. There was $340,000 of principal, an unamortized debt discount of $42,044 and $19,506 of accrued interest due as of September 30, 2017.
As discussed in Note 3 – Acquisitions, on November 1, 2016, the Company entered into a $50,000 note payable, that contained a premium of $7,416 based on fair value, 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 year ended September 30, 2017, the Company made repayments of $6,090. There was $43,910 of principal, $4,028 of unamortized note premium and $5,055 of accrued interest due as of September 30, 2017.
As discussed in Note 3 – Acquisitions, on October 19, 2016, the Company entered into an asset purchase agreement with Green Style Consulting LLC requiring a future share of net profits generated by Green Style Consulting. The fair value of these future net profits were estimated to be $15,809. There have been no monthly net profits to distribute from the time of acquisition to September 30, 2017 and as such no repayments have been made. There was $15,809 accrued and included in accounts payable and accrued liabilities for future payments related to this earn out as of September 30, 2017.
Through September 30, 2016, the Company borrowed a total of $16,200 from our Chief Science Officer to fund operations. The loans are non-interest bearing, due on demand and as such are included in current liabilities. During the year ended September 30, 2017, the Company made repayments totaling $7,000. There was $9,200 and $16,200 due as of September 30, 2017 and 2016, respectively.
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.
EVIO, INC.
(FORMERLY SIGNAL BAY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 – STOCKHOLDERS’ EQUITY
Series A Convertible Preferred Stock
The Company designated 1,850,000 shares of Series A Convertible Preferred Stock (“Series A Preferred Stock”) with a par value of $0.0001 per share. Initially, there will be no dividends due or payable on the Series A Preferred Stock. Any future terms with respect to dividends shall be determined by the Board consistent with the Corporation’s Certificate of Incorporation. Any and all such future terms concerning dividends shall be reflected in an amendment to this Certificate, which the Board shall promptly file or cause to be filed.
All shares of the Series A Preferred Stock shall rank (i) senior to the Corporation’s Common Stock and any other class or series of capital stock of the Corporation hereafter created, (ii) pari passu with any class or series of capital stock of the Corporation hereafter created and specifically ranking, by its terms, on par with the Series A Preferred Stock and (iii) junior to any class or series of capital stock of the Corporation hereafter created specifically ranking, by its terms, senior to the Series A Preferred Stock, in each case as to distribution of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary.
The Series A Preferred shall have no liquidation preference over any other class of stock.
Except as otherwise required by law, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock or any other class or series of preferred stock) for the taking of any corporate action.
Conversion at the Option of the Holder. From 12 months from the date of issuance, each holder of shares of Series A Preferred Stock may, at any time and from time to time, convert (an “Optional Conversion”) each of its shares of Series A Preferred Stock into fully paid and nonassessable shares of Common Stock at a rate equal to 4.9% of the Common Stock.
For a period of 18 months after the Preferred is convertible, the conversion price of the Series A Preferred will be subject to adjustment to prevent dilution in the event that the Company issues additional shares at a purchase price less than the applicable conversion price. The conversion price will be subject to adjustment on a weighted basis that takes into account issuances of additional shares. At the expiration of the antidilution period, the conversion rate in Section VI (A) above shall be equal to a conversion rate equal to 4.9% on the Common Stock. For example, if on the date of expiration of the antidilution clause there are 500,000,000 shares of Common Stock issued and outstanding then each Series A Preferred Stock shall convert at a rate of 13.24 common shares for each 1 Series Preferred Share.
The Company has evaluated the Series A Preferred Stock in accordance with ASC 815 and has determined their conversion options were for equity and ASC 815 does not apply.
The Company has evaluated the Series A Preferred Stock in accordance with FASB ASC Subtopic 470-20, and has determined that there is no beneficial conversion feature that must be accounted.
All 1,840,000 outstanding Series A Convertible Stock was converted into 438,753 (post split) share of common stock during the year ended September 30, 2017.
The Company has 0 and 1,840,000 shares of Series A Convertible Stock issued and outstanding as of September 30, 2017 and 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 Common Share. 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 one (1) fully paid and nonassessable shares of Common Stock.
EVIO, INC.
(FORMERLY SIGNAL BAY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 – STOCKHOLDERS’ EQUITY (CONTINUED)
Series B Convertible Preferred Stock (continued)
The Company has evaluated the Series B Preferred Stock in accordance with ASC 815 and has determined their conversion options were for equity and ASC 815 does not apply.
The Company has evaluated the Series B Preferred Stock in accordance with FASB ASC Subtopic 470-20, and has determined that there is no beneficial conversion feature that must be accounted.
The Company has 5,000,000 shares of Series B Convertible Stock issued and outstanding as of September 30, 2017 and 2016.
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 (5) 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 five (5) 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 forward or reverse split, the conversion ratio shall be modified on a pro rata basis to align with the forward or reverse 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 September 30, 2017 and 2016.
EVIO, INC.
(FORMERLY SIGNAL BAY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 – STOCKHOLDERS’ EQUITY (CONTINUED)
Series D Convertible Preferred Stock
The Company designated 1,000,000 shares of Series D Convertible Preferred Stock (“Series D Preferred Stock”) with a par value of $0.0001 per share.
Initially, there will be no dividends due or payable on the Series D Preferred Stock. Any future terms with respect to dividends shall be determined by the Board consistent with the Corporation’s Certificate of Incorporation. Any and all such future terms concerning dividends shall be reflected in an amendment to this Certificate, which the Board shall promptly file or cause to be filed.
All shares of the Series D Preferred Stock shall rank (i) senior to the Corporation’s Common Stock and any other class or series of capital stock of the Corporation hereafter created, (ii) pari passu with any class or series of capital stock of the Corporation hereafter created and specifically ranking, by its terms, on par with the Series B Preferred Stock and (iii) junior to any class or series of capital stock of the Corporation hereafter created specifically ranking, by its terms, senior to the Series B Preferred Stock, in each case as to distribution of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary.
As originally issued, 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. On July 31, 2017, the Company amended its articles of incorporation such that the Series D Preferred Stock shall have no liquidation preference over any other class of stock.
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 2.5 fully paid and nonassessable shares of Common Stock; provided, however, that any Optional Conversion must involve the issuance of at least 500 shares of Common Stock.
In the event of a forward or reverse split, the conversion ratio shall be modified on a pro rata basis to align with the forward or reverse 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 D 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 year ended September 30, 2017, 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 September 30, 2017 and 2016, respectively.
EVIO, INC.
