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., 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 Henderson, Nevada.
As a part of and prior to the consummation of the reverse merger, William Waldrop and Lori Glauser, principals of Signal Bay Research, Inc., purchased 80% of the issued and outstanding common stock from WB Partners. The merger between the Company and Signal Bay Research was finalized and closed contemporaneously with the share purchase. As part of this share purchase, Mr. Waldrop and Ms. Glauser became the officers and directors of the Company. Immediately after the reverse, WB Partners owned less than 5% of the common stock. The company filed a Form 10-12G on November 25, 2014 and was determined to be a shell company by the SEC as per the Form 10-12G/A which went effective on January 24, 2015. On January 29, 2015, the company filed an 8-K stating it entered into a material agreement and was no longer a shell company.
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 into an Asset Purchase Agreement with Green Style Consulting, LLC which was closed on November 1, 2016.
The Company entered into an Membership Interest Purchase Agreement with Viridis Analytics MA, LLC which was closed on August 1, 2017.
On December 29, 2017, the Company entered into a Membership Purchase Agreement to purchase 60% of the outstanding shares of C3 Labs, LLC which closed On January 1, 2018.
On April 29, 2018, the Company entered into an Asset Purchase Agreement with Leaf Detective, LLC which was closed on the same date.
On May 2, 2018, the Company entered into a Stock Purchase Agreement with Keystone, Labs, Inc. to purchase 50% of the outstanding shares of Keystone Labs which was closed on the same date.
On June 27, 2018, Greenhaus Analytical Labs LLC, a wholly-owned subsidiary of EVIO, Inc. entered into a Purchase and Sale Agreement with Michael G. Myers for the property located at 14775 SW 74
th
Ave., Tigard, OR 97224.
On June 27, 2018, Greenhaus Analytical Labs, LLC, a wholly-owned subsidiary of EVIO, Inc., entered into an Asset Purchase Agreement with MRX Labs LLC which closed on July 5, 2018.
EVIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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."
Cash and Cash Equivalents
All cash is maintained with major financial institutions. Deposits may exceed the amount of insurance provided on such deposits. For the purposes of the 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, 2018 or 2017.
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 recognized an allowance for uncollectible amounts, of $414,475 and $74,782 for 2018 and 2017, respectively.
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 is due on September 6, 2024 and carries interest at a rate of 8% per annum. The note 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, 2018 and determined the full balance is collectible and no reserve for write off was recorded. As of September 30, 2018, there was $1,300,000 of principal, or which $100,000 was current and $1,200,000 was long term, and $120,849 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), assembled workforce (amortized over five years), websites and domain names (amortized over 15 years) and testing licenses (amortized over 5 years).
EVIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company performed its annual fair value assessment at September 30, 2018, on its subsidiaries with material goodwill and intangible asset amounts on their respective balance sheets and determined that the carrying value of its goodwill exceeded its estimated fair value. As such, the Company recorded an impairment charge to its goodwill of $1,396,319.
During the year ended September 30, 2017, the Company did not record any impairment charges related to the carrying amounts of its goodwill or intangible assets.
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 2017 financial statements have been reclassified to conform to the 2018 financial presentation. These reclassifications have no impact on net loss.
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
In 2018 the Company recognizes revenue under 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
|
In 2017 the Company's policy was that revenues and gains will be recognized in accordance with ASC Topic 605-10-2, "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, licensing agreements and testing of cannabis and cannabis products for both medicinal and recreational 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.
EVIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company determines the transaction price for each contract based on the consideration it expects to receive for the distinct services being provided under the contract.
The Company recognizes revenue as performance obligations are satisfied and the customer obtains control of the goods or services provided. In determining when performance obligations are satisfied, the Company considers factors such as contract terms, payment terms and whether there is an alternative future use of the product or service.
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 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.
The Company generated revenues of $3,365,525 and $3,021,030 during the years ended September 30, 2018 and 2017, respectively and had deferred revenues of $363,211 and $160,081 as of September 30, 2018 and 2017, respectively.
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, repairs and maintenance to facilities and equipment, depreciation of lab equipment and outsourced professional services utilized for consulting engagements. Cost of revenues totaled $3,837,288 and $2,456,523 during the years ended September 30, 2018 and 2017, respectively.
Stock Based Compensation
In accordance with ASC No. 718,
Compensation – Stock Compensation
(“ASC 718”), the Company measures the cost of stock-based compensation arrangements based on the grant-date fair value and recognizes the cost in the financial statements over the period during which employees are required to provide services. Stock-based compensation arrangements may include stock options, restricted stock plans, performance-based awards, stock appreciation rights and employee stock purchase plans.
The Company utilizes the Black-Scholes option pricing model, which was developed for use in estimating the fair value of options. Option-pricing models require the input of highly complex and subjective variables including the expected life of options granted and the expected volatility of the Company’s stock price over a period equal to or greater than the expected life of the options.
Equity instruments issued to non-employees are recorded on the basis of the fair value of the instruments, as required by ASC 718. ASC No. 505,
Equity Based Payments to Non-Employees
(“ASC 505”) defines the measurement date and recognition period for such instruments. In general, the measurement date is (a) when a performance commitment, as defined, is reached or (b) when the earlier of (i) the non-employee performance is complete or (ii) the instruments are vested. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant as defined in the ASC 505.
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.
EVIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Capital Leases
The Company accounts for capital leases in accordance with ACS 840-30. During the year ended September 30, 2018, the Company entered into three separate long-term leases for equipment that contain a $1 buyout 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 to Capital Assets and Assets Not-In-Service.
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 Capital Assets.
As of September 30, 2018, there was a total of $916,472 of future payments due through October 2023 of which $34,246 are financing charges leaving a total principal balance of $882,226. Of this amount, $246,855 is current and $669,618 is long term as of September 30, 2018. Future annual payments required under the capital leases through termination are as follows:
Year ended September 30,
|
|
Principal
|
|
|
Interest
|
|
|
Total
|
|
2019
|
|
|
227,184
|
|
|
|
19,671
|
|
|
|
246,855
|
|
2020
|
|
|
216,071
|
|
|
|
12,231
|
|
|
|
228,302
|
|
2021
|
|
|
218,212
|
|
|
|
2,343
|
|
|
|
220,556
|
|
2022
|
|
|
91,108
|
|
|
|
-
|
|
|
|
91,108
|
|
2023
|
|
|
91,108
|
|
|
|
-
|
|
|
|
91,108
|
|
2024
|
|
|
38,544
|
|
|
|
-
|
|
|
|
38,544
|
|
Total
|
|
$
|
882,226
|
|
|
$
|
34,246
|
|
|
$
|
916,472
|
|
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, 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 September 30, 2018 and 2017, the Company had a note receivable totaling $1,300,000 due from a single entity.
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
|
|
|
|
|
|
EVIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
|
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.
The Company performed its annual fair value assessment at September 30, 2018, on its subsidiaries with material long-lived asset amounts on their respective balance sheets and determined that no impairment exists.
During the year ended September 30, 2017, the Company recorded an impairment charge of $200,000 related to the carrying amount of its long-lived assets. See Note 6 – Property, Plant and Equipment.
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.
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.
EVIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 free-standing 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 September 30, 2018:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,181,278
|
|
|
$
|
1,181,278
|
|
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
|
|
EVIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
Basic Earnings (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, 2018 and 2017, 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 16,548,473 and 10,433,939 common stock equivalents excluded from diluted earnings per share for the years ended September 30, 2018 and 2017.
EVIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recently Issued Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance (ASU 2016-02) that affects the accounting and disclosure requirements for leases. The FASB requires the recognition of all leases that are longer than one year onto the balance sheet, which will result in the recognition of a right of use asset and a corresponding lease liability. The right of use asset and lease liability will be measured initially using the present value of remaining rental payments. In July 2018, the FASB issued additional guidance on leases which allows and entity to recognize a cumulative-effect adjustment to the opening balance of retained earnings upon adoption. The guidance is effective for annual and interim periods beginning after December 15, 2015. In March 2019, the FASB issued ASU 2019-01, Codification Improvements, which clarifies certain aspects of the new lease standard. The Company plans on adopting the lease standard in the second quarter of fiscal 2019 with a cumulative-effect adjustment to opening retained earnings in the period of adoption.
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 April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” (“ASU 2016-1O”). The amendments in this update clarify the following two aspects to Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. The entity first identifies the promised goods or services in the contract and reduces the cost and complexity. An entity evaluates whether promised goods and services are distinct. Topic 606 includes implementation guidance on determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The Company evaluated the impacts of ASU 2016-10 and does not believe it will an impact on the Company’s revenue recognition practices and will adopt the standard on October 1, 2018.
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.
In June 2018, the FASB issued ASU 2018-07,
Compensation - Stock Compensation (Topic 718)
which simplifies certain aspects of the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic 718,
Compensation - Stock Compensation
, to include share-based payment transactions for acquiring goods and services from nonemployees. Certain areas of the simplification apply only to nonpublic entities. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor's own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606,
Revenue from Contracts with Customers
. The amendments of the ASU are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this standard on our consolidated financial statements.
In August 2018, the SEC issued Final Rule Release No. 33-10532, Disclosure Update and Simplification. Under the final rule Company’s must now analyze changes in stockholders’ equity in the form of a reconciliation, for the current and comparative year-to-date, with subtotals for each interim period.
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.
EVIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – ACQUISITIONS
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.
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 ACQUISITIONS (CONTINUED)
Completed During the Year Ended September 30, 2018
C3 Labs, LLC
On January 1, 2018, the Company completed its acquisition of C3 Labs, LLC (“C3 Labs”). In consideration of a 60% ownership, the Company issued a $500,000 convertible note payable which carries no interest and matures on June 30, 2018. Upon maturation, the note will convert to common stock of the Company at $0.75 per share. Additionally, the Company issued a $100,000 note payable due on March 31, 2018 which bears no interest.
The Company has been granted two options to purchase additional interest of C3 Labs subject to the following terms and conditions.
(a) 30% Option. Effective as of Closing and terminating the date three (3) years from the Closing Date, the C3 Members hereby collectively grant EVIO the right to ratably purchase from the C3 Members an aggregate of 30% of the Interests in C3 LABS following the issuance of 60% of the Interests to EVIO. EVIO may exercise its option by providing C3 LABS and the C3 Members written notice of its intent to exercise the option. The C3 Members shall have three (3) days following the date of such notice to execute assignments of Interests totaling 30% of the then outstanding membership interests in C3 LABS in favor of EVIO California. If EVIO should elect to exercise its option within nine (9) months from the Closing Date, the exercise price for the 30% of Interests shall be $450,000.00, to be paid in cash or EVIO’s common stock, as agreed by the C3 Members. If EVIO does not exercise the option within nine (9) months from the Closing Date, the exercise price shall be set by mutual agreement between the parties or, if no such agreement can be reached, as determined by an independent third-party valuation by an appraiser agreed to by the parties.
(b) 10% Option. Effective as of three (3) years after the Closing Date and terminating the date twenty four (24) months therefrom, the C3 Members hereby collectively grant EVIO the right to ratably purchase from the C3 Members an aggregate of 10% of the then outstanding Interests in C3 LABS (comprising the remaining Interests not owned by EVIO). EVIO may exercise its option by providing C3 LABS and the C3 Members written notice of its intent to exercise the option. The C3 Members shall have three (3) days following the date of such notice to execute assignments of Interests totaling 10% of the then outstanding membership interests in C3 LABS in favor of EVIO. Upon notice of its intent to exercise the option granted hereby, the exercise price shall be set by mutual agreement between the parties or, if no such agreement can be reached, as determined by an independent third-party valuation by an appraiser agreed to by the parties.
The Company applied the acquisition method to the business combination and valued each of the assets acquired (cash, accounts receivable, security deposits, customer lists, certain testing licenses, equipment and non-compete agreements) and liabilities assumed (accounts payable and deferred rent payable) at fair value as of the acquisition date. The cash, accounts receivable, security deposits, accounts payable and deferred rent payable were deemed to be recorded at fair value as of the acquisition date. The Company determined the fair value of the equipment to be historical net book value. The preliminary allocation of the purchase price was based on estimates of the fair value of the assets and liabilities assumed based on provisional amounts. The allocation of the excess purchase price is not final and the amounts allocated to intangible assets are subject to change pending the completion of final valuations of certain assets and liabilities. Under the purchase agreement, the Company issued a $100,000 promissory note and a $500,000 convertible promissory note for total consideration of $600,000 in exchange for a 60% interest. The following table shows the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
ASSETS ACQUIRED
|
|
|
|
Cash
|
|
$
|
20,468
|
|
Accounts receivable
|
|
|
5,110
|
|
Other current assets
|
|
|
3,461
|
|
Security deposits
|
|
|
20,000
|
|
Equipment
|
|
|
244,875
|
|
License
|
|
|
247,000
|
|
Customer list
|
|
|
112,000
|
|
Non-compete agreement
|
|
|
88,000
|
|
Goodwill
|
|
|
291,697
|
|
TOTAL ASSETS ACQUIRED
|
|
$
|
1,032,611
|
|
|
|
|
|
|
LIABILITIES ASSUMED
|
|
|
|
|
Accounts payable
|
|
|
4,314
|
|
Deferred rent
|
|
|
28,297
|
|
TOTAL LIABILITIES ASSUMED
|
|
|
32,611
|
|
|
|
|
|
|
Non-controlling interest
|
|
|
(400,000
|
)
|
NET ASSETS ACQUIRED
|
|
$
|
600,000
|
|
The license and customer list will be amortized over 7 years and non-compete agreement over 5 years
From the date of acquisition on January 1, 2018 to September 30, 2018 C3 Labs generated total revenues of $218,160.
EVIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 ACQUISITIONS (CONTINUED)
Keystone Labs
On May 2, 2018, EVIO Canada, Inc, (“EVIO Canada”), a wholly-owned subsidiary of the Company consummated certain agreements to acquire a 50% interest of Keystone Labs, Inc. (“Keystone”) for $2,495,000 Canadian Dollars in cash.
