The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018
NOTE 1 – ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
EVIO, Inc., a Colorado corporation and its subsidiaries (“the Company”, “EVIO”, “EVIO Labs”, “we”, “us”, or “our”) provide analytical testing and advisory services to the developing legalized cannabis and hemp industries. The Company operates both corporate owned and licensed laboratories through-out North America. Our laboratories provide testing for both cannabis and hemp products at all our labs.
Oregon: The Company operates two OLCC licensed and ORELAP accredited laboratories in Oregon. EVIO Labs Portland, located in Tigard, OR, is 100% owned by EVIO. EVIO Labs Medford, located in Central Point, OR is 80% owned by EVIO.
California: The Company operates one BCC licensed and ISO 17025 accredited laboratory in Berkeley serving both the cannabis and hemp markets in the state and the hemp market nationwide. EVIO owns 90% of this company.
Massachusetts: The Company is completing the relocation and re-accreditation of our laboratory in the state.
Florida: The Company licenses its brand to Kaycha Holdings, which operates two ISO 17025 accredited laboratories in the state.
Colorado: The Company licenses its brand to Kaycha Holdings, which operates one ISO 17025 accredited laboratory in the state.
Canada: The Company operates one Health Canada licensed, GMP certified laboratory, in Edmonton, Alberta. EVIO owns 50% of this company.
Basis of Presentation
The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s most recent Annual Financial Statements filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim period presented have been reflected herein. The results of operations for the interim period are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited consolidated financial statements for the most recent fiscal period, as reported in the Form 10-K, have been omitted.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. The core principle of the new revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:
|
·
|
Step 1: Identify the contract with the customer
|
|
·
|
Step 2: Identify the performance obligations in the contract
|
|
·
|
Step 3: Determine the transaction price
|
|
·
|
Step 4: Allocate the transaction price to the performance obligations in the contract
|
|
·
|
Step 5: Recognize revenue when the company satisfies a performance obligation
|
The Company generates revenue from consulting services, licensing agreements and testing of cannabis and hemp products for medicinal and adult-use consumption.
The Company accounts for a contract after it has been approved by all parties to the arrangement, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.
The Company evaluates the services promised in each contract at inception to determine whether the contract should be accounted for as having one or more performance obligations. The Company’s services included in its contracts are distinct from one another.
The Company determines the transaction price for each contract based on the consideration it expects to receive for the distinct services being provided under the contract.
The Company recognizes revenue as performance obligations are satisfied and the customer obtains control of the services provided. In determining when performance obligations are satisfied, the Company considers factors such as contract terms, payment terms and whether there is an alternative future use of the service.
The Company recognizes revenue from testing services upon delivery of its testing results to the client. Customer orders for testing services are generally completed within two weeks of receiving the order.
Consulting engagements may vary in length and scope, but will generally include the review and/or preparation of regulatory filings, business plans and financial models, operating plans, and technology support to customers within the same industry. Revenue from consulting services is recognized upon completion of deliverables as outlined in the consulting agreement.
The Company recognizes revenue from right of use license agreements upon transfer of control of the functional intellectual property. In certain licensing agreements, the Company may receive royalty revenues based upon performance metrics which are recognized as earned over time.
Foreign Currency Translation
The functional currency of the Company’s subsidiary in Canada is the Canadian Dollar. The subsidiary’s assets and liabilities have been translated to U.S. Dollars using the exchange rates in effect at the balance sheet dates. Statements of operations amounts have been translated using the average exchange rate for each period. Resulting gains or losses from translating foreign currency financial statements are recorded as other comprehensive income (loss).
Fair Value of Financial Instruments
The Company has adopted the guidance under ASC Topic 820 for financial instruments measured on a fair value on a recurring basis. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.
Net Income (Loss) Per Share
Basic loss per share is computed by dividing net income, or loss, by the weighted average number of shares of common stock outstanding for the period. Diluted earnings (loss) per share is computed by dividing net income, or loss, by the weighted average number of shares of common stock outstanding for the period. There were 13,666,226 and 10,071,182 potentially dilutive common shares outstanding as of December 31, 2018 and 2017, respectively. Because of the net losses incurred during the three months ended December 31, 2018 and 2017, the impacts of dilutive instruments would have been anti-dilutive for the period presented and have been excluded from the diluted loss per share calculations.
Accounting Pronouncements – Current Fiscal Quarter Adoption
In February 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2016-02, Leases (Topic 842). This ASU requires lessees to account for leases as either finance or operating leases and generally requires all lease to be recorded on the balance sheet, through the recognition of right-of-use assets and corresponding lease liabilities. In addition, in July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which provide an additional (and optional) transition method whereby the new lease standard is applied at the adoption and recognized as an adjustment to retained earnings.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to recognize assets and liabilities for most leases. ASU 2016-02 is effective for public entity financial statements for annual periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted, including adoption in an interim period. ASU 2016-02 was further clarified and amended within ASU 2018-01, ASU 2018-10, ASU 2018-11 and ASU 2018-20 which included provisions that would provide us with the option to adopt the provisions of the new guidance using a modified retrospective transition approach, without adjusting the comparative periods presented. The Company is currently evaluating ASU 2016-02 and its impact on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment”. The amendments in this update simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. This update is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 31, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing after January 1, 2017. The Company notes that this guidance applies to its reporting requirements and will implement the new guidance accordingly in performing goodwill impairment testing; however, the Company does not believe this update will have a material impact on the consolidated financial statements.
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
NOTE 2 – GOING CONCERN
The Company’s financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company has negative working capital, recurring losses, and does not have an established source of revenues sufficient to cover its operating costs. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plan described in the preceding paragraph and eventually attain profitable operations. The accompanying financial statements do not include any adjustments that may be necessary if the Company is unable to continue as a going concern.
In the coming year, the Company’s foreseeable cash requirements will relate to continual development of the operations of its business, maintaining its good standing and making the requisite filings with the Securities and Exchange Commission, and the payment of expenses associated with operations and business developments. The Company may experience a cash shortfall and be required to raise additional capital.
Historically, it has mostly relied upon convertible debentures, convertible promissory notes, internally generated funds such as shareholder loans and advances to finance its operations and growth. Management may raise additional capital by retaining net earnings or through future public or private offerings of the Company’s stock or through loans from private investors, although there can be no assurance that it will be able to obtain such financing. The Company’s failure to do so could have a material and adverse effect upon it and its shareholders.