(FORMERLY SIGNAL BAY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 – STOCKHOLDERS’ EQUITY (CONTINUED)
Common Stock
During the year ended September 30, 2017, the Company effected a 1:100 reverse stock split. The effects of the split have been reflected retroactively in the financial statements for all periods presented.
On September 5, 2017, the Company amended its articles of incorporation to reduce the number of authorized common shares from 3,000,000 to 1,000,000,000.
During the year ended September 30, 2016, the Company issued 60,875 common shares valued at $46,473 under its employee equity incentive plan; 4,010,326 common shares for the conversion of $207,367 of outstanding principal on convertible notes payable; 14,686 common shares for the conversion of $4,135 of convertible accrued interest and 428,270 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 year ended September 30, 2017, the Company issued 333,949 common shares valued at $537,515 for services; 438,753 common shares for the conversion of 1,840,000 shares of Series A Preferred Stock; 112,000 common shares for cash proceeds of $112,000; 93,691 common shares valued at $211,071 under its employee equity incentive plan; 10,000 common shares for the settlement of $11,400 of accounts payable; 1,755 common share due to the rounding impacts of the 1:100 reverse stock split; 1,142,892 common shares for the conversion of $765,050 of outstanding principal on convertible notes payable; 53,304 for the conversion of $30,975 of convertible accrued interest; 40,935 common shares for the settlement of non-convertible debt totaling $46,666 and 5,000 common shares valued at $7,651 as a settlement. All conversions of outstanding principal and accrued interest on convertible notes payable were done so at contractual terms.
There were 10,732,927 and 8,500,643 shares of common stock issued and outstanding at September 30, 2017 and 2016, respectively.
NOTE 9 – LOANS PAYABLE
The Company had the following loans payable outstanding as of September 30, 2017 and September 30, 2016:
|
|
September 30,
2017
|
|
|
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.
|
|
$
|
-
|
|
|
$
|
49,875
|
|
|
|
|
|
|
|
|
|
|
On May 24, 2016, the Company assumed a $27,500 Promissory note with annual interest of 5%, as part of the acquisition of Oregon Analytical Services (see note 3). The note is due on demand and requires quarterly payments.
|
|
|
-
|
|
|
|
27,500
|
|
|
|
|
|
|
|
|
|
|
On March 16, 2017, the Company executed notes payable for the purchase of three vehicles. The notes carry interest at 6.637% annually and mature on March 31, 2023.
|
|
|
71,039
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
On August 1, 2017, the Company entered into a note payable totaling $500,000 for the acquisition of Virdiris (see note 3). The note carries interest at 8% annually and is due on July 1, 2018.
|
|
|
500,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
On September 6, 2017, the Company entered into a note payable totaling $1,000,000 for the purchase of an outstanding note receivable. The note carries interest at 8% annually and is due on July 6, 2018.
|
|
|
1,000,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
On August 31, 2017, the Company executed a note payable for $120,000 of which $20,000 was an original issue discount resulting in cash proceeds of $100,000. The note carries interest at 8% annually and is due on March 3, 2018.
|
|
|
120,000
|
|
|
|
|
|
|
|
|
1,691,039
|
|
|
|
77,375
|
|
Less: unamortized original issue discounts
|
|
|
(127,662
|
)
|
|
|
-
|
|
Total loans payable
|
|
|
1,563,377
|
|
|
|
|
|
Less: current portion of loans payable
|
|
|
1,503,545
|
|
|
|
77,375
|
|
|
|
|
|
|
|
|
|
|
Long-term portion of loans payable
|
|
$
|
59,832
|
|
|
$
|
-
|
|
As of September 30, 2017 and 2016, the Company accrued interest of $12,625 and $638, respectively.
EVIO, INC.
(FORMERLY SIGNAL BAY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 – CONVERTIBLE NOTES PAYABLE
The Company has entered into convertible notes payable that convert to common stock of the Company at variable conversion prices. As further discussed in
Note 11 – Derivative Liabilities
, the Company analyzed the conversion features of the agreements for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The following table summarizes all convertible notes outstanding as of 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
|
|
The following table summarizes all convertible notes outstanding as of September 30, 2017:
Holder
|
|
Issue Date
|
|
Due Date
|
|
Principal
|
|
|
Unamortized
Debt Discount
|
|
|
Carrying
Value
|
|
|
Accrued
Interest
|
|
Noteholder 1
|
|
3/2/2017
|
|
3/2/2018
|
|
$
|
125,000
|
|
|
$
|
(38,112
|
)
|
|
$
|
86,888
|
|
|
$
|
5,671
|
|
Noteholder 1
|
|
7/14/2017
|
|
7/14/2018
|
|
|
275,600
|
|
|
|
(11,795
|
)
|
|
|
263,805
|
|
|
|
4,712
|
|
Noteholder 1
|
|
8/14/2017
|
|
8/14/2018
|
|
|
275,600
|
|
|
|
(13,068
|
)
|
|
|
262,532
|
|
|
|
2,839
|
|
Noteholder 4
|
|
3/2/2017
|
|
3/2/2018
|
|
|
69,000
|
|
|
|
(50,009
|
)
|
|
|
18,991
|
|
|
|
7,187
|
|
Noteholder 4
|
|
6/5/2017
|
|
3/2/2018
|
|
|
125,000
|
|
|
|
(70,833
|
)
|
|
|
54,167
|
|
|
|
3,205
|
|
Noteholder 4
|
|
7/14/2017
|
|
7/14/2018
|
|
|
275,600
|
|
|
|
(11,795
|
)
|
|
|
263,805
|
|
|
|
4,470
|
|
Noteholder 4
|
|
8/14/2017
|
|
8/14/2018
|
|
|
275,600
|
|
|
|
(13,068
|
)
|
|
|
262,532
|
|
|
|
2,597
|
|
|
|
|
|
|
|
$
|
1,421,400
|
|
|
$
|
(208,680
|
)
|
|
$
|
1,212,720
|
|
|
$
|
30,681
|
|
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 may prepay the note during the first six months it is outstanding. During the year ended September 30, 2017, the noteholder converted all outstanding principal and interest in exchange for a total of 111,573 post-split (11,157,314 pre-split) common shares. There was $0 and $76,650 of principal and $0 and $2,268 of accrued interest due at September 30, 2017 and 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 13, 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. During the year ended September 30, 2017, the noteholder converted all outstanding principal and interest in exchange for a total of 71,649 post-split (7,164,852 pre-split) common shares. There was $0 and $0 of principal and $0 and $0 of accrued interest due at September 30, 2017 and 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. During the year ended September 30, 2017, the noteholder converted all outstanding principal and interest in exchange for a total of 100,874 post-split (10,087,373 pre-split) common shares. There was $0 and $76,650 of principal and $0 and $588 of accrued interest due at September 30, 2017 and 2016, respectively.