The Company applied the acquisition method to the business combination and valued each of the assets acquired (cash, accounts receivable, prepaid expenses and other current assets, websites, customer lists, certain testing licenses, equipment, non-compete agreements and other intellectual property) and liabilities assumed (accounts payable, capital lease obligations, deferred revenue and related party payables) at fair value as of the acquisition date. The cash, accounts receivable, prepaid expenses and other current assets, accounts payable, related party payables and deferred revenues were deemed to be recorded at fair value as of the acquisition date. The Company determined the fair value of the equipment to be historical net book value. The preliminary allocation of the purchase price was based on estimates of the fair value of the assets and liabilities assumed based on provisional amounts. The allocation of the excess purchase price is not final and the amounts allocated to intangible assets are subject to change pending the completion of final valuations of certain assets and liabilities. Under the purchase agreement, the Company paid a total of $2,495,000 Canadian Dollars which equated to $1,962,095 US Dollars in exchange for a 50% interest. The following table shows the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
ASSETS ACQUIRED
|
|
|
|
Cash
|
|
$
|
371,278
|
|
Accounts receivable
|
|
|
65,815
|
|
Prepaid expenses and other current assets
|
|
|
38,415
|
|
Equipment
|
|
|
40,774
|
|
Intellectual property
|
|
|
334,719
|
|
Websites and domain names
|
|
|
18,299
|
|
Customer list
|
|
|
521,539
|
|
Non-compete agreement
|
|
|
97,302
|
|
Goodwill
|
|
|
2,716,027
|
|
TOTAL ASSETS ACQUIRED
|
|
$
|
4,204,167
|
|
|
|
|
|
|
LIABILITIES ASSUMED
|
|
|
|
|
Accounts payable
|
|
|
108,207
|
|
Capital lease obligation
|
|
|
12,826
|
|
Related party payables
|
|
|
153,755
|
|
Deferred revenue
|
|
|
5,189
|
|
TOTAL LIABILITIES ASSUMED
|
|
|
279,977
|
|
|
|
|
|
|
Non-controlling interest
|
|
|
(1,962,095
|
)
|
NET ASSETS ACQUIRED
|
|
$
|
1,962,095
|
|
MRX Labs
On July 5, 2018, the Company acquired the assets of MRX Labs for $2,705,000. $750,000. The note carries interest at 8% annually and is due on January 5, 2019. The acquisition included purchase of the property in Tigard, OR valued at $1,150,000 for the land and building, property, plant and equipment valued at $721,000; customer contracts and relationships for $50,750, and goodwill valued at $718,000.
ASSETS ACQUIRED
|
|
|
|
LAND
|
|
$
|
212,550
|
|
BUILDING
|
|
|
937,450
|
|
PROPERTY PLANT AND EQUIPMENT
|
|
|
721,000
|
|
CUSTOMER CONTRACTS/RELATIONSHIPS
|
|
|
65,250
|
|
ASSEMBLED WORKFORCE
|
|
|
50,750
|
|
GOODWILL
|
|
|
718,000
|
|
|
|
|
|
|
TOTAL ASSETS ACQUIRED
|
|
$
|
2,705,000
|
|
|
|
|
|
|
LIABILITIES ASSUMED
|
|
|
174,000
|
|
NET ASSETS ACQUIRED FROM MRX
|
|
$
|
2,531,000
|
|
EVIO, 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 PROFORMA CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
Year ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Revenues
|
|
|
|
|
|
|
Testing services
|
|
$
|
3,576,919
|
|
|
$
|
3,499,135
|
|
Consulting services
|
|
|
176,832
|
|
|
|
347,044
|
|
Total revenue
|
|
|
3,753,751
|
|
|
|
3,846,179
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
Testing services
|
|
|
3,301,016
|
|
|
|
3,089,092
|
|
Consulting services
|
|
|
190,125
|
|
|
|
115,387
|
|
Depreciation and amortization
|
|
|
529,732
|
|
|
|
145,203
|
|
Total cost of revenue
|
|
|
4,020,873
|
|
|
|
3,349,681
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
(267,122
|
)
|
|
|
496,498
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
7,766,313
|
|
|
|
3,396,397
|
|
Depreciation and amortization
|
|
|
202,873
|
|
|
|
222,714
|
|
Total operating expenses
|
|
|
7,969,186
|
|
|
|
3,619,111
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(8,236,308
|
)
|
|
|
(3,122,614
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income
|
|
|
(4,872,084
|
)
|
|
|
(1,011,259
|
)
|
Other income
|
|
|
7,246
|
|
|
|
(22,170
|
)
|
Loss on settlement of debt and account payable
|
|
|
(56,093
|
)
|
|
|
-
|
|
Impairment loss
|
|
|
(1,396,319
|
)
|
|
|
(200,000
|
)
|
Gain (loss) on change in fair market value of derivative liabilities
|
|
|
2,555,350
|
|
|
|
(285,887
|
)
|
Total other income (expense)
|
|
|
(3,761,900
|
)
|
|
|
(1,519,316
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(11,998,208
|
)
|
|
$
|
(4,641,930
|
)
|
EVIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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, 2018 and 2017 consist of:
|
|
2018
|
|
|
2017
|
|
Customer list
|
|
$
|
865,672
|
|
|
$
|
480,670
|
|
License
|
|
|
503,000
|
|
|
|
256,000
|
|
Favorable lease
|
|
|
3,100
|
|
|
|
3,100
|
|
Website
|
|
|
49,690
|
|
|
|
41,965
|
|
Non-Compete
|
|
|
184,563
|
|
|
|
-
|
|
Assembled Workforce
|
|
|
50,750
|
|
|
|
-
|
|
Intellectual Property
|
|
|
342,610
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,999,385
|
|
|
|
781,735
|
|
Accumulated amortization
|
|
|
(318,815
|
)
|
|
|
(189,475
|
)
|
Net value
|
|
|
1,680,570
|
|
|
$
|
592,260
|
|
The Company estimates amortization to be recorded on existing intangible assets through the year ended September 30, 2030 to be:
For the years ended September 30,
|
|
Amortization
|
|
2019
|
|
$
|
395,362
|
|
2020
|
|
|
363,002
|
|
2021
|
|
|
301,716
|
|
2022
|
|
|
232,537
|
|
2023
|
|
|
194,770
|
|
2024
|
|
|
127,163
|
|
2025
|
|
|
45,557
|
|
2026
|
|
|
2,317
|
|
2027
|
|
|
2,317
|
|
2028
|
|
|
2,317
|
|
2029
|
|
|
2,317
|
|
2030
|
|
|
868
|
|
Total
|
|
$
|
1,670,134
|
|
NOTE 6 – PROPERTY, PLANT AND EQUIPMENT
The Company’s property and equipment consisted of the following as of September 30, 2018 and 2017:
|
|
2018
|
|
|
2017
|
|
Assets Not-In-Service
|
|
$
|
455,540
|
|
|
$
|
-
|
|
Capital Assets
|
|
|
535,095
|
|
|
|
68,900
|
|
Land
|
|
|
212,550
|
|
|
|
-
|
|
Buildings & Real Estate
|
|
|
937,450
|
|
|
|
-
|
|
Furniture and Equipment
|
|
|
189,459
|
|
|
|
146,870
|
|
Laboratory Equipment
|
|
|
2,468,141
|
|
|
|
370,171
|
|
Software
|
|
|
63,913
|
|
|
|
58,333
|
|
Leasehold Improvements
|
|
|
303,331
|
|
|
|
41,081
|
|
Vehicles
|
|
|
83,915
|
|
|
|
75,165
|
|
Total
|
|
|
5,249,394
|
|
|
|
760,520
|
|
Accumulated depreciation
|
|
|
(644,291
|
)
|
|
|
(213,447
|
)
|
Net value
|
|
$
|
4,605,103
|
|
|
$
|
547,073
|
|
EVIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company capitalized a total of $535,095 of equipment purchased through capital leases as disclosed in
Note 2 – Summary of Significant Accounting Policies
and recorded depreciation expense of $104,715 and $19,139 on that equipment during the years ended September 30, 2018 and 2017, 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.