NOTE 3 – FAIR VALUE OF FINANCIAL INSTRUMENTS
ASC Topic 820 establishes a fair value hierarchy, giving the highest priority to quoted prices in active markets and the lowest priority to unobservable data and requires disclosures for assets and liabilities measured at fair value based on their level in the hierarchy. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:
|
·
|
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
|
|
·
|
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
|
|
·
|
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
|
The Company’s financial instruments consist principally cash, accounts payable, and accrued liabilities. The carrying values of these financial instruments approximate their fair value due to their short maturities. The carrying amount of the Company’s debt approximates fair value because the interest rates on these instruments approximate the interest rate on debt with similar terms available to the Company.
The Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities from Equity” and ASC 815, “Derivatives and Hedging”. Derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives. The effects of interactions between embedded derivatives are calculated and accounted for in arriving at the overall fair value of the financial instruments. In addition, the fair value of freestanding derivative instruments such as warrant and option derivatives are valued using the Monte Carlo simulation model.
The Company’s derivative liabilities were adjusted to fair market value at the end of each reporting period, using Level 3 inputs.
The following table sets forth by level with the fair value hierarchy the Company’s financial assets and liabilities measured at fair value on December 31, 2018:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
678,689
|
|
|
$
|
678,689
|
|
The following table sets forth by level with the fair value hierarchy the Company’s financial assets and liabilities measured at fair value on September 30, 2018:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,181,278
|
|
|
$
|
1,181,278
|
|
NOTE 4 –LEASES
The Company determines if an arrangement is a lease at inception and has lease agreements for warehouses, office facilities, and equipment. These commitments have remaining non-cancelable lease terms, with lease expirations which range from 2020 to 2024.
As a result of the adoption of ASC 842, certain real estate and equipment operating leases have been recorded on the balance sheet with a lease liability and right-of-use asset (“ROU”). Application of this standard resulted in the recognition of ROU assets of $2,781,238, net of accumulated amortization, and a corresponding lease liability of $2,828,361 at the October 1, 2018, date of adoption. Accounting for finance leases is substantially unchanged.
Operating leases are included in operating lease ROU assets, operating lease obligations, current, and operating lease obligations, long term on the condensed consolidated balance sheets. Finance leases are included in property and equipment, finance lease obligations, short term, and finance lease obligations, long term, on the condensed consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make scheduled lease payments. ROU assets and liabilities are recognized on the lease commencement date based on the present value of lease payments over the lease term. The present value of lease payments is calculated using the incremental borrowing rate at lease commencement, which takes into consideration recent debt issuances as well as other applicable market data available.
Amortization of lease assets is included in general and administrative expenses. The future minimum lease payments of lease liabilities as of December 31, 2018, are as follows:
Year ended September 30,
|
|
Operating
Leases
|
|
|
Financing
Leases
|
|
2019
|
|
|
658,479
|
|
|
$
|
474,666
|
|
2020
|
|
|
736,261
|
|
|
|
370,083
|
|
2021
|
|
|
503,364
|
|
|
|
350,669
|
|
2022
|
|
|
483,596
|
|
|
|
156,351
|
|
2023
|
|
|
323,356
|
|
|
|
166,856
|
|
Thereafter
|
|
|
27,911
|
|
|
|
55,004
|
|
Total lease payments
|
|
|
2,732,967
|
|
|
|
1,573,629
|
|
Less: Payments Made
|
|
|
(166,897
|
)
|
|
|
(270,326
|
)
|
Total Lease Liabilities
|
|
$
|
2,566,070
|
|
|
$
|
1,303,303
|
|
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 December 31, 2018 and September 30, 2018 consist of:
|
|
December 31,
2018
|
|
|
September 30,
2018
|
|
Customer list
|
|
$
|
839,207
|
|
|
$
|
865,672
|
|
License
|
|
|
503,000
|
|
|
|
503,000
|
|
Favorable lease
|
|
|
3,100
|
|
|
|
3,100
|
|
Websites
|
|
|
49,295
|
|
|
|
49,690
|
|
Non-compete agreements
|
|
|
179,625
|
|
|
|
184,563
|
|
Assembled Workforce
|
|
|
50,750
|
|
|
|
50,750
|
|
Intellectual Property
|
|
|
325,092
|
|
|
|
342,610
|
|
Total
|
|
|
1,950,069
|
|
|
|
1,999,385
|
|
Accumulated amortization
|
|
|
(411,487
|
)
|
|
|
(318,815
|
)
|
Net value
|
|
$
|
1,538,582
|
|
|
$
|
1,680,570
|
|
The Company estimates amortization to be recorded on existing intangible assets from December 31, 2018 through the estimated lives to be:
|
|
Amortization
|
|
2019
|
|
$
|
282,818
|
|
2020
|
|
|
343,273
|
|
2021
|
|
|
304,689
|
|
2022
|
|
|
235,509
|
|
2023
|
|
|
195,533
|
|
2024
|
|
|
123,382
|
|
2025
|
|
|
43,243
|
|
2026
|
|
|
2,317
|
|
2027
|
|
|
2,317
|
|
2028
|
|
|
2,317
|
|
2029
|
|
|
2,317
|
|
2030
|
|
|
868
|
|
Total
|
|
$
|
1,538,582
|
|
NOTE 6 – CONCENTRATION OF CREDIT RISK
Instruments that potentially subject the Company to concentration of credit risk consist principally of cash deposits, notes receivable and accounts receivable. As of December 31, 2018, 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 December 31, 2018 and September 30, 2018, the Company had a note receivable totaling $1,300,000 and $1,300,000 due from a single entity.
As of December 31, 2018, the Company had total accounts receivable net of allowances of $251,655. Three separate clients comprised a total of 36% of this balance as follows:
|
|
Balance
|
|
|
Percent of
Total
|
|
Customer 1
|
|
$
|
180,000
|
|
|
|
27
|
%
|
Customer 2
|
|
|
34,268
|
|
|
|
5
|
%
|
Customer 3
|
|
|
27,317
|
|
|
|
4
|
%
|
All others
|
|
|
427,680
|
|
|
|
64
|
%
|
Total
|
|
|
669,265
|
|
|
|
100
|
%
|
Allowance for doubtful accounts
|
|
|
(417,610
|
)
|
|
|
|
|
Net accounts receivable
|
|
$
|
251,655
|
|
|
|
|
|
As of September 30, 2018, the Company had total accounts receivable, net of allowances, of $234,178. Three separate clients comprised a total of 38% of this balance as follows:
|
|
Balance
|
|
|
Percent of
Total
|
|
Customer 1
|
|
$
|
180,000
|
|
|
|
28
|
%
|
Customer 2
|
|
|
32,750
|
|
|
|
5
|
%
|
Customer 3
|
|
|
30,000
|
|
|
|
5
|
%
|
All others
|
|
|
405,903
|
|
|
|
62
|
%
|
Total
|
|
|
648,653
|
|
|
|
100
|
%
|
Allowance for doubtful accounts
|
|
|
(414,475
|
)
|
|
|
|
|
Net accounts receivable
|
|
$
|
234,178
|
|
|
|
|
|
NOTE 7 – PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Expenditures for maintenance and repairs are expensed in the period incurred. Renewals and betterments that materially extend the life of the assets are capitalized. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income for the period.