EVIO, INC.
(FORMERLY SIGNAL BAY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 – CONVERTIBLE NOTES PAYABLE (CONTINUED)
Noteholder 1 (continued)
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 which was funded on January 3, 2017 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. During the year ended September 30, 2017, the noteholder converted all outstanding principal and interest in exchange for a total of 111,033 post-split (11,103,272 pre-split) common shares. There was $0 and $0 of principal and $0 and $0 of accrued interest due at September 30, 2017 and 2016, respectively.
On March 2, 2017, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $125,000 resulting in cash proceeds to the Company of $125,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, is due on March 2, 2018. The Note is convertible into the Company's common stock commencing 180 days from the date of issuance at a conversion price equal to 65% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. There was $125,000 and $0 of principal and $7,397 and $0 of accrued interest due at September 30, 2017 and 2016, respectively.
On March 2, 2017, the Company sold a Convertible Promissory Note to an unrelated party, for the principal amount of $125,000 resulting in cash proceeds to the Company of $125,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith which was funded on June 5, 2017. The Note, together with accrued interest at the annual rate of 8%, is due on March 2, 2018. The Note is convertible into the Company's common stock upon funding at a conversion price equal to 65% of the lowest trade price of the Company's common stock for the fifteen prior trading days including the date of conversion. During the year ended September 30, 2017, the noteholder converted all outstanding principal and interest in exchange for a total of 194,795 post-split (19,479,452 pre-split) common shares. There was $0 and $0 of principal and $0 and $0 of accrued interest due at September 30, 2017 and 2016, respectively.
On July 14, 2017, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $275,600 of which $15,600 was an original issue discount and $10,000 was paid directly to third parties resulting in cash proceeds to the Company of $250,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, is due on July 14, 2018. The Note is convertible into the Company’s common stock commencing 180 days from the date of issuance at a conversion price equal to 75% of the lowest trade price of the Company’s common stock for the fifteen prior trading days including the date of conversion. There was $275,000 and $0 of principal and $4,701 and $0 of accrued interest due at September 30, 2017 and 2016, respectively.
On August 14, 2017, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $275,600 of which $15,600 was an original issue discount and $10,000 was paid directly to third parties resulting in cash proceeds to the Company of $250,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, is due on August 14, 2018. The Note is convertible into the Company’s common stock commencing 180 days from the date of issuance at a conversion price equal to 75% of the lowest trade price of the Company’s common stock for the fifteen prior trading days including the date of conversion. There was $275,000 and $0 of principal and $2,833 and $0 of accrued interest due at September 30, 2017 and 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 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 year ended September 30, 2017, the noteholder elected to convert all outstanding principal and interest due in exchange for a total of 33,344 post-split (3,334,387 pre-split) common shares. There was $0 and $45,000 of principal and $0 and $1,282 of accrued interest due at and September 30, 2017 and 2016, respectively.
EVIO, INC.
(FORMERLY SIGNAL BAY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 – CONVERTIBLE NOTES PAYABLE (CONTINUED)
Noteholder 3
On March 21, 2016, an unrelated party purchased from an existing convertible noteholder outstanding principal of $115,019. The Note is due on March 21, 2017 and carries an interest rate of 0% per annum. The Note is convertible into the Company's common stock at a conversion price equal to 50% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. During the year ended September 30, 2016, the Company issued a total of 3,384,939 post-split (338,493,893 pre-split) common shares for the conversion of $115,019 of principal. There was $0 of principal and $0 of accrued interest due at September 30, 2016.
On March 21, 2016, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $27,500 of which $2,500 was an original issue discount resulting in cash proceeds to the Company of $25,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 10%, is due on March 21, 2017. The Note is convertible into the Company’s common stock commencing from the date of issuance at a conversion price equal to 50% of the lowest trade price of the Company’s common stock for the twenty-five prior trading days including the date of conversion. The Company 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 year ended September 30, 2017 the noteholder elected to convert all outstanding principal and interest due in exchange for a total of 98,856 post-split (9,885,621 pre-split) common shares. There was $0 and $27,500 of principal and $0 and $1,454 of accrued interest due at and September 30, 2017 and 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 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 year ended September 30, 2017, the noteholder elected to convert all outstanding principal and interest due in exchange for a total of 127,357 post-split (12,735,692 pre-split) common shares. There was $0 and $76,650 of principal and $0 and $2,252 of accrued interest due at September 30, 2017 and 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 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 year ended September 30, 2017, the noteholder elected to convert all outstanding principal and interest in exchange for 182,553 post-split (18,255,293 pre-split) shares of common stock. There was $0 and $76,650 of principal and $0 and $185 of accrued interest due at September 30, 2017 and 2016, respectively.
EVIO, INC.
(FORMERLY SIGNAL BAY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 – CONVERTIBLE NOTES PAYABLE (CONTINUED)
Noteholder 4
On February 19, 2016, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $25,000 resulting in cash proceeds to the Company of $25,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, is due on February 19, 2017. The Note is convertible into the Company's common stock commencing from the date of issuance at a conversion price equal to 50% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. During the year ended September 30, 2016 the Company issued 106,383 post-split (10,638,298 pre-split) shares of common stock for the conversion of $25,000 of principal and 4,799 post-split (479,906 pre-split) shares of common stock for the conversion of $1,128 of accrued interest payable. There was $0 of principal and $0 of accrued interest due at September 30, 2016.
On February 19, 2016, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $25,000 of which $2,000 was an original issue discount resulting in cash proceeds to the Company of $23,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, is due on February 19, 2017. The Note is convertible into the Company's common stock commencing from the date of issuance at a conversion price equal to 50% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. During the year ended September 30, 2016 the Company issued 102,041 post-split (10,204,082 pre-split) shares of common stock for the conversion of $25,000 of principal. There was $0 of principal and $0 of accrued interest due at September 30, 2016.
On March 2, 2017, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $125,000 resulting in cash proceeds to the Company of $125,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, is due on March 2, 2018. The Note is convertible into the Company's common stock commencing 180 days from the date of issuance at a conversion price equal to 65% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. During the year ended September 30, 2017, the holder elected to convert a total of $56,000 of principal in exchange for 111,538 post-split (11,153,800 pre-split) shares of common stock. There was $69,000 and $0 of principal and $7,187 and $0 of accrued interest due at September 30, 2017 and 2016, respectively.