NOTE 7 – RELATED PARTY TRANSACTIONS
During the years ended September 30, 2018 and 2017 the Company made repayments to its Chief Operating Officer, on an outstanding loan from officer totaling $84,205 and $7,500 respectively. There was $0 and $84,205 due as of September 30, 2018 and 2017, 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, 2018 and 2017 the Company made repayments to its Chief Executive Officer, on an outstanding loan from officer totaling $4,450 and $75,650, respectively. There was $0 and $4,450 due as of September 30, 2018 and 2017, respectively. The loans carry a 0% interest rate and are due on demand.
During the years ended September 30, 2018 and 2017, the Company incurred total expenses of $24,841 and $42,192, 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, 2018 or 2017.
During the years ended September 30, 2018 and 2017 the Company made repayments to Eric Ezrine, a shareholder of CR Labs, on an outstanding note payable totaling $0 and $130, respectively. The loans carry an interest rate of 0% per annum. There was $0 and $130 due as of September 30, 2018 and 2017, 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 $22,450 during the year ended September 30, 2018. There was $0 and $22,450 due as of September 30, 2018 and 2017, respectively.
During the years ended September 30, 2018 and 2017 the Company made payments to Sara Lausmann, associated with the asset purchase of Oregon Analytical Services, LLC, totaling $97,500 and $47,714, respectively. There was $592,370 and $689,870 of principal due as of September 30, 2018 and 2017, respectively. The note carries interest at a rate of 5% per annum and had accrued interest totaling $79,295 and $47,409 due as of September 30, 2018 and 2017, respectively.
During the years ended September 30, 2018 and 2017 the Company made payments to Anthony Smith, our Chief Science Officer, associated with the purchase of 80% of Smith Scientific Industries, totaling $25,000 and $50,000, respectively. There was $236,000 and $261,000 of principal due as of September 30, 2018 and 2017, respectively. The note carries interest at a rate of 5% per annum and had accrued interest totaling $30,960 and $18,846 due as of September 30, 2018 and 2017, respectively.
During the years ended September 30, 2018 and 2017 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 $52,000 and $25,000, respectively. There was $117,412 and $169,412 of principal due as of September 30, 2018 and 2017, respectively. The note bears interest at 0% per annum and requires repayments of $25,000 quarterly.
During the years ended September 30, 2018 and 2017 the Company made payments to Sara Lausmann, prior Founder of Oregon Analytical Services, associated with the asset purchase of Oregon Analytical Services, LLC., totaling $97,500 and $47,714, respectively. There was $592,370 and $689,870 of principal due as of September 30, 2018 and 2017, respectively. The note carries interest at a rate of 5% per annum and had accrued interest totaling $79,295 and $47,409 due as of September 30, 2018 and 2017, respectively.
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 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 $51,971 and $42,044 as of September 30, 2018 and 2017, respectively and $39,905 and $19,506 of accrued interest due as of September 30, 2018 and 2017, respectively.
EVIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 was 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 matured on October 31, 2018. During the years ended September 30, 2018 and 2017, the Company made payments of $24, 328 and $6,090 respectively. There was $19,582 of principal, $315 of unamortized note premium and $965 of accrued interest due as of September 30, 2018. 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, 2018 and as such no repayments have been made. There was $15,809 accrued and included in accounts payable and accrued liabilities for future payments related to this earn out as of September 30, 2018.
During the years ended September 30, 2018 and 2017 the Company made repayments to our Chief Science Officer on an outstanding loan from officer totaling $9,200 and $7,000 respectively. The loans are non-interest bearing, due on demand and as such are included in current liabilities. There was $0 and $9,200 due as of September 30, 2018 and 2017, respectively.
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 shares of Series A Convertible Stock issued and outstanding as of September 30, 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.
EVIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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, 2018 and 2017.
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.
There were 500,000 shares of Series C Convertible Stock issued and outstanding as of September 30, 2018 and 2017.
EVIO, 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, 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 552,500 and 832,500 shares of Series D Convertible Stock issued and outstanding as September 30, 2018 and 2017, respectively.
EVIO, 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 3,000,000,000 to 1,000,000,000.
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.
During the year ended September 30, 2018, the Company issued 131,250 common shares valued at $153,788 for services; 2,561,392 common shares for cash proceeds of $2,041,501; 478,500 common shares valued at $831,133 under its employee equity incentive plan; 37,500 common shares for the settlement of $18,750 of accounts payable; 324,000 common shares for the settlement of $162,000 of notes payable, 4,918,580 common shares for the conversion of $2,805,008 of outstanding principal on convertible notes payable; 210,553 for the conversion of $114,792 of convertible accrued interest; 548,780 common shares for the settlement of non-convertible debt totaling $450,000; 2,309,997 common shares for the settlement of $1,386,000 debenture conversions, and 700,000 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.
There were 23,255,411and 10,732,927 shares of common stock issued and outstanding at September 30, 2018 and 2017, respectively.
NOTE 9
– LOANS PAYABLE
The Company had the following loans payable outstanding as of September 30, 2018 and September 30, 2017:
|
|
September 30,
2018
|
|
|
September 30,
2017
|
|
|
|
|
|
|
|
|
On March 16, 2017, the Company executed notes payable for the purchase of three vehicles. The notes carry interest at 6.637% annually and mature on March 31, 2023.
|
|
|
60,477
|
|
|
|
71,039
|
|
|
|
|
|
|
|
|
|
|
On August 1, 2017, the Company entered into a note payable totaling $500,000 for the acquisition of Viridis (see note 3). The note carries interest at 8% annually and is due on July 1, 2018.
|
|
|
-
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
On September 6, 2017, the Company entered into a note payable totaling $1,000,000 for the purchase of an outstanding note receivable. The note carries interest at 8% annually and is due on July 6, 2018.
|
|
|
500,000
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
On August 31, 2017, the Company executed a note payable for $120,000 of which $20,000 was an original issue discount resulting in cash proceeds of $100,000. The note carries interest at 8% annually and is due on March 3, 2018.
|
|
|
-
|
|
|
|
120,000
|
|
|
|
|
|
|
|
|
|
|
On June 28, 2018, the Company executed a note payable for $650,000 for the purchase of the building at 14775 SW 74
th
Ave, Tigard, OR. The note carries interest at 8% annually and is due on June 28, 2021.
|
|
|
646,231
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
On July 5, 2018, the Company executed a note payable for $750,000 for the asset purchase of MRX Labs (see note 3). The note carries interest at 8% annually and is due on January 5, 2019.
|
|
|
750,000
|
|
|
|
-
|
|
|
|
|
1,956,708
|
|
|
|
1,691,039
|
|
Less: unamortized original issue discounts
|
|
|
(119,000
|
)
|
|
|
(127,662
|
)
|
Total loans payable
|
|
|
1,837,708
|
|
|
|
1,563,377
|
|
Less: current portion of loans payable
|
|
|
643,627
|
|
|
|
1,503,545
|
|
|
|
|
|
|
|
|
|
|
Long-term portion of loans payable
|
|
$
|
1,193,781
|
|
|
$
|
59,832
|
|
As of September 30, 2018 and 2017, the Company accrued interest of $47,767 and $12,625, respectively.