Depreciation is computed for financial statement purposes on a straight-line basis over estimated useful lives of the related assets and the modified accelerated cost recovery system for federal income tax purposes. The estimated useful lives of depreciable assets are:
|
|
Estimated
|
|
|
Useful Lives
|
Building
|
|
39 years
|
Laboratory and Computer Equipment
|
|
5 years
|
Furniture and Fixtures
|
|
7 years
|
Software
|
|
3 years
|
Domains
|
|
15 years
|
The Company’s property and equipment consisted of the following as of December 31, 2018 and September 30, 2018:
|
|
December 31,
2018
|
|
|
September 30,
2018
|
|
Assets Not-In-Service
|
|
$
|
-
|
|
|
$
|
455,540
|
|
Capital Assets
|
|
|
1,256,073
|
|
|
|
535,095
|
|
Land
|
|
|
212,550
|
|
|
|
212,550
|
|
Buildings & Real Estate
|
|
|
941,857
|
|
|
|
937,450
|
|
Furniture and Equipment
|
|
|
182,463
|
|
|
|
189,459
|
|
Laboratory Equipment
|
|
|
2,798,429
|
|
|
|
2,468,141
|
|
Software
|
|
|
78,848
|
|
|
|
63,913
|
|
Leasehold Improvements
|
|
|
433,400
|
|
|
|
303,331
|
|
Vehicles
|
|
|
83,915
|
|
|
|
83,915
|
|
Total
|
|
|
5,987,535
|
|
|
|
5,249,394
|
|
Accumulated depreciation
|
|
|
(874,745
|
)
|
|
|
(644,291
|
)
|
Net value
|
|
$
|
5,112,790
|
|
|
$
|
4,605,103
|
|
During the three months ended December 31, 2018, the Company capitalized a total of $738,141 of equipment and depreciation expense of $230,454.
NOTE 8 – RELATED PARTY TRANSACTIONS
During the three months ended December 31, 2018, the Company received loans from its Chief Operating Officer totaling $10,000 and made repayments totaling $0 leaving a balance due as of December 31, 2018 of $10,000. The advances are non-interest bearing and due on demand. There was $10,000 and $0 due as of December 31, 2018 and September 30, 2018 and is included in the accompanying consolidated balance sheets as a current portion of notes payable to related parties.
During the three months ended December 31, 2018 the Company made no payments to Sara Lausmann, associated with the asset purchase of Oregon Analytical Services, LLC. There was $580,299 of principal due as of December 31, 2018 and September 30, 2018. The note carries interest at a rate of 5% per annum and had accrued interest totaling $86,609 and $79,295 due as of December 31, 2018 and September 30, 2018, respectively.
During the three months ended December 31, 2018, the Company made no payments to Anthony Smith, our Chief Science Officer, associated with the purchase of 80% of Smith Scientific Industries. There was $236,000 of principal due as of December 31, 2018 and September 30, 2018. The note carries interest at a rate of 5% per annum and had accrued interest totaling $33,935 and $30,960 due as of December 31, 2018 and September 30, 2018, respectively.
During the three months ended December 31, 2018, the Company made repayments to Henry Grimmett, prior Company Director (retired April 2018), on an outstanding loan from member assumed by the Company, totaling a note payable of Greenhaus Analytical Services, LLC, totaling $3,858.85. There was $113,554 and $117,412 of principal due as of December 31, 2018 and September 30, 2018, respectively. The note bears interest at 0% per annum and requires repayments of $25,000 quarterly.
During the three months ended December 31, 2018, the Company made no payments to Henry Grimmett, prior Company Director (retired April 2018), associated with the acquisition of Greenhaus Analytical Services, LLC. The Company entered into a $340,000 note payable as part of its acquisition of Greenhaus Analytical Services, LLC. The note carries interest at a rate of 6% per annum and matures on October 16, 2020. There was $340,000 of principal, an unamortized debt discount of $45,567 and $51,971 as of December 31, 2018 and September 30, 2018, respectively and $45,048 and $39,905 of accrued interest due as of December 31, 2018 and September 30, 2018, respectively.
During the three months ended December 31, 2018, the Company received $59,254 from a related party associate with Keystone Labs and made repayment of $1,941, leaving balances due of $210,498 and $153,177 as of December 31, 2018 and September 30, 2018, respectively. Amounts have been adjusted for USD. The advances are non-interest bearing and due on demand and is included in the accompanying consolidated balance sheets as a current portion of notes payable to related parties.
NOTE 9 – STOCKHOLDERS’ EQUITY
Series A Convertible Preferred Stock
The Company has 0 shares of Series A Convertible Stock issued and outstanding as of December 31, 2018 and 2017.
Series B Convertible Preferred Stock
The Company designated 5,000,000 shares of Series B Convertible Preferred Stock (“Series B Preferred Stock”) with a par value of $0.0001 per share. The Company has 5,000,000 shares of Series B Convertible Stock issued and outstanding as of December 31, 2018 and 2017. These shares converted to common stock at a rate of 1 common share per each shares of Series B Convertible Preferred Stock.
Series C Convertible Preferred Stock
The Company designated 500,000 shares of Series C Convertible Preferred Stock (“Series C Preferred Stock”) with a par value of $0.0001 per share. There were 500,000 shares of Series C Convertible Stock issued and outstanding as of December 31, 2018 and 2017. These shares converted to common stock at a rate of 5 common shares per each shares of Series C Convertible Preferred Stock.
Series D Convertible Preferred Stock
The Company designated 1,000,000 shares of Series D Convertible Preferred Stock (“Series D Preferred Stock”) with a par value of $0.0001 per share. These shares converted to common stock at a rate of 2.5 common shares per each shares of Series D Convertible Preferred Stock.
During the three months ended December 31, 2018, the Company accepted two separate conversion notices from Series D Preferred Stockholders resulting in a total of 95,000 shares of common stock being issued for the conversion of 38,000 shares of Series D Preferred Stock.