On March 2, 2017, the Company sold a Convertible Promissory Note to an unrelated party, for the principal amount of $125,000 resulting in cash proceeds to the Company of $125,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith which was funded on June 5, 2017. The Note, together with accrued interest at the annual rate of 8%, is due on March 2, 2018. The Note is convertible into the Company's common stock upon funding at a conversion price equal to 65% of the lowest trade price of the Company's common stock for the fifteen prior trading days including the date of conversion. There was $125,000 and $0 of principal and $3,205 and $0 of accrued interest due at September 30, 2017 and 2016, respectively.
On July 14, 2017, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $275,600 of which $15,600 was an original issue discount and $10,000 was paid directly to third parties resulting in cash proceeds to the Company of $250,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, is due on July 14, 2018. The Note is convertible into the Company’s common stock commencing 180 days from the date of issuance at a conversion price equal to 75% of the lowest trade price of the Company’s common stock for the fifteen prior trading days including the date of conversion. There was $275,000 and $0 of principal and $4,701 and $0 of accrued interest due at September 30, 2017 and 2016, respectively.
On August 14, 2017, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $275,600 of which $15,600 was an original issue discount and $10,000 was paid directly to third parties resulting in cash proceeds to the Company of $250,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, is due on August 14, 2018. The Note is convertible into the Company’s common stock commencing 180 days from the date of issuance at a conversion price equal to 75% of the lowest trade price of the Company’s common stock for the fifteen prior trading days including the date of conversion. There was $275,000 and $0 of principal and $2,833 and $0 of accrued interest due at September 30, 2017 and 2016, respectively.
EVIO, INC.
(FORMERLY SIGNAL BAY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 – CONVERTIBLE NOTES PAYABLE (CONTINUED)
Noteholder 5
On July 23, 2015, Signal Bay, Inc. (the “Company”) executed a convertible promissory note with a principal amount of $102,500 (the “Note”) to St. George Investments, LLC. (“Lender”). The Note was funded on July 23, 2015 (Purchase Date). The Company may repay this note at any time. This note shall be deemed paid in full if Company pays to Lender (a) the sum of $91,250 (meaning Borrower would receive a $11,250 discount) on or before the date that is ninety (90) days from the Purchase Price Date, or (b) the sum of $97,500 (meaning Borrower would receive a $5,000 discount) on any date after the date that is ninety (90) days from the Purchase Price Date but on or before the date that is one hundred thirty-five (135) days from the Purchase Price Date (the “Prepayment Opportunity Date”). If Borrower does not repay the entire Outstanding Balance of this Note on or before the Prepayment Opportunity Date, it shall receive no prepayment discount and must pay the entire Outstanding Balance of this Note in full on or before the Maturity Date. Lender has the right at any time following an Event of Default, at its election, to convert (each instance of conversion is referred to herein as a “Conversion”) all or any part of the Outstanding Balance into shares (“Conversion Shares”) of fully paid and non-assessable common stock, $0.0001 par value per share (“Common Stock”), of Borrower as per the following conversion formula: the number of Conversion Shares equals the amount being converted (the “Conversion Amount”) divided by the Conversion Price. The conversion price (the “Conversion Price”) for each Conversion (as defined below) shall be equal to the product of 70% (the “Conversion Factor”) multiplied by the average of the three (3) lowest Closing Bid Prices in the twenty (20) Trading Days immediately preceding the applicable Conversion. On March 31, 2016, Tangiers Global LLC Purchased $115,019 of the note from St. George Investments, resulting in a balance of $25,071 owing to St. George Investments. During the year ended September 30, 2016, principal and interest of $85,348 and $3,008, respectively, was converted into 162,246,500 shares of common stock. There was $0 of principal and $0 of accrued interest due as of September 30, 2016.
Noteholder 6
On February 5, 2017, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $50,000 pursuant to a settlement agreement entered into on the same date. The Note was retroactively dated to August 23, 2016. The Note, together with accrued interest at the annual rate of 8%, is due on August 23, 2017. The Note is convertible into the Company’s common stock commencing 180 days from the date of the note 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 Note was converted in full on April 25, 2017 in exchange for 52,632 post-split (5,263,230 pre-split) common shares. There was $0 of principal and $0 of accrued interest due at September 30, 2017 and 2016, respectively.
NOTE 11 – DERIVATIVE LIABILITIES
Year Ended September 30, 2016
As of September 30, 2016 the Company had a $775,246 derivative liability balance on the balance sheets and recorded a loss from derivative liability fair value adjustments of $1,434,540 during the year ended September 30, 2016. The Company assessed its outstanding convertible notes payable as summarized in
Note 10 – Convertible Notes Payable
and determined certain convertible notes payable with variable conversion features contain embedded derivatives and are therefore accounted for at fair value under
ASC 820, Fair Value Measurements and Disclosures
and
ASC 825, Financial Instruments.
The derivative liability is marked to market at each measurement period and any unrealized change in fair value is recorded as a component of the consolidated statement of operations and the associated fair value carrying amount on the consolidated balance sheet is adjusted by the change. Upon conversion of the notes, the corresponding derivative liability at date of conversion is written off to additional paid in capital.
Utilizing Level 3 inputs, the Company fair values the embedded derivatives at each measurement date as of and during the year ended September 30, 2016 using the Black-Sholes option pricing model based on the following assumptions: risk free rates ranging from 0.23% to 0.49%, dividend yield of 0%, expected lives of 0.24 to 0.63 years, and volatility of 272% to 316%. In connection with the convertible notes issued during the year ended September 30, 2016, the Company recognized a derivative liability at issuance dates of $634,862 of which $215,000 was recognized as a debt discount and the excess fair market value of $419,862 was recognized as a loss on derivative fair value measurements. A total of $1,074,754 was written off to additional paid in capital during the year ended September 30, 2016 as a result of the conversion of notes and accrued interest totaling $211,504.
Year Ended September 30, 2017
As of September 30, 2017 Company had a $294,637 derivative liability balance on the balance sheets and recorded a loss from derivative liability fair value adjustments of $285,887 during the years ended September 30, 2017. The derivative liability activity comes from convertible notes payable as follows:
As discussed in
Note 10 – Convertible Notes Payable
, the Company issued a $27,500 Convertible Promissory Notes to an unrelated party that matured 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 six months after issuance, 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. 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 year ended September 30, 2017, the noteholder elected to convert all outstanding principal and interest due. Upon conversion in full, 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 $60,180 loss from change in fair value of derivatives and a conversion of $183,770 for the year ended September 30, 2017. 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 $2.21 post-split ($0.0221 pre-split) per share.