EVIO, 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, 2017:
Holder
|
|
Issue Date
|
|
Due Date
|
|
Principal
|
|
|
Unamortized Debt Discount
|
|
|
Carrying Value
|
|
|
Accrued Interest
|
|
Noteholder 1
|
|
3/2/2017
|
|
3/2/2018
|
|
$
|
125,000
|
|
|
$
|
(38,112
|
)
|
|
$
|
86,888
|
|
|
$
|
5,671
|
|
Noteholder 1
|
|
7/14/2017
|
|
7/14/2018
|
|
|
275,600
|
|
|
|
(11,795
|
)
|
|
|
263,805
|
|
|
|
4,712
|
|
Noteholder 1
|
|
8/14/2017
|
|
8/14/2018
|
|
|
275,600
|
|
|
|
(13,068
|
)
|
|
|
262,532
|
|
|
|
2,839
|
|
Noteholder 4
|
|
3/2/2017
|
|
3/2/2018
|
|
|
69,000
|
|
|
|
(50,009
|
)
|
|
|
18,991
|
|
|
|
7,187
|
|
Noteholder 4
|
|
6/5/2017
|
|
3/2/2018
|
|
|
125,000
|
|
|
|
(70,833
|
)
|
|
|
54,167
|
|
|
|
3,205
|
|
Noteholder 4
|
|
7/14/2017
|
|
7/14/2018
|
|
|
275,600
|
|
|
|
(11,795
|
)
|
|
|
263,805
|
|
|
|
4,470
|
|
Noteholder 4
|
|
8/14/2017
|
|
8/14/2018
|
|
|
275,600
|
|
|
|
(13,068
|
)
|
|
|
262,532
|
|
|
|
2,597
|
|
|
|
|
|
|
|
$
|
1,421,400
|
|
|
$
|
(208,680
|
)
|
|
$
|
1,212,720
|
|
|
$
|
30,681
|
|
The following table summarizes all convertible notes outstanding as of September 30, 2018:
Holder
|
|
Issue Date
|
|
Due Date
|
|
Principal
|
|
|
Unamortized Debt Discount
|
|
|
Carrying Value
|
|
|
Accrued Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noteholder 5
|
|
7/2/18
|
|
10/1/18
|
|
|
220,000
|
|
|
|
(220
|
)
|
|
|
219,780
|
|
|
|
|
Noteholder 6
|
|
7/2/18
|
|
10/1/18
|
|
|
220,000
|
|
|
|
(220
|
)
|
|
|
219,780
|
|
|
|
|
Noteholder 7
|
|
8/1/18
|
|
10/1/18
|
|
|
330,000
|
|
|
|
(492
|
)
|
|
|
329,508
|
|
|
|
4,412
|
|
Noteholder 4
|
|
8/14/18
|
|
8/14/19
|
|
|
167,100
|
|
|
|
(13,591
|
)
|
|
|
153,509
|
|
|
|
|
|
Noteholder 8
|
|
8/29/18
|
|
2/28/19
|
|
|
222,222
|
|
|
|
(78,670
|
)
|
|
|
143,552
|
|
|
|
1,005
|
|
Noteholder 9
|
|
9/6/18
|
|
9/6/19
|
|
|
125,000
|
|
|
|
(89,921
|
)
|
|
|
35,079
|
|
|
|
856
|
|
Noteholder 10
|
|
9/17/18
|
|
9/17/19
|
|
|
62,500
|
|
|
|
(57,381
|
)
|
|
|
5,119
|
|
|
|
240
|
|
Noteholder 6
|
|
9/17/18
|
|
3/11/19
|
|
|
585,000
|
|
|
|
(513,062
|
)
|
|
|
71,938
|
|
|
|
|
|
|
|
|
|
|
|
|
1,931,822
|
|
|
|
(753,557
|
)
|
|
|
1,178,265
|
|
|
|
6,513
|
|
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 $0 of principal and $0 and $0 of accrued interest due at September 30, 2018 and 2017, 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, 2018 and 2017, 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 $0 of principal and $0 and $0 of accrued interest due at September 30, 2018 and 2017, respectively.
EVIO, 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, 2018 and 2017, 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. During the year ended September 30, 2018, the noteholder converted all outstanding principal and interest in exchange for a total of 343,019 common shares. There was $0 and $125,000 of principal and $0 and $7,397 of accrued interest due at September 30, 2018 and 2017, 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 common shares. There was $0 and $0 of principal and $0 and $0 of accrued interest due at September 30, 2018 and 2017, respectively.
On July 14, 2017, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $275,600 of which $15,600 was an original issue discount and $10,000 was paid directly to third parties resulting in cash proceeds to the Company of $250,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, is due on July 14, 2018. The Note is convertible into the Company's common stock commencing 180 days from the date of issuance at a conversion price equal to 75% of the lowest trade price of the Company's common stock for the fifteen prior trading days including the date of conversion. During the year ended September 30, 2018, the noteholder converted all outstanding principal and interest in exchange for a total of 679,812 common shares. There was $0 and $275,000 of principal and $0 and $4,701 of accrued interest due at September 30, 2018 and 2017, respectively.
On August 14, 2017, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $275,600 of which $15,600 was an original issue discount and $10,000 was paid directly to third parties resulting in cash proceeds to the Company of $250,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, is due on August 14, 2018. The Note is convertible into the Company's common stock commencing 180 days from the date of issuance at a conversion price equal to 75% of the lowest trade price of the Company's common stock for the fifteen prior trading days including the date of conversion. During the year ended September 30, 2018, the noteholder converted all outstanding principal and interest in exchange for a total of 426,467 common shares. There was $0 and $275,000 of principal and $0 and $2,833 of accrued interest due at September 30, 2018 and 2017, 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 $0 of principal and $0 and $0 of accrued interest due at September 30, 2018 and 2017, respectively.
Noteholder 3
On March 21, 2016, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $27,500 of which $2,500 was an original issue discount resulting in cash proceeds to the Company of $25,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 10%, is due on March 21, 2017. The Note is convertible into the Company's common stock commencing from the date of issuance at a conversion price equal to 50% of the lowest trade price of the Company's common stock for the twenty-five prior trading days including the date of conversion. The Company 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 $0 of principal and $0 and $0 of accrued interest due at September 30, 2018 and 2017, respectively.
EVIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 – CONVERTIBLE NOTES PAYABLE (CONTINUED)
Noteholder 3 (continued)
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 $0 of principal and $0 and $0 of accrued interest due at September 30, 2018 and 2017, 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 $0 of principal and $0 and $0 of accrued interest due at September 30, 2018 and 2017, respectively.
EVIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 – CONVERTIBLE NOTES PAYABLE (CONTINUED)
Noteholder 4
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, 2018, the holder elected to convert a total of $69,000 of principal in exchange for 238,726 shares of common stock. 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 $0 and $69,000 of principal and $0 and $7,187 of accrued interest due at September 30, 2018 and 2017, 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, 2018, the holder elected to convert all outstanding principal and interest due in exchange for 369,791 shares of common stock. There was $0 and $125,000 of principal and $0 and $3,205 of accrued interest due at September 30, 2018 and 2017, respectively.