During the three months ended December 31, 2017, the Company accepted two separate conversion notices from Series D Preferred Stockholders resulting in a total of 219,320 shares of common stock being issued for the conversion of 87,728 shares of Series D Preferred Stock.
There were 514,500 and 744,772 shares of Series D Convertible Stock issued and outstanding as December 31, 2018 and December 31, 2017, respectively.
Common Stock
During the quarter ended December 31, 2018, the Company issued 250,000 common shares valued at $128,400 for services; 200,000 common shares for cash proceeds of $106,000; 50,000 common shares valued at $35,875 under its employee equity incentive plan; 779,808 common shares for the conversion of $317,100 of outstanding principal on convertible notes payable; 669,362 common shares for the conversion of $388,000 of convertible debentures; 10,163 common shares for conversion of interest payable of $2,988, and 95,000 common shares for the conversion of Preferred Series D stock. All conversions of outstanding principal and accrued interest on convertible notes payable were done so at contractual terms.
During the quarter ended December 31, 2017, the Company issued 239,759 common shares valued at $241,527 for services; 1,245,000 common shares for cash proceeds of $498,000; 15,000 common shares valued at $6,564 under its employee equity incentive plan; 900,793 common shares for the conversion of $319,000 of outstanding principal on convertible notes payable; 324,000 common shares for the settlement of $162,000 of notes payable; 37,500 common shares for the settlement of $18,750 of notes payable; 125,000 common shares for conversion of related party notes payable of $62,500, 50,743 common shares for conversion of interest payable of $17,884, and 219,320 common shares for the conversion of Preferred Series D stock. All conversions of outstanding principal and accrued interest on convertible notes payable were done so at contractual terms.
There were 25,309,725 and 13,890,028 shares of common stock issued and outstanding at December 31, 2018 and December 31, 2017, respectively.
NOTE 10 – LOANS PAYABLE
The Company had the following loans payable outstanding as of December 31, 2018 and September 30, 2018:
|
|
December 31,
2018
|
|
|
September 30,
2018
|
|
On March 16, 2017, the Company executed notes payable for the purchase of three vehicles. The notes carry interest at 6.637% annually and mature on March 31, 2023.
|
|
|
58,280
|
|
|
|
60,477
|
|
On September 6, 2017, the Company entered into a note payable totaling $1,000,000 for the purchase of an outstanding note receivable. The note carries interest at 8% annually and is due on July 6, 2018.
|
|
|
500,000
|
|
|
|
500,000
|
|
On June 28, 2018, the Company executed a note payable for $650,000 for the purchase of the building at 14775 SW 74th Ave, Tigard, OR. The note carries interest at 8% annually and is due on June 28, 2021.
|
|
|
640,482
|
|
|
|
646,231
|
|
On July 5, 2018, the Company executed a note payable for $750,000 for the asset purchase of MRX Labs. The note carries interest at 8% annually and is due on January 5, 2019.
|
|
|
750,000
|
|
|
|
750,000
|
|
|
|
|
1,948,762
|
|
|
|
1,956,708
|
|
Less: unamortized original issue discounts
|
|
|
-
|
|
|
|
-
|
|
Total loans payable
|
|
|
1,948,762
|
|
|
|
1,956,708
|
|
Less: current portion of loans payable
|
|
|
1,287,951
|
|
|
|
762,927
|
|
|
|
|
|
|
|
|
|
|
Long-term portion of loans payable
|
|
$
|
660,811
|
|
|
$
|
1,193,781
|
|
As of December 31, 2018 and September 30, 2018, the Company accrued interest of $98,472 and $47,767 respectively
NOTE 11 – CONVERTIBLE NOTES PAYABLE
The Company has entered into convertible notes payable that convert to common stock of the Company at variable conversion prices. As further discussed in Note 13 – Derivative Liability, the Company analyzed the conversion features of the agreements for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The following table summarizes all convertible notes outstanding as of September 30, 2018:
Holder
|
|
Issue Date
|
|
Due Date
|
|
Principal
|
|
|
Unamortized Debt Discount
|
|
|
Carrying
Value
|
|
|
Accrued
Interest
|
|
Noteholder 2
|
|
7/2/18
|
|
10/1/18
|
|
|
220,000
|
|
|
|
(220
|
)
|
|
|
219,780
|
|
|
|
4,340
|
|
Noteholder 3
|
|
7/2/18
|
|
10/1/18
|
|
|
220,000
|
|
|
|
(220
|
)
|
|
|
219,780
|
|
|
|
4,340
|
|
Noteholder 4
|
|
8/1/18
|
|
10/1/18
|
|
|
330,000
|
|
|
|
(492
|
)
|
|
|
329,508
|
|
|
|
-
|
|
Noteholder 1
|
|
8/14/18
|
|
8/14/19
|
|
|
167,100
|
|
|
|
(13,591
|
)
|
|
|
153,509
|
|
|
|
2,839
|
|
Noteholder 5
|
|
8/29/18
|
|
2/28/19
|
|
|
222,222
|
|
|
|
(78,670
|
)
|
|
|
143,552
|
|
|
|
-
|
|
Noteholder 6
|
|
9/6/18
|
|
9/6/19
|
|
|
125,000
|
|
|
|
(89,921
|
)
|
|
|
35,079
|
|
|
|
-
|
|
Noteholder 3
|
|
9/13/18
|
|
3/11/19
|
|
|
585,000
|
|
|
|
(513,062
|
)
|
|
|
71,938
|
|
|
|
-
|
|
Noteholder 7
|
|
9/17/18
|
|
9/17/19
|
|
|
62,500
|
|
|
|
(57,381
|
)
|
|
|
5,119
|
|
|
|
-
|
|
Noteholder 10
|
|
4/24/18
|
|
4/24/19
|
|
|
500,000
|
|
|
|
0
|
|
|
|
500,000
|
|
|
|
-
|
|
|
|
|
|
|
|
$
|
2,431,822
|
|
|
$
|
(753,557
|
)
|
|
$
|
1,678,265
|
|
|
$
|
11,519
|
|
The following table summarizes all convertible notes outstanding as of December 31, 2018:
Holder
|
|
Issue Date
|
|
Due Date
|
|
Principal
|
|
|
Unamortized Debt Discount
|
|
|
Carrying
Value
|
|
|
Accrued
Interest
|
|
Noteholder 2
|
|
7/2/18
|
|
10/1/18
|
|
|
220,000
|
|
|
|
0
|
|
|
|
220,000
|
|
|
|
8,776
|
|
Noteholder 3
|
|
7/2/18
|
|
10/1/18
|
|
|
220,000
|
|
|
|
0
|
|
|
|
220,000
|
|
|
|
8,776
|
|
Noteholder 4
|
|
8/1/18
|
|
10/1/18
|
|
|
330,000
|
|
|
|
0
|
|
|
|
330,000
|
|
|
|
10,994
|
|
Noteholder 5
|
|
8/29/18
|
|
2/28/19
|
|
|
222,222
|
|
|
|
(14,067
|
)
|
|
|
208,155
|
|
|
|
3,775
|
|
Noteholder 6
|
|
9/6/18
|
|
9/6/19
|
|
|
125,000
|
|
|
|
(59,332
|
)
|
|
|
65,668
|
|
|
|
3,972
|
|
Noteholder 3
|
|
9/13/18
|
|
3/11/19
|
|
|
435,000
|
|
|
|
(163,770
|
)
|
|
|
271,230
|
|
|
|
0
|
|
Noteholder 7
|
|
9/17/18
|
|
9/17/19
|
|
|
62,500
|
|
|
|
(40,264
|
)
|
|
|
22,236
|
|
|
|
1,798
|
|
Noteholder 4
|
|
10/02/18
|
|
1/1/19
|
|
|
220,000
|
|
|
|
(2,418
|
)
|
|
|
217,582
|
|
|
|
4,340
|
|
Noteholder 8
|
|
11/15/18