As discussed in
Note 10 – 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 six months after issuance, 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. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
EVIO, INC.
(FORMERLY SIGNAL BAY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 – DERIVATIVE LIABILITIES (CONTINUED)
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the issuance date of the note was $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 year ended September 30, 2017, the noteholder elected to convert all outstanding principal and interest due. Upon conversion, 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 $29,171 gain from change in fair value of derivatives and a conversion of $296,657 for the year ended September 30, 2017. 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 $2.85 post-split ($0.0285 pre-split) per share.
As discussed in
Note 10 – Convertible Notes Payable
, the Company issued a $76,500 Convertible Promissory Notes to an unrelated party that matured 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 six months after issuance, 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. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the issuance date of the note was $255,582 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $70,000 which was up to the face value of the convertible note with the excess fair value at initial measurement of $185,582 being recognized as a loss on derivative fair value measurement.
During the year ended September 30, 2017, the noteholder elected to convert all of the outstanding principal to common shares. At September 30, 2017, 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 $165,342 gain from change in fair value of derivatives and a conversion of $160,486 for the year ended September 30, 2017. 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 369%, (3) risk-free interest rate of .95%, (4) expected life of 1.00 year, and (5) estimated fair value of the Company’s common stock of $1.52 post-split ($0.0152 pre-split) per share.
As discussed in
Note 10 – Convertible Notes Payable
, the Company issued a $76,500 Convertible Promissory Notes to an unrelated party that matured 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 six months after issuance, 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. 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 $289,266 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 $219,266 being recognized as a loss on derivative fair value measurement.
During the year ended September 30, 2017, the noteholder elected to convert all outstanding principal and interest due. Upon conversion, 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 $22,093 gain from change in fair value of derivatives and $267,173 due to conversion for the year ended September 30, 2017. 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 $2.85 post-split ($0.0285 pre-split) per share.
EVIO, INC.
(FORMERLY SIGNAL BAY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 – DERIVATIVE LIABILITIES (CONTINUED)
As discussed in
Note 10 – 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 six months after issuance, 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. 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 $147,208 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 $77,208 being recognized as a loss on derivative fair value measurement.
During the year ended September 30, 2017, the noteholder elected to convert all outstanding principal and interest due. Upon conversion, 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 $29,982 gain from change in fair value of derivatives and $117,226 due to conversion for the year ended September 30, 2017. 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 $2.09 post-split ($0.0209 pre-split) per share.
As discussed in
Note 10 – 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 six months after issuance, 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. 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 $74,456 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 $26,456 being recognized as a loss on derivative fair value measurement.
During the year ended September 30, 2017, the noteholder elected to convert all outstanding principal and interest due. Upon conversion, 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 $74,456 due to conversion for the year ended September 30, 2017. 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 $2.64 post-split ($0.0264 pre-split) per share.
As discussed in
Note 10 – Convertible Notes Payable
, the Company issued a $76,650 Convertible Promissory Notes to an unrelated party that matures on August 18, 2017. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares six months after issuance, 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. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the issuance date of the note was $115,409 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 $45,409 being recognized as a loss on derivative fair value measurement.
During the year ended September 30, 2017, the noteholder elected to convert all outstanding principal and interest due. Upon conversion, 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 an $3,362 loss from change in fair value and $118,771 due to conversion for the year ended September 30, 2017. 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 101%, (3) risk-free interest rate of .78%, (4) expected life of 0.37 of a year, and (5) estimated fair value of the Company’s common stock of $2.01 post-split ($0.0201 pre-split) per share.
EVIO, INC.
(FORMERLY SIGNAL BAY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 – DERIVATIVE LIABILITIES (CONTINUED)
As discussed in
Note 10 – Convertible Notes Payable
, the Company issued a $76,650 Convertible Promissory Notes to an unrelated party that matures on August 18, 2017. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares six months after issuance, 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. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the issuance date of the note was $115,409 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 $45,409 being recognized as a loss on derivative fair value measurement.
During the year ended September 30, 2017, the noteholder elected to convert all outstanding principal and interest due. Upon conversion, 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 $31,047 gain from change in fair value and $84,362 due to conversion for the year ended September 30, 2017. 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 75%, (3) risk-free interest rate of .85%, (4) expected life of 0.17 of a year, and (5) estimated fair value of the Company’s common stock of $1.50 post-split ($0.0150 pre-split) per share.
As discussed in
Note 10 – Convertible Notes Payable
, the Company issued a $125,000 Convertible Promissory Notes to an unrelated party that matures on March 2, 2018. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares six months after issuance, at the holder’s option, at the conversion rate equal to a 35% discount from the lowest trading price in the fifteen 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. 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 $157,523 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $125,000 which was up to the face value of the convertible note with the excess fair value at initial measurement of $32,523 being recognized as a loss on derivative fair value measurement.
During the year ended September 30, 2017, the noteholder elected to convert all outstanding principal and interest due. Upon conversion, 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 $36,644 loss from change in fair value and $194,167 due to conversion for the year ended September 30, 2017. 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 94%, (3) risk-free interest rate of 1.13%, (4) expected life of 0.58 of a year, and (5) estimated fair value of the Company’s common stock of $1.61 post-split ($0.0161 pre-split) per share.
As discussed in
Note 10 – Convertible Notes Payable
, the Company issued a $125,000 Convertible Promissory Notes to an unrelated party that matures on March 2, 2018. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares six months after issuance, at the holder’s option, at the conversion rate equal to a 35% discount from the lowest trading price in the fifteen 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. 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 $107,768 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $107,768 which was up to the face value of the convertible note.
EVIO, INC.
(FORMERLY SIGNAL BAY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 – DERIVATIVE LIABILITIES (CONTINUED)
During the year ended September 30, 2017, the noteholder elected to convert a total of $56,000 of principal. At September 30, 2017, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $66,537 and recorded a $2,431 loss from change in fair value and $43,662 due to conversion for the year ended September 30, 2017. The fair value of the embedded derivatives for the notes was determined using a Monte Carlo simulation model based on the following assumptions: (1) expected volatility of 132%, (2) risk-free interest rate of 1.16%, and (3) expected life of 0.42 of a year.
As discussed in
Note 10 – Convertible Notes Payable
, the Company issued a $50,000 Convertible Promissory Notes to an unrelated party that matures on August 23, 2017. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares six months after issuance, at the holder’s option, at the conversion rate equal to a 28% discount from the lowest trading price in the fifteen 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. 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 upon the note becoming convertible on February 23, 2017 was $40,037 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $40,037 which was up to the face value of the convertible note.