On July 14, 2017, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $275,600 of which $15,600 was an original issue discount and $10,000 was paid directly to third parties resulting in cash proceeds to the Company of $250,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, is due on July 14, 2018. The Note is convertible into the Company's common stock commencing 180 days from the date of issuance at a conversion price equal to 75% of the lowest trade price of the Company's common stock for the fifteen prior trading days including the date of conversion. During the year ended September 30, 2018, the holder elected to convert all outstanding principal and interest due in exchange for 580,327 shares of common stock. There was $0 and $275,000 of principal and $0 and $4,701 of accrued interest due at September 30, 2018 and 2017, respectively.
On August 14, 2017, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $275,600 of which $15,600 was an original issue discount and $10,000 was paid directly to third parties resulting in cash proceeds to the Company of $250,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, is due on August 14, 2018. The Note is convertible into the Company's common stock commencing 180 days from the date of issuance at a conversion price equal to 75% of the lowest trade price of the Company's common stock for the fifteen prior trading days including the date of conversion. During the year ended September 30, 2018, the holder elected to convert $108,400 of principal due in exchange for 251,028 shares of common stock. There was $167,100 and $275,000 of principal and $2,839 and $2,833 of accrued interest due at September 30, 2018 and 2017, respectively.
Noteholder 5
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 $0 of principal and $4,340 and $0 of accrued interest due at September 30, 2018 and 2017, respectively.
Noteholder 6
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 $0 of principal and $4,340 and $0 of accrued interest due at September 30, 2018 and 2017, 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 $585,000 of principal and $0 accrued interest due at September 30, 2018.
Noteholder 7
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%, 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 $330,000 and $0 of principal and $0 and $0 of accrued interest due at September 30, 2018 and 2017, respectively.
EVIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 CONVERTIBLE NOTES PAYABLE (CONTINUED)
Noteholder 8
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 $0 of principal and $1,005 and $0 of accrued interest due at September 30, 2018 and 2017, respectively. The holder has issued a notice of default on this promissory note.
Noteholder 9
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 $0 of principal and $856 and $0 of accrued interest due at September 30, 2018 and 2017, respectively.
Noteholder 10
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 $0 of principal and $240 and $0 of accrued interest due at September 30, 2018 and 2017, respectively.
Noteholder 11
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.
On January 29, 2018, the Company issued a total of 5,973 units of 8% unsecured convertible debentures. Each unit consists of one convertible debenture with a principal face value of $1,000 and 250 warrants. The gross proceeds were $5,973,000. Each warrant entitles the holder thereof to purchase one additional common share of the Company at an exercise price of $0.80 per warrant for a period of 24 months. The convertible debentures have a maturity date of 36 months from issuance. Simple interest will be paid at a rate of 8% per annum in arrears until maturity or until conversion. The principal amount of the debentures and any accrued interest thereon are convertible at the option of the holder into common shares of the Company at any time at a conversion price of $0.60 per share.
In addition to the warrants associated with the convertible debentures, the Company issued an additional 597,300 warrants to purchase common stock of the Company as offering costs representing an equivalent of 6% of the fully converted debentures. The warrants are exercisable at $0.60 per share for a period of two years.
The Company also issued three separate debentures under the same terms for additional cash proceeds of $610,000. The additional debentures carry an additional 152,500 warrants to purchase additional common shares of the Company at $0.80 per share. Additionally, the outstanding principal and interest may be converted to common stock of the Company at $0.60 per share.
EVIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 CONVERTIBLE NOTES PAYABLE (CONTINUED)
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
|
|
2.00 years
|
|
Expected volatility
|
|
|
223
|
%
|
Risk-free interest rate
|
|
|
2.49
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
The Company separately assessed the value of the detachable warrants and conversion features of the convertible debentures. The Company separately initially valued the detachable warrants issued with the convertible debentures at $3,351,160 using a Black-Scholes model with the following assumptions:
Expected term of options granted
|
|
2.00 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 $6,583,000 may be converted into common stock of the Company at $0.60 per share for a total of 10,971,667 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 September 30, 2018 the Company has amortized $1,226,994 of the total outstanding debt discount leaving an unamortized debt discount of $2,156,261. The remaining debt discount will be amortized to interest expense over the expected life of the note. There was $5,197,000 of principal and accrued interest totaling $234,626 outstanding as of September 30, 2018.
EVIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 – DERIVATIVE LIABILITY
As of September 30, 2018 and 2017, Company had a derivative liability balance of $1,181,278 and $294,637 on the balance sheets and recorded a gain of $2,555,350 and a loss of $285,887 from derivative liability fair value adjustments during the year ended September 30, 2018 and 2017. The derivative liability activity comes from convertible notes payable as follows:
On July 14, 2017, the Company issued a $275,600 Convertible Promissory Note to an unrelated party that matured on July 14, 2018. The note bore interest at a rate of 8% per annum and was convertible into the Company’s common shares six months after issuance, at the holder’s option, at the conversion rate equal to a 25% discount from the lowest trading price in the fifteen trading days prior to conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using a Monte Carlo Simulation. The aggregate fair value of the derivative at the issuance date of the note was $419,722 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $260,000 which was up to the face value of the convertible note with the excess fair value at initial measurement of $159,722 being recognized as a loss on derivative fair value measurement.
During the year ended September 30, 2018, the noteholder elected to convert a total of $275,600 of principal. At September 30, 2018, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $0 and recorded a $64,148 gain from change in fair value and $355,574 due to conversion for the year ended September 30, 2018. The fair value of the embedded derivatives for the notes was determined using a Monte Carlo simulation model based on the following assumptions: (1) expected volatility of 128%, (2) risk-free interest rate of 1.84%, and (3) expected life of 0.22 of a year.
On July 14, 2017, the Company issued a $275,600 Convertible Promissory Note to an unrelated party that matured on July 14, 2018. The note bore interest at a rate of 8% per annum and was convertible into the Company’s common shares six months after issuance, at the holder’s option, at the conversion rate equal to a 25% discount from the lowest trading price in the fifteen trading days prior to conversion. The 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 a Monte Carlo simulation. The aggregate fair value of the derivative at the issuance date of the note was $419,796 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $260,000 which was up to the face value of the convertible note with the excess fair value at initial measurement of $159,796 being recognized as a loss on derivative fair value measurement.
EVIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 DERIVATIVE LIABILITY (CONTINUED)
During the year ended September 30, 2018, the noteholder elected to convert a total of $275,600 of principal. At September 30, 2018, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $0 and recorded a $8,276 gain from change in fair value and $411,520 due to conversion for the year ended September 30, 2018. The fair value of the embedded derivatives for the notes was determined using a Monte Carlo simulation model based on the following assumptions: (1) expected volatility of 128%, (2) risk-free interest rate of 1.85%, and (3) expected life of 0.07 of a year.
On August 14, 2017, the Company issued a $275,600 Convertible Promissory Note to an unrelated party that matured on August 14, 2018. The note bore interest at a rate of 8% per annum and was convertible into the Company’s common shares six months after issuance, at the holder’s option, at the conversion rate equal to a 25% 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 a Monte Carlo Simulation. The aggregate fair value of the derivative at the issuance date of the note was $330,278 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $260,000 which was up to the face value of the convertible note with the excess fair value at initial measurement of $70,278 being recognized as a loss on derivative fair value measurement.