|
|
11/15/19
|
|
|
222,600
|
|
|
|
(194,546
|
)
|
|
|
28,054
|
|
|
|
2,244
|
|
Noteholder 9
|
|
12/27/18
|
|
12/27/10
|
|
|
105,000
|
|
|
|
(104,136
|
)
|
|
|
863
|
|
|
|
69
|
|
Noteholder 10
|
|
4/24/18
|
|
4/24/19
|
|
|
500,000
|
|
|
|
|
|
|
|
500,000
|
|
|
|
0
|
|
|
|
|
|
|
|
$
|
2,662,322
|
|
|
$
|
(578,535
|
)
|
|
$
|
2,083,787
|
|
|
$
|
44,744
|
|
Noteholder 1
On August 14, 2017, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $275,600 of which $15,600 was an original issue discount and $10,000 was paid directly to third parties resulting in cash proceeds to the Company of $250,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, is due on August 14, 2018. The Note is convertible into the Company’s common stock commencing 180 days from the date of issuance at a conversion price equal to 75% of the lowest trade price of the Company’s common stock for the fifteen prior trading days including the date of conversion. During the year ended September 30, 2018, the holder elected to convert $167,100 of principal due in exchange for 479,848 shares of common stock and the holder elected to convert $2,988 of interest due in exchange for 10,163 shares of common stock. There was $0 and $167,100 of principal and $0 and $2,839 of accrued interest due at December 31, 2018 and September 30, 2018, respectively.
Noteholder 2
On July 2, 2018, the Company sold and issued a Convertible Promissory to an unrelated party for the principal amount of $220,000 of which $20,000 was an original issue discount and $17,000 was paid directly to third parties resulting in cash proceeds to the Company of $183,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, is due on October 1, 2018. The principal amount of the note and any accrued interest thereon are convertible at the option of the holder into common shares of the Company at any time at a conversion price of $0.60 per share. There was $220,000 and $220,000 of principal and $8,776 and $4,340 of accrued interest due December 31, 2018 and September 30, 2018, respectively.
Noteholder 3
On July 2, 2018, the Company sold and issued a Convertible Promissory to an unrelated party for the principal amount of $220,000 of which $20,000 was an original issue discount resulting in cash proceeds to the Company of $200,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, is due on October 1, 2018. The principal amount of the note and any accrued interest thereon are convertible at the option of the holder into common shares of the Company at any time at a conversion price of $0.60 per share. There was $220,000 and $220,000 of principal and $8,776 and $4,340 of accrued interest due December 31, 2018 and September 30, 2018, respectively.
On September 17, 2018, the Company entered into an exchange agreement with an unrelated party for the principal amount $585,000, of which the loan payable to Palliatech, Dated August 1, 2017, outstanding and principal of $549,652 would be assumed by the new note holder, with difference of $35,348 to be treated as an original issue discount. The new convertible note payable carries an interest rate of 0% per annum is convertible into common stock of the Company at the option of the noteholder immediately at 80% of the lowest volume weighted average price of the Company’s common stock in the preceding 20 trading days. There was $435,000 of principal and $0 accrued interest due on both December 31, 2018 and September 30, 2018.
Noteholder 4
On August 1, 2018, the Company sold and issued a Convertible Promissory to an unrelated party for the principal amount of $330,000 of which $30,000 was an original issue discount resulting in cash proceeds to the Company of $300,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, was due on October 1, 2018. The principal amount of the note and any accrued interest thereon are convertible at the option of the holder into common shares of the Company at any time at a conversion price of $0.60 per share. There was $330,000 and $330,000 of principal and $10,994 and $0 of accrued interest due at December 31, 2018 and September 30, 2018, respectively.
On October 2, 2018, the Company sold and issued a Convertible Promissory to an unrelated party for the principal amount of $220,000 of which $20,000 was an original issue discount resulting in cash proceeds to the Company of $200,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, is due on January 1, 2019. The principal amount of the note and any accrued interest thereon are convertible at the option of the holder into common shares of the Company at any time at a conversion price of $0.60 per share. There was $220,000 of principal and $4,340 of accrued interest due at December 31, 2018.
Noteholder 5
On August 29, 2018, the Company sold and issued a Convertible Promissory to an unrelated party for the principal amount of $222,222 of which $22,222 was an original issue discount and $5,500 was paid directly to third parties resulting in cash proceeds to the Company of $194,500 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 5%, is due on February 28, 2019. The principal amount of the note and any accrued interest thereon are convertible at the option of the holder into common shares of the Company at any time at a conversion price of $0.70 per share. There was $222,222 and $222,222 of principal and $3,775 and $0 of accrued interest due at December 31, 2018 and September 30, 2018, respectively. The holder has issued a notice of default on this promissory note.
Noteholder 6
On September 6, 2018, the Company sold and issued a Convertible Promissory to an unrelated party for the principal amount of $125,000 of which $15,000 was an original issue discount parties resulting in cash proceeds to the Company of $110,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 10%, is due on September 6, 2019. The principal amount of the note and any accrued interest thereon are convertible at the option of the holder into common shares of the Company at any time at a conversion price of $0.50 per share. There was $125,000 and $125,000 of principal and $3,972 and $0 of accrued interest due at December 31, 2018 and September 30, 2018, respectively.