During the year ended September 30, 2017, the noteholder elected to convert all outstanding principal and interest due. Upon conversion, 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 $16,319 loss from change in fair value and $56,356 due to conversion for the year ended September 30, 2017. 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 70%, (3) risk-free interest rate of .82%, (4) expected life of 0.33 of a year, and (5) estimated fair value of the Company’s common stock of $2.12 post-split ($0.0212 pre-split) per share
As discussed in
Note 10 – Convertible Notes Payable
, the Company issued a $125,000 Convertible Promissory Notes to an unrelated party that matures on March 2, 2018. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares six months after issuance, at the holder’s option, at the conversion rate equal to a 35% discount from the lowest trading price in the fifteen 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. 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 $107,785 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $107,785 which was up to the face value of the convertible note.
At September 30, 2017, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $115,801 and recorded a $8,016 loss from change in fair value for the year ended September 30, 2017. The fair value of the embedded derivatives for the notes was determined using a Monte Carlo simulation model based on the following assumptions: (1) expected volatility of 132%, (2) risk-free interest rate of 1.16%, and (3) expected life of 0.42 of a year.
As discussed in
Note 10 – Convertible Notes Payable
, the Company issued a $125,000 Convertible Promissory Notes to an unrelated party that matures on March 2, 2018. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares six months after issuance, at the holder’s option, at the conversion rate equal to a 35% discount from the lowest trading price in the fifteen 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. 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 $157,523 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $125,000 which was up to the face value of the convertible note with the excess fair value at initial measurement of $32,523 being recognized as a loss on derivative fair value measurement.
At September 30, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $112,299 and recorded a $45,224 gain from change in fair value of derivatives for the year ended September 30, 2017. The fair value of the embedded derivatives for the notes was determined using a Monte Carlo simulation model based on the following assumptions: (1) expected volatility of 132%, (2) risk-free interest rate of 1.16%, and (3) expected life of 0.42 of a year.
EVIO, INC.
(FORMERLY SIGNAL BAY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 – DERIVATIVE LIABILITIES (CONTINUED)
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
|
|
Conversion
|
|
|
(1,074,754
|
)
|
Balance, September 30, 2016
|
|
$
|
775,246
|
|
The following table summarizes the derivative liabilities included in the balance sheet at September 30, 2017:
Fair Value of Embedded Derivative Liabilities:
|
|
|
|
Balance, September 30, 2016
|
|
$
|
775,246
|
|
Initial measurement of derivative liabilities
|
|
|
1,312,384
|
|
Change in fair market value
|
|
|
(195,907
|
)
|
Conversion
|
|
|
(1,597,086
|
)
|
Balance, September 30, 2017
|
|
$
|
294,637
|
|
The following table summarizes the loss on derivative liability included in the income statement for the financial years ended September 30, 2017 and 2016, respectively.
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Day one loss due to derivatives on convertible debt
|
|
$
|
481,794
|
|
|
$
|
419,862
|
|
Change in fair value of derivatives
|
|
|
(195,907
|
)
|
|
|
1,014,678
|
|
Total derivative expense
|
|
$
|
285,887
|
|
|
$
|
1,434,540
|
|
NOTE 12 – INCOME TAXES
We did not provide any current or deferred U.S. federal income tax provision or benefit for any of the periods presented because we have experienced operating losses since inception. When it is more likely than not that a tax asset cannot be realized through future income the Company must allow for this future tax benefit. We provided a full valuation allowance on the net deferred tax asset, consisting of net operating loss carry forwards, because management has determined that it is more likely than not that we will not earn income sufficient to realize the deferred tax assets during the carry forward period.
The Company has not taken a tax position that, if challenged, would have a material effect on the financial statements for the years ended September 30, 2016 and 2015 applicable under FASB ASC 740. We did not recognize any adjustment to the liability for uncertain tax position and therefore did not record any adjustment to the beginning balance of accumulated deficit on the balance sheet. All tax returns for the Company remain open.
The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before provision for income taxes. The sources and tax effects of the differences for the periods presented are as follows:
Income tax provision at the federal statutory rate
|
|
|
35
|
%
|
Effect on operating losses
|
|
|
(35
|
)%
|
|
|
|
-
|
|
Net deferred tax assets consisted of the following:
|
|
September 30,
2017
|
|
|
September 30,
2016
|
|
Net operating loss carry forward
|
|
$
|
1,076,144
|
|
|
$
|
728,834
|
|
Valuation allowance
|
|
|
(1,076,144
|
)
|
|
|
(728,834
|
)
|
Net deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
EVIO, INC.
(FORMERLY SIGNAL BAY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12
– INCOME TAXES (CONTINUED)
A reconciliation of income taxes computed at the statutory rate is as follows:
|
|
September 30, 2017
|
|
|
September 30, 2016
|
|
Computed federal income tax expense at statutory rate of 35%
|
|
$
|
(1,256,517
|
)
|
|
$
|
(893,232
|
)
|
Depreciation and amortization
|
|
|
99,748
|
|
|
|
31,309
|
|
Deferred revenue
|
|
|
14,280
|
|
|
|
-
|
|
Common stock issued for services
|
|
|
225,598
|
|
|
|
48,456
|
|
Common stock issued under employee incentive plan
|
|
|
58,102
|
|
|
|
16,266
|
|
Stock option expense
|
|
|
41,502
|
|
|
|
2,756
|
|
Amortization of debt discounts
|
|
|
299,917
|
|
|
|
73,033
|
|
Default penalties on convertible notes payable
|
|
|
-
|
|
|
|
17,930
|
|
Change in derivative liability
|
|
|
100,060
|
|
|
|
502,089
|
|
Change in valuation allowance
|
|
|
417,310
|
|
|
|
201,393
|
|
Income tax expense
|
|
$
|
-
|
|
|
$
|
-
|
|
NOTE 13 – INDUSTRY SEGMENTS
This summary reflects the Company’s current segments, as described below.
Corporate
The parent Company provides overall management and corporate reporting functions for the entire organization.
Consulting
The Company provides advisory, licensing and compliance services to the cannabis industry. Consulting clients are located in states that have state managed medical and/or recreational programs. EVIO assists these companies with license applications, business planning, state compliance and ongoing operational support.