During the year ended September 30, 2018, the noteholder elected to convert a total of $275,600 of principal. At September 30, 2018, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $0 and recorded a $13,917 gain from change in fair value and $316,361 due to the conversion for the year ended September 30, 2018. The fair value of the embedded derivatives for the notes was determined using a Monte Carlo simulation model based on the following assumptions: (1) expected volatility of 128%, (2) risk-free interest rate of 1.81%, and (3) expected life of 0.50 of a year.
On August 14, 2017, the Company issued a $275,600 Convertible Promissory Note to an unrelated party that matured on August 14, 2018. The note bore interest at a rate of 8% per annum and was convertible into the Company’s common shares six months after issuance, at the holder’s option, at the conversion rate equal to a 25% 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 a Monte Carlo Simulation. The aggregate fair value of the derivative at the issuance date of the note was $329,356 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $260,000 which was up to the face value of the convertible note with the excess fair value at initial measurement of $69,356 being recognized as a loss on derivative fair value measurement.
EVIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 DERIVATIVE LIABILITY (CONTINUED)
During the year ended September 30, 2018, the noteholder elected to convert a total of $275,600 of principal. At September 30, 2018, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $0 and recorded a $177,523 loss from change in fair value and $446,879 due to the conversion for the year ended September 30, 2018. The fair value of the embedded derivatives for the notes was determined using a Monte Carlo simulation model based on the following assumptions: (1) expected volatility of 129%, (2) risk-free interest rate of 1.88%, and (3) expected life of 0.29 of a year.
On April 16, 2018, $85,000 of $340,000 principal on a note with a related party became convertible to common stock at the option of the noteholder. The note bears interest at a rate of 6% per annum and was convertible into the Company’s common shares six months after issuance, at the holder’s option, at the conversion rate equal to a 20% discount from the lowest trading price in the five trading days prior to conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using a Monte Carlo Simulation. The aggregate fair value of the derivative at the issuance date of the note was $29,044 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $29,044 which was up to the value of the convertible portion of the note.
At September 30, 2018, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $29,217 and recorded a $173 loss from the change in fair value for the year ended September 30, 2018. The fair value of the embedded derivatives for the notes was determined using a Monte Carlo simulation model based on the following assumptions: (1) expected volatility of 128%, (2) risk-free interest rate of 2.55%, and (3) expected life of 2.3 years.
On July 14, 2017, the Company issued a $275,600 Convertible Promissory Note to an unrelated party that matured on July 14, 2018. The note bore interest at a rate of 8% per annum and was convertible into the Company’s common shares at the date of funding, at the holder’s option, at the conversion rate equal to a 25% discount from the lowest trading price in the fifteen trading days prior to conversion. The note was funded on May 3, 2018 at which point it was immediately convertible. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using a Monte Carlo Simulation. The aggregate fair value of the derivative at the issuance date of the note was $404,548 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $250,000 which was up to the face value of the convertible note with the excess fair value at initial measurement of $154,548 being recognized as a loss on derivative fair value measurement.
EVIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 DERIVATIVE LIABILITY (CONTINUED)
During the year ended September 30, 2018, the noteholder elected to convert a total of $275,600 of principal. At September 30, 2018, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $0 and recorded a change of $404,548 due to the conversion for the year ended September 30, 2018. The fair value of the embedded derivatives for the notes was determined using a Monte Carlo simulation model based on the following assumptions: (1) expected volatility of 129%, (2) risk-free interest rate of 1.86%, and (3) expected life of 0.28 of a year.
As discussed in
Note 8 – Convertible Debentures
, the Company issued a total of $6,583,000 of Convertible Debentures to unrelated parties that mature on dates ranging from January 29, 2021 to March 8, 2021. The Company issued a total of 2,243,050 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 under ASC 815-15 “Derivatives and Hedging” and determined that the warrants should be classified as a derivative because the Company is unable to ascertain there will be adequate unissued authorized shares of common stock to fulfill its obligations should the warrants be exercised. In accordance with AC 815, the Company has recorded a derivative liability related to the warrants.
The derivative for the warrants is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the issuance date of the warrants was $4,616,545 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $4,465,131 which was up to the face value of the convertible debentures with the excess fair value at initial measurement of $151,414 being recognized as a loss on derivative fair value measurement.
At September 30, 2018, the Company marked-to-market the fair value of the derivative liabilities related to warrants and determined an aggregate fair value of $1,181,278 and recorded a $3,452,233 gain from change in fair value and $12,251 change due to warrant exercises for the year ended September 30, 2018. The fair value of the embedded derivatives for the notes was determined using a Black-Scholes option pricing model based on the following assumptions: (1) expected volatility of 119% - 122%, (2) risk-free interest rate of 2.81%, (3) exercise prices of $0.60 - $0.80, and (4) expected lives of 1.34 – 1.44 of a year.
The following table summarizes the derivative liabilities included in the balance sheet at September 30, 2018:
Fair Value of Embedded Derivative Liabilities:
|
|
|
|
Balance, September 30, 2017
|
|
$
|
294,637
|
|
Initial measurement of derivative liabilities
|
|
|
6,549,289
|
|
Change in fair market value
|
|
|
(3,320,536
|
)
|
Write off due to conversion
|
|
|
(2,342,112
|
)
|
Balance, September 30, 2018
|
|
$
|
1,181,278
|
|
The following table summarizes the gain (loss) on derivative liability included in the income statement for the years ended September 30, 2018 and 2017, respectively.
|
|
Year Ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Day one loss due to derivatives on convertible debt
|
|
$
|
(765,114
|
)
|
|
$
|
(481,794
|
)
|
Change in fair value of derivatives
|
|
|
3,320,464
|
|
|
|
195,907
|
|
Total derivative gain (loss)
|
|
$
|
2,555,350
|
|
|
$
|
(285,887
|
)
|
EVIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2018 and 2017 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.
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:
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Income tax provision at the federal statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Effect on operating losses
|
|
|
-35.0
|
%
|
|
|
-35.0
|
%
|
|
|
September 30,
|
|
|
September 30,
|
|
Net deferred tax assets consisted of the following:
|
|
2018
|
|
|
2017
|
|
Net operating loss carryforward
|
|
$
|
4,071,932
|
|
|
$
|
1,076,144
|
|
Valuation allowance
|
|
|
(4,071,932
|
)
|
|
|
(1,076,144
|
)
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
A reconciliation of income taxes computed at the statutory rate is as follows.
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Computed federal income tax expense at statutory rate is as follows.
|
|
$
|
(4,071,932
|
)
|
|
$
|
(1,256,517
|
)
|
Depreciation and amortization
|
|
|
253,703
|
|
|
|
99,748
|
|
Deferred revenue
|
|
|
127,124
|
|
|
|
14,280
|
|
Common stock issued for services
|
|
|
136,671
|
|
|
|
225,598
|
|
Common stock issued under employee incentive plan
|
|
|
251,791
|
|
|
|
58,102
|
|
Stock option expense
|
|
|
595,304
|
|
|
|
41,502
|
|
Amortization of debt discounts
|
|
|
1,519,967
|
|
|
|
299,917
|
|
Default penalties on convertible notes payable
|
|
|
-
|
|
|
|
-
|
|
Change in derivative liability
|
|
|
254,788
|
|
|
|
100,060
|
|
Change in valuation allowance
|
|
|
932,585
|
|
|
|
417,310
|
|
Income tax expense
|
|
$
|
-
|
|
|
$
|
-
|
|
EVIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2018, EVIO Labs has operating labs located in Oregon, California and Massachusetts. Clients consist of growers, processors, dispensaries and individuals. 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, 2018
|
|
Corporate
|
|
|
Consulting Services
|
|
|
Testing Services
|
|
|
Total Consolidated
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
176,832
|
|
|
$
|
3,188,693
|
|
|
$
|
3,365,525
|
|
Segment income (loss) from operations
|
|
|
(3,802,702
|
)
|
|
|
(1,835,901
|
)
|
|
|
(2,537,821
|
)
|
|
|
(8,176,424
|
)
|
Total assets
|
|
|
(16,650
|
)
|
|
|
1,534,823
|
|
|
|
12,836,787
|
|
|
|
14,354,960
|
|
Capital expenditures
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,246,770
|
)
|
|
|
(4,246,770
|
)
|
Depreciation and amortization
|
|
|
-
|
|
|
|
-
|
|
|
|
724,865
|
|
|
|
724,865
|
|
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
|
|
EVIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 – COMMITTMENTS 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. There was no change in the impairment for the year ended September 30, 2018.