Noteholder 7
On September 6, 2018, the Company sold and issued a Convertible Promissory to an unrelated party for the principal amount of $62,500 of which $6,250 was an original issue discount resulting in cash proceeds to the Company of $56,250 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 10%, is due on September 6, 2019. The principal amount of the note and any accrued interest thereon are convertible at the option of the holder into common shares of the Company at any time at a conversion price of $0.50 per share. There was $62,500 and $62,500 of principal and $1,798 and $0 of accrued interest due at December 31, 2018 and September 30, 2018, respectively.
Noteholder 8
On November 15, 2018, the Company sold and issued a Convertible Promissory to an unrelated party for the principal amount of $222,600 of which $12,600 was an original issue discount resulting in cash proceeds to the Company of $210,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, is due on November 15, 2019. The principal amount of the note and any accrued interest thereon are convertible at the option of the holder into common shares of the Company at any time at a conversion price of $0.55 per share. There was $222,600 of principal and $2,244 of accrued interest due at December 31, 2018.
Noteholder 9
On December 27, 2018, the Company sold and issued a Convertible Promissory to an unrelated party for the principal amount of $105,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, is due on December 27, 2019. The Note is convertible into the Company’s common stock commencing 180 days from the date of issuance at a conversion price equal to 65% of the lowest trade price of the Company’s common stock for the fifteen prior trading days including the date of conversion. There was $105,000 of principal and $69 of accrued interest due at December 31, 2018.
Noteholder 10
On April 24, 2018, the Company entered into a convertible note payable totaling $500,000 in exchange for 100% of the assets of Leaf Detective LLC. The note bears no interest, matures on April 24, 2019 and automatically converted to common stock at $1.25 per share on the maturity date. In the event the average lowest trading price of the Company’s common stock during the five days prior to maturity is less than $1.25 per share, the Company will pay the noteholder the difference between $1.25 and the average lowest trading price during the preceding five days per share converted in cash. There was $500,000 principal and $0 interest due on both December 31, 2018 and September 30, 2018.
NOTE 12 – CONVERTIBLE DEBENTURES
On January 29, 2018, the Company issued a total of 5,973 units of 8% unsecured convertible debentures. Each unit consists of one convertible debenture with a principal face value of $1,000 and 250 warrants. The gross proceeds were $5,973,000. Each warrant entitles the holder thereof to purchase one additional common share of the Company at an exercise price of $0.80 per warrant for a period of 24 months. The convertible debentures have a maturity date of 36 months from issuance. Simple interest will be paid at a rate of 8% per annum in arrears until maturity or until conversion. The principal amount of the debentures and any accrued interest thereon are convertible at the option of the holder into common shares of the Company at any time at a conversion price of $0.60 per share.
In addition to the warrants associated with the convertible debentures, the Company issued an additional 597,300 warrants to purchase common stock of the Company as offering costs representing an equivalent of 6% of the fully converted debentures. The warrants are exercisable at $0.60 per share for a period of two years.
During the fiscal year ended September 30, 2018, the Company issued three separate debentures under the same terms for additional cash proceeds of $610,000. The additional debentures carry an additional 152,500 warrants to purchase additional common shares of the Company at $0.80 per share. Additionally, the outstanding principal and interest may be converted to common stock of the Company at $0.60 per share.
During the quarter ended December 31, 2018, the Company also issued nineteen additional debentures under the same terms for additional cash proceeds of $374,000. The additional debentures carry an additional 187,000 warrants to purchase additional common shares of the Company at $0.80 per share. Additionally, the outstanding principal and interest may be converted to common stock of the Company at $0.60 per share.
Associated with the issuance of the convertible debentures, the Company incurred cash-based issuance costs of $702,963, issued common shares valued at $1,414,907 and warrants to purchase additional shares of common stock valued at $1,265,385 for total debt issuance costs of $3,383,255. The debt issuance costs were recorded as a discount to the carrying value of the convertible debentures. The warrants associated with the debt issue costs were valued using a Black-Scholes model with the following assumptions:
Expected term of options granted
|
|
2 years
|
|
Expected volatility
|
|
|
223
|
%
|
Risk-free interest rate
|
|
|
2.49
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
The Company separately assessed the value of the detachable warrants and conversion features of the convertible debentures. The Company separately initially valued the detachable warrants issued with the convertible debentures at $3,351,160 using a Black-Scholes model with the following assumptions:
Expected term of options granted
|
|
2 years
|
|
Expected volatility
|
|
211-223
|
%
|
Risk-free interest rate
|
|
2.09-2.25
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
Additionally, the outstanding principal on convertible debentures totaling $6,957,000 may be converted into common stock of the Company at $0.60 per share for a total of 11,595,000 shares. Due to the variable conversion features of the outstanding convertible notes payable as discussed in Note 7 – Convertible Notes Payable, the Company cannot ascertain there will be adequate unissued authorized common shares to fulfill all share-based obligations. As a result, the warrants issued in connection with the convertible debentures are not afforded equity treatment and were recorded as a derivative liability upon initial measurement. The total initial measurement of warrants issued with the convertible debentures was $4,616,545 of which $4,465,131 was recorded as a debt discount and, when combined with debt issuance costs, represents a total debt discount of $6,583,000.
As of December 31, 2018 the Company has amortized $684,401 of the total outstanding debt discount leaving an unamortized debt discount of $3,507,423. The remaining debt discount will be amortized to interest expense over the expected life of the note. There was $5,183,000 of principal and accrued interest totaling $343,051 outstanding as of December 31, 2018.
NOTE 13 – DERIVATIVE LIABILITY
As of December 31, 2018 and September 30, 2018, Company had a derivative liability balance of $678,689 and $1,181,278 on the balance sheets and recorded a gain of $852,628 from derivative liability fair value adjustments during the three months ended December 31, 2018.
On November 15, 2018, the Company issued a $222,600 convertible promissory note to an unrelated party that matures on November 15, 2019. Refer to Noteholder 8 under “Note 12 – Convertible Debentures” for more information. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15, Derivatives and Hedging and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the issuance date of the note was $220,463 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $184,957 which was up to the face value of the convertible note with the excess fair value at initial measurement of $35,506 being recognized as a loss on derivative fair value measurement.
On December 27, 2018, the Company issued a $105,000 convertible promissory note to an unrelated party that matures on December 27, 2019. Refer to Noteholder 9 under “Note 12 – Convertible Debentures” for more information. The Company analyzed the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate.
The aggregate fair value of the derivative at the issuance date of the note was $98,091 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $38,365 which was up to the face value of the convertible note with the excess fair value at initial measurement of $59,725 being recognized as a loss on derivative fair value measurement.