Testing Services
The Company provides analytical testing services to the cannabis industry under the EVIO Labs brand. As of September 30, 2017, EVIO Labs has six operating labs. EVIO Labs clients are located in Oregon, California and Massachusetts and consist of growers, processors and dispensaries. Operating under the rules of the appropriate state regulating body, EVIO Labs certifies products have been tested and are free from pesticides and other containments before resale to patients and consumers.
Year ended September 30, 2017
|
|
Corporate
|
|
|
Consulting Services
|
|
|
Testing Services
|
|
|
Total Consolidated
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
324,803
|
|
|
$
|
2,696,227
|
|
|
$
|
3,021,030
|
|
Segment income (loss) from operations
|
|
|
(1,027,737
|
)
|
|
|
(344,833
|
)
|
|
|
(698,271
|
)
|
|
|
(2,070,842
|
)
|
Total assets
|
|
|
26,842
|
|
|
|
1,534,823
|
|
|
|
4,456,269
|
|
|
|
6,017,934
|
|
Capital expenditures
|
|
|
-
|
|
|
|
(1,038
|
)
|
|
|
(252,008
|
)
|
|
|
(253,046
|
)
|
Depreciation and amortization
|
|
|
-
|
|
|
|
23,895
|
|
|
|
261,097
|
|
|
|
284,993
|
|
Year ended September 30, 2016
|
|
Corporate
|
|
|
Consulting
Services
|
|
|
Testing
Services
|
|
|
Total
Consolidated
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
255,282
|
|
|
$
|
305,679
|
|
|
$
|
560,961
|
|
Segment loss from operations
|
|
|
(300,814
|
)
|
|
|
(252,512
|
)
|
|
|
(239,222
|
)
|
|
|
(792,548
|
)
|
Total assets
|
|
|
47,911
|
|
|
|
113,873
|
|
|
|
2,024,212
|
|
|
|
2,185,996
|
|
Capital expenditures
|
|
|
-
|
|
|
|
-
|
|
|
|
(11,699
|
)
|
|
|
(11,699
|
)
|
Depreciation and amortization
|
|
|
-
|
|
|
|
23,688
|
|
|
|
65,766
|
|
|
|
89,454
|
|
EVIO, INC.
(FORMERLY SIGNAL BAY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 – COMMITMENTS AND CONTINGENCIES
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.
During the year ended September 30, 2017, the Company purchased a software license for $200,000 in cash. The Company relied on the representation of the seller regarding the assignability of the license. However, independent verification of the assignability was not obtained. As a result, the Company recognized a $200,000 impairment loss on the write off of the asset. There have been no additional amounts accrued for potential losses related to the assignability of the license.
The Company has entered into various office and laboratory leases as well as a long term operating lease. Future minimum rental payments under the terms of the lease are:
Year ending September 30,
|
|
|
|
2018
|
|
|
338,963
|
|
2019
|
|
|
303,811
|
|
2020
|
|
|
265,392
|
|
2021
|
|
|
203,742
|
|
2022
|
|
|
118,410
|
|
Total
|
|
$
|
1,230,318
|
|
NOTE 15 – REVENUE CONCENTRATION
The Company generated revenues of $3,021,030 and $560,961 for the years ended September 30, 2017 and 2016, respectively. The Company did not have any customer that represented greater than 10% of revenues during the years ended September 30, 2017 or 2016.
NOTE 16 – STOCK OPTIONS AND WARRANTS
The following tables summarizes all stock option and warrant activity for the year ended September 30, 2017 and 2016:
|
|
Shares
|
|
|
Weighted-
Average
Exercise
Price
Per Share
|
|
Outstanding, September 30, 2015
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
315,000
|
|
|
|
0.449
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding, September 30, 2016
|
|
|
315,000
|
|
|
$
|
0.449
|
|
|
|
Shares
|
|
|
Weighted-
Average
Exercise Price
Per Share
|
|
Outstanding, September 30, 2016
|
|
|
315,000
|
|
|
$
|
0.449
|
|
Granted
|
|
|
380,000
|
|
|
|
1.295
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(40,000
|
)
|
|
|
1.075
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding, September 30, 2017
|
|
|
655,000
|
|
|
$
|
0.902
|
|
The following table discloses information regarding outstanding and exercisable options and warrants at September 30, 2017:
|
|
|
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
|
|
$0.400
|
|
|
|
|
150,000
|
|
|
$
|
0.400
|
|
|
|
3.88
|
|
|
|
75,000
|
|
|
$
|
0.400
|
|
$0.500
|
|
|
|
|
155,000
|
|
|
$
|
0.500
|
|
|
|
3.88
|
|
|
|
77,500
|
|
|
$
|
0.500
|
|
$1.260
|
|
|
|
|
270,000
|
|
|
$
|
1.260
|
|
|
|
4.75
|
|
|
|
-
|
|
|
$
|
1.260
|
|
$1.386
|
|
|
|
|
60,000
|
|
|
$
|
1.386
|
|
|
|
4.75
|
|
|
|
-
|
|
|
$
|
1.386
|
|
$1.300
|
|
|
|
|
10,000
|
|
|
$
|
1.300
|
|
|
|
4.05
|
|
|
|
2,500
|
|
|
$
|
1.300
|
|
$1.666
|
|
|
|
|
10,000
|
|
|
$
|
1.666
|
|
|
|
4.84
|
|
|
|
-
|
|
|
|
1.666
|
|
Total
|
|
|
|
655,000
|
|
|
$
|
0.902
|
|
|
|
4.33
|
|
|
|
155,000
|
|
|
$
|
0.465
|
|
In determining the compensation cost of the stock options granted, the fair value of each option grant has been estimated on the date of grant using the Black-Scholes option pricing model. The assumptions used in these calculations are summarized as follows:
|
|
September 30,
2017
|
|
Expected term of options granted
|
|
5 years
|
|
Expected volatility
|
|
|
2.68
|
%
|
Risk-free interest rate
|
|
|
1.89
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
EVIO, INC.