At December 31, 2018, the Company marked-to-market the fair value of the derivative liabilities related to conversion features and determined an aggregate fair value of $319,004 and recorded a $450 loss from change in fair value for the three months ended December 31, 2018. The fair value of the embedded derivatives was determined using a Black-Scholes option pricing model based on the following assumptions: (1) expected volatility of 115%, (2) risk-free interest rate of 2.63%, (3) exercise prices of $0.60 - $0.80, and (4) expected lives of 1.08 – 1.81 years.
On October 2, 2018, the Company issued a total of $220,000 convertible debenture to an unrelated party that matures on January 1, 2019. The Company issued a total of 100,000 warrants to purchase additional shares of common stock of the Company in connection with the convertible debenture. The Company analyzed the issued warrants for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the warrants should be classified as a derivative because the Company is unable to ascertain there will be adequate unissued authorized shares of common stock to fulfill its obligations should the warrants be exercised. In accordance with AC 815, the Company has recorded a derivative liability related to the warrants.
The derivative for the warrants is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the issuance date of the warrants was $57,014 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $53,333 which was up to the face value of the convertible debentures with the excess fair value at initial measurement of $3,681 being recognized as a loss on derivative fair value measurement.
As discussed in “Note 12 – Convertible Debentures”, the Company issued a total of $374,000 of convertible debentures to unrelated parties that mature on dates ranging from October 17, 2020 to October 23, 2020. The Company issued a total of 187,000 warrants to purchase additional shares of common stock of the Company in connection with the convertible debentures. The Company analyzed the issued warrants for derivative accounting consideration and determined that the warrants should be classified as a derivative. The aggregate fair value of the derivative at the issuance date of the warrants was $73,383 which was recorded as a derivative liability on the balance sheet, for which the Company recorded an equivalent debt discount to the convertible debentures.
At December 31, 2018, the Company marked-to-market the fair value of the derivative liabilities related to warrants and determined an aggregate fair value of $359,685 and recorded a $951,990 gain from change in fair value for the three months ended December 31, 2018. The fair value of the derivatives was determined using a Black-Scholes option pricing model based on the following assumptions: (1) expected volatility of 115%, (2) risk-free interest rate of 2.63%, (3) exercise prices of $0.21, and (4) expected lives of 0.87 – 0.99 of a year.
The following table summarizes the derivative liabilities included in the balance sheet at December 31, 2018:
Fair Value of Derivative Liabilities:
|
|
|
|
Balance, September 30, 2018
|
|
$
|
1,181,278
|
|
Initial measurement of derivative liabilities
|
|
|
448,951
|
|
Change in fair market value
|
|
|
(951,540
|
)
|
Write off due to conversion
|
|
|
-
|
|
Balance, December 31, 2018
|
|
$
|
678,689
|
|
The following table summarizes the gain (loss) on derivative liability included in the income statement for the three months ended December 31, 2018 and 2017, respectively.
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Day one loss due to derivatives on convertible debt
|
|
$
|
(98,912
|
)
|
|
$
|
-
|
|
Change in fair value of derivatives
|
|
|
951,540
|
|
|
|
13,322
|
|
Total derivative gain (loss)
|
|
$
|
852,628
|
|
|
$
|
13,322
|
|
NOTE 14 – STOCK OPTIONS AND WARRANTS
The following table summarizes all stock option and warrant activity for the three months ended December 31, 2018:
|
|
Shares
|
|
|
Weighted-
Average
Exercise Price
Per Share
|
|
Outstanding, September 30, 2018
|
|
|
4,638,050
|
|
|
$
|
0.784
|
|
Granted
|
|
|
316,920
|
|
|
|
0.781
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding, December 31, 2018
|
|
|
4,954,970
|
|
|
$
|
0.784
|
|
The following table discloses information regarding outstanding and exercisable options and warrants at December 31, 2018:
|
|
|
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
|
|
|
|
110,000
|
|
|
$
|
0.400
|
|
|
|
2.62
|
|
|
|
110,000
|
|
|
$
|
0.400
|
|
$
|
0.500
|
|
|
|
165,000
|
|
|
$
|
0.500
|
|
|
|
2.70
|
|
|
|
162,500
|
|
|
$
|
0.500
|
|
$
|
0.600
|
|
|
|
627,220
|
|
|
$
|
0.600
|
|
|
|
1.11
|
|
|
|
627,220
|
|
|
$
|
0.600
|
|
$
|
0.650
|
|
|
|
145,000
|
|
|
$
|
0.650
|
|
|
|
3.82
|
|
|
|
36,250
|
|
|
$
|
0.650
|
|
$
|
0.800
|
|
|
|
3,482,750
|
|
|
$
|
0.800
|
|
|
|
2.43
|
|
|
|
3,095,250
|
|
|
$
|
0.800
|
|
$
|
0.850
|
|
|
|
100,000
|
|
|
$
|
0.850
|
|
|
|
4.29
|
|
|
|
-
|
|
|
$
|
0.850
|
|
$
|
1.050
|
|
|
|
25,000
|
|
|
$
|
1.050
|
|
|
|
4.79
|
|
|
|
-
|
|
|
$
|
1.050
|
|
$
|
1.260
|
|
|
|
220,000
|
|
|
$
|
1.260
|
|
|
|
3.50
|
|
|
|
110,000
|
|
|
$
|
1.260
|
|
$
|
1.300
|
|
|
|
10,000
|
|
|
$
|
1.300
|
|
|
|
2.80
|
|
|
|
7,500
|
|
|
$
|
1.300
|
|
$
|
1.386
|
|
|
|
60,000
|
|
|
$
|
1.386
|
|
|
|
3.50
|
|
|
|
30,000
|
|
|
$
|
1.386
|
|
$
|
1.666
|
|
|
|
10,000
|
|
|
$
|
1.666
|
|
|
|
3.59
|
|
|
|
5,000
|
|
|
|
1.666
|
|
Total
|
|
|
|
4,954,970
|
|
|
$
|
0.784
|
|
|
|
3.07
|
|
|
|
4,183,720
|
|
|
$
|
0.765
|
|
In determining the compensation cost of the stock options granted, the fair value of each option grant has been estimated on the date of grant using the Black-Scholes option pricing model. The assumptions used in these calculations are summarized as follows:
|
|
December 31,
2018
|
|
Expected term of options granted
|
|
1.1 – 2.00 years
|
|
Expected volatility
|
|
114.92-122.49
|
%
|
Risk-free interest rate
|
|
2.63–2.625
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
The Company recognized stock option expense of $169,922 and $72,587 during the three months ended December 31, 2018 and 2017, respectively. There was $787,907 of unrecognized stock-based compensation expense as of December 31, 2018.