(FORMERLY SIGNAL BAY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 – STOCK OPTIONS AND WARRANTS (CONTINUED)
The following table discloses information regarding outstanding and exercisable options and warrants at September 30, 2016:
|
|
|
Outstanding
|
|
|
Exercisable
|
|
Exercise Prices
|
|
|
Number of Option Shares
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Life (Years)
|
|
|
Number of Option Shares
|
|
|
Weighted Average Exercise Price
|
|
$0.400
|
|
|
|
|
160,000
|
|
|
$
|
0.400
|
|
|
|
4.88
|
|
|
|
-
|
|
|
$
|
0.400
|
|
$0.500
|
|
|
|
|
155,000
|
|
|
$
|
0.500
|
|
|
|
4.88
|
|
|
|
-
|
|
|
$
|
0.500
|
|
Total
|
|
|
|
315,000
|
|
|
$
|
0.449
|
|
|
|
4.88
|
|
|
|
-
|
|
|
$
|
0.000
|
|
In determining the compensation cost of the stock options granted, the fair value of each option grant has been estimated on the date of grant using the Black-Scholes option pricing model. The assumptions used in these calculations are summarized as follows:
|
|
September 30,
2016
|
|
Expected term of options granted
|
|
5 years
|
|
Expected volatility
|
|
|
409
|
%
|
Risk-free interest rate
|
|
|
1.14
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
NOTE 17 – SUBSEQUENT EVENTS
Employment Agreements
On December 27, 2017, the Company entered into employment agreements with its Chief Executive Officer, Chief Operating Officer, President and amended the agreement of its Chief Science Officer. Each agreement is effective January 1, 2018.
The agreement with our Chief Executive Officer carries a three year term with a base salary of $150,000 annually plus a car allowance of $750 monthly. Additionally, 450,000 stock options were granted with an exercise price of $0.80 which will vest quarterly over a two year period.
The agreement with our Chief Operating Officer carries a three year term with a base salary of $150,000 annually plus a car allowance of $500 monthly. Additionally, 750,000 stock options were granted with an exercise price of $0.80 which will vest quarterly over a two year period.
EVIO, INC.
(FORMERLY SIGNAL BAY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 – SUBSEQUENT EVENTS (CONTINUED)
Employment Agreements (Continued)
The agreement with our newly appointed President carries a two year term. Under the terms of the agreement, total compensation will be $24,000 cash annually plus a total of 450,000 common shares which vest quarterly over a two year period.
The agreement with our Chief Science Officer carries a three year term with a base salary of $120,000 annually plus a car allowance of $350 monthly. Additionally, 250,000 stock options were granted with an exercise price of $0.80 which will vest quarterly over a two year period.
Common Stock Issuances
The Company made the following issuances of common stock subsequent to September 30, 2017:
|
·
|
1,245,000 common shares issued for cash at $0.40 per share resulting in total cash proceeds of $498,000.
|
|
|
|
|
·
|
219,320 common shares for the conversion of 92,728 shares of Series D Preferred Stock.
|
|
|
|
|
·
|
324,000 common shares payable valued at $162,000 for the settlement of a non-convertible note totaling $126,600 resulting in a loss on settlement of $35,400.
|
|
|
|
|
·
|
125,000 common shares valued at $62,500 for the conversion of $50,000 of a related party note payable. The conversion was performed at the contractual terms of the note payable.
|
|
|
|
|
·
|
37,500 common shares valued at $18,750 for the settlement of $15,000 of accounts payable resulting in a loss on settlement of $3,750.
|
|
|
|
|
·
|
7,000 common shares valued at $7,755 for the vesting of restricted stock grants for officers and directors
|
|
|
|
|
·
|
25,000 common shares valued at $32,210 for the vesting of restricted stock grants for consultants
|
|
|
|
|
·
|
224,750 common shares for services valued at $214,480
|
|
|
|
|
·
|
934,079 common shares for the conversion of $330,336 of outstanding principal on convertible notes payable and 17,458 common shares for the conversion of $6,548 of accrued interest on convertible notes payable. All conversions were performed at contractual terms.
|
|
|
|
|
·
|
15,000 common shares valued at $12,150 subject to vesting requirements of a consulting agreement with a contracted Chief Information Officer. The agreement requires a total of 60,000 common shares be issued which vest in equal quarterly amounts of 15,000 shares effective October 16, 2017.
|
|
|
|
|
·
|
50,000 common shares valued at $68,000 subject to vesting requirements of an employment agreement with our President. The agreement requires a total of 450,000 common shares be issued which vest in quarterly amounts of 50,000 shares from January 2018 to December 2018 then 62,500 quarterly for January 2019 to December 2019 so that a total of 450,000 common shares are earned over the course of two years.
|
Stock Option Issuances
In addition to the stock options discussed under Employment Agreements, on November 1, 2017 the Company issued 75,000 stock options with an exercise price of $0.65. The shares vest in equal 18,750 installments each six months so that all options are vested upon the two year anniversary of the grant.
Acquisitions
On January 1, 2018, the Company completed its acquisition of C3 Labs, LLC (“C3 Labs”). In consideration of a 60% ownership, the Company issued a $500,000 convertible note payable which carries no interest and matures on June 30, 2018. Upon maturation, the note will convert to common stock of the Company at $0.75 per share. Additionally, the Company issued a $100,000 note payable due on March 31, 2018.
The Company has been granted two options to purchase additional interest of C3 Labs subject to the following terms and conditions.
(a) 30% Option. Effective as of Closing and terminating the date three (3) years from the Closing Date, the C3 Members hereby collectively grant EVIO the right to ratably purchase from the C3 Members an aggregate of 30% of the Interests in C3 LABS following the issuance of 60% of the Interests to EVIO. EVIO may exercise its option by providing C3 LABS and the C3 Members written notice of its intent to exercise the option. The C3 Members shall have three (3) days following the date of such notice to execute assignments of Interests totaling 30% of the then outstanding membership interests in C3 LABS in favor of EVIO California. If EVIO should elect to exercise its option within nine (9) months from the Closing Date, the exercise price for the 30% of Interests shall be $450,000.00, to be paid in cash or EVIO’s common stock, as agreed by the C3 Members. If EVIO does not exercise the option within nine (9) months from the Closing Date, the exercise price shall be set by mutual agreement between the parties or, if no such agreement can be reached, as determined by an independent third-party valuation by an appraiser agreed to by the parties.
(b) 10% Option. Effective as of three (3) years after the Closing Date and terminating the date twenty four (24) months therefrom, the C3 Members hereby collectively grant EVIO the right to ratably purchase from the C3 Members an aggregate of 10% of the then outstanding Interests in C3 LABS (comprising the remaining Interests not owned by EVIO). EVIO may exercise its option by providing C3 LABS and the C3 Members written notice of its intent to exercise the option. The C3 Members shall have three (3) days following the date of such notice to execute assignments of Interests totaling 10% of the then outstanding membership interests in C3 LABS in favor of EVIO. Upon notice of its intent to exercise the option granted hereby, the exercise price shall be set by mutual agreement between the parties or, if no such agreement can be reached, as determined by an independent third-party valuation by an appraiser agreed to by the parties.