NOTE 15 – SUBSEQUENT EVENTS
Common Stock Issuances
The Company made the following issuances of common stock subsequent to December 31, 2018:
|
·
|
1,215,000 common shares issued for cash resulting in total cash proceeds of $485,879.
|
|
·
|
437,500 common shares for the conversion of 175,000 shares of Series D Preferred Stock.
|
|
·
|
31,579 common shares for the settlement of $15,000 of accounts payable.
|
|
·
|
20,000 common shares associated with debt issue costs.
|
|
·
|
12,500 common shares valued at $6,624 for the vesting of restricted stock grants for officers and directors
|
|
·
|
788,017 common shares for services valued at $245,311
|
|
·
|
99,255 common shares for the conversion of $30,000 of outstanding principal on notes payable. All conversions were performed at contractual terms.
|
|
·
|
1,000,000 common shares for the settlement of $222,222 plus interest and penalties of notes payable.
|
Equity Raise with Warrants
On April 8, 2019, the Company raised an aggregate amount of $586,000, in accordance with Regulation S under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”) and may not be offered or sold in the United States or to a U.S. persons (as defined in Regulation S under the U.S. Securities Act) absent registration or an applicable exemption from registration requirements. A portion of the Offering was completed on a best efforts basis through lead agent and bookrunner Dominick Capital Corporation of Toronto, Canada.
A total of 1,465,000 Units were sold in this transaction, each Unit consists of one share of EVIO common stock (“Stock”) at a price of $0.40, and a share purchase warrant (each, a “Warrant”) in the amount of one full Warrant per Unit. Each whole Warrant shall entitle the holder thereof to purchase one additional common share of the Offeror (each a “Warrant Share”) at an exercise price of US $0.65 per Warrant Share for a period of 24 months after the closing of the Offering
Convertible Notes Payable
On January 14, 2019, the Company entered into a convertible note payable with an unrelated party for $131,250 of which included $6,250 in third party fees resulting in net cash proceeds to the Company of $125,000. The convertible note payable carries interest at a rate of 8% per annum, is due on January 14, 2020 and is convertible into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days.
On February 4, 2019, the Company entered into a convertible note payable with an unrelated party for $131,250 of which included $6,250 in third party fees resulting in net cash proceeds to the Company of $125,000. The convertible note payable carries interest at a rate of 8% per annum, is due on February 4, 2020 and is convertible into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days.
On February 4, 2019, the Company entered into a convertible note payable with an unrelated party for $265,600 of which $16,500 was an original issue discount and $10,000 in third party fees resulting in net cash proceeds to the Company of $240,000. The convertible note payable carries interest at a rate of 8% per annum, is due on February 4, 2020 and is convertible into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days.
On August 8, 2019, the Company entered into a convertible note payable with an unrelated party for $33,092 which included $1,575 third party fees resulting in net cash proceeds to the Company of $31,517. The convertible note payable carries interest at a rate of 8% per annum, is due on August 8, 2020 and is convertible into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days.
On August 8, 2019, the Company entered into a convertible note payable with an unrelated party for $33,092 which included $1,575 third party fees resulting in net cash proceeds to the Company of $31,517. The convertible note payable carries interest at a rate of 8% per annum, is due on August 8, 2020 and is convertible into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days.
On August 30, 2019, the Company entered into a convertible note payable with an unrelated party for $110,000 which included $10,000 original issue discount resulting in net cash proceeds to the Company of $100,000. The convertible note payable carries interest at a rate of 8% per annum, is due on May 30, 2020 and is convertible into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days.
Convertible Notes Payable – Exchanged Note
On February 8, 2019, the Company entered into an exchange agreement with an unrelated party for $580,536.60, of which the loan payable to Palliatech, dated September 1, 2017, outstanding and principal would be assumed by the new note holder. The new convertible note payable carries an interest rate of 10% per annum, with one year interest guaranteed, is due on February 8, 2020 and is convertible into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 30% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days.
On August 29, 2019, the Company entered into an exchange agreement with an unrelated party for $199,203, of which the loan payable to Henry Grimmett, dated October 16, 2016, outstanding and principal would be assumed by the new note holder. The new convertible note payable carries an interest rate of 8% per annum, is due on May 29, 2020 and is convertible into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days.
Debenture Holders Offer
On June 16, 2019 the Company offered current Debenture Holders a one-time opportunity to lower the Conversion Price of the Debenture to US$0.40 per share (the “Amended Conversion Price”); provided, however, that Investor agrees to defer interest under the Debenture until the Maturity Date identified in the Debenture, and further agrees to have any and all accrued and unpaid interest automatically converted into Common Shares of the Company at the Amended Conversion Price on the Maturity Date The original debenture had a conversion rate of US$0.60 per share.
At the time of the offer there were $5,183,000 in outstanding debentures. To date a total of $4,654,000 of have opted for the offer, and $529,000 have yet to accept the offer. The additional shares to be issued related to accepted offers is 3,878,333.
Equipment Financing
On April 24, 2019 the Company entered into an equipment lease arrangement with Sweet Leaf Capital. The term of the lease is 30 months, commencing June 1, 2019. The capital cost of the equipment financed is $467,837.00. The agreement calls for an initial payment of $67,459, followed by 30 payments in the amount of $18,226.00. The Company will record this as a capital lease obligation in Q3, 2019.
Legal Proceedings
On May 9, 2019, Stephanie Head, a former part-time lab administrator for EVIO Labs Eugene, LLC, filed a wrongful termination lawsuit with the US District Court - District of Oregon, Eugene Division, Case No. 6:19-CV-00681, against EVIO Labs Eugene, LLC, EVIO, Inc. and Lori Glauser. This case is still in process.
On August 29, 2018, the Company issued FIRSTFIRE GLOBAL OPPORTUNITIES FUND, LLC (“Creditor”) a Promissory Note in the original principal amount of $220,000.00 (the “Note”). The Company failed to timely pay certain sums under the Note and, as a result of the Breach, on or about August 7, 2019, Creditor filed a Complaint - Breach of Promissory Note in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida. Since such filing, the Company and Creditor have entered into a Settlement Agreement and Stipulation, pursuant to which the Company has agreed to issue the Creditor 1,000,000 shares of its common stock under 3(a)(10) of the Securities Act of 1933 in settlement for all claims. The settlement was approved by the court on August 27, 2019. The shares were issued on September 6, 2019.