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,
|
|
|
|
2019
|
|
|
955,679
|
|
2020
|
|
|
974,675
|
|
2021
|
|
|
730,840
|
|
2022
|
|
|
567,380
|
|
2023
|
|
|
315,629
|
|
Total
|
|
$
|
3,544,213
|
|
NOTE 15 – REVENUE CONCENTRATION
The Company generated revenues of $3,365,525 and $3,021,030 for the years ended September 30, 2018 and 2017, respectively. The Company did not have any customer that represented greater than 10% of revenues during the years ended September 30, 2018 or 2017.
NOTE 16 – STOCK OPTIONS AND WARRANTS
The following tables summarizes all stock option and warrant activity for the year ended September 30, 2018 and 2017:
|
|
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
|
|
|
|
Shares
|
|
|
Weighted-
Average
Exercise Price
Per Share
|
|
Outstanding, September 30, 2017
|
|
|
655,000
|
|
|
$
|
0.902
|
|
Granted
|
|
|
4,073,000
|
|
|
|
0.767
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(90,000
|
)
|
|
|
0.878
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding, September 30, 2018
|
|
|
4,638,050
|
|
|
$
|
0.784
|
|
EVIO, 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, 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
|
|
|
|
2.88
|
|
|
|
110,000
|
|
|
$
|
0.400
|
|
$
|
0.500
|
|
|
|
165,000
|
|
|
$
|
0.500
|
|
|
|
2.95
|
|
|
|
162,500
|
|
|
$
|
0.500
|
|
$
|
0.600
|
|
|
|
597,300
|
|
|
$
|
0.600
|
|
|
|
1.33
|
|
|
|
597,300
|
|
|
$
|
0.600
|
|
$
|
0.650
|
|
|
|
145,000
|
|
|
$
|
0.650
|
|
|
|
4.07
|
|
|
|
36,250
|
|
|
$
|
0.650
|
|
$
|
0.800
|
|
|
|
3,195,750
|
|
|
$
|
0.800
|
|
|
|
2.74
|
|
|
|
2,808,250
|
|
|
$
|
0.800
|
|
$
|
0.850
|
|
|
|
100,000
|
|
|
$
|
0.850
|
|
|
|
4.55
|
|
|
|
-
|
|
|
$
|
0.850
|
|
$
|
1.050
|
|
|
|
25,000
|
|
|
$
|
1.050
|
|
|
|
5.04
|
|
|
|
-
|
|
|
$
|
1.050
|
|
$
|
1.260
|
|
|
|
220,000
|
|
|
$
|
1.260
|
|
|
|
3.75
|
|
|
|
110,000
|
|
|
$
|
1.260
|
|
$
|
1.300
|
|
|
|
10,000
|
|
|
$
|
1.300
|
|
|
|
3.05
|
|
|
|
7,500
|
|
|
$
|
1.300
|
|
$
|
1.386
|
|
|
|
60,000
|
|
|
$
|
1.386
|
|
|
|
3.75
|
|
|
|
30,000
|
|
|
$
|
1.386
|
|
$
|
1.666
|
|
|
|
10,000
|
|
|
$
|
1.666
|
|
|
|
3.84
|
|
|
|
5,000
|
|
|
$
|
1.666
|
|
Total
|
|
|
|
4,638,050
|
|
|
$
|
0.784
|
|
|
|
3.322
|
|
|
|
3,866,800
|
|
|
$
|
0.763
|
|
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, 2018
|
|
Expected term of options granted
|
|
5 years
|
|
Expected volatility
|
|
|
14.63
|
%
|
Risk-free interest rate
|
|
|
2.94
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 – SUBSEQUENT EVENTS
Common Stock Issuances
The Company made the following issuances of common stock subsequent to September 30, 2018:
·
|
1,415,000 common shares issued for cash at $0.40 per share resulting in total cash proceeds of $586,000.
|
|
|
·
|
532,500 common shares for the conversion of 213,000 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.
|
|
|
·
|
62,500 common shares valued at $24,225 for the vesting of restricted stock grants for officers and directors
|
|
|
·
|
1,038,017 common shares for services valued at $356,960
|
|
|
·
|
669,362 common shares for the conversion of $551,617 of outstanding principal on convertible debentures payable. All conversions were performed at contractual terms.
|
|
|
·
|
779,808 common shares for the conversion of $317,100 of outstanding principal on notes payable. All conversions were performed at contractual terms.
|
|
|
·
|
10,163 common shares for the conversion of $2,988 of outstanding interest on notes payable. All conversions were performed at contractual terms.
|
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 with Warrants
On October 2, 2018, the Company entered into a convertible note payable with an unrelated party for $220,000 of which $20,000 was an original issue discount resulting in net cash proceeds to the Company of $200,000. The convertible note payable carries interest at a rate of 8% per annum, is due on March 1, 2019 is convertible into common stock of the Company at the option of the noteholder six months after issuance at a rate of $0.50 per share. The debenture included the right to purchase 100,000 warrants of the company at an exercise price of $0.60 for a period of two years from the original issuance date of October 2, 2018.
Convertible Notes Payable
On November 15, 2018, the Company entered into a convertible note payable with an unrelated party for $222,600 of which $12,600 was an original issue discount and $10,000 in third party fees resulting in net cash proceeds to the Company of $200,000. The convertible note payable carries interest at a rate of 8% per annum, is due on November 15, 2019 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 December 28, 2018, the Company entered into a convertible note payable with an unrelated party for $105,000 of which included $5,000 in third party fees 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 December 28, 2019 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 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 $33,092,32 which included $1,575,82 81 third party fees resulting in net cash proceeds to the Company of $31,516.50. 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 $33,092,32 which included $1,575,82 81 third party fees resulting in net cash proceeds to the Company of $31,516.50. 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.
EVIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 SUBSEQUENT EVENTS
(CONTINUED)
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.
Convertible Debenture Issuance
On October 17, 2018, the Company issued a total of 374 units of 8% unsecured convertible debentures. Each unit consists of one convertible debenture with a principal face value of $1,000 and 1,000 warrants. The gross proceeds were $374,000.
Each warrant shall entitle 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 shall be paid at a rate of 8% per annum. It shall be paid quarterly 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. This represents an equivalent of 8% of the fully converted debentures. The warrants are exercisable at $0.60 per share.
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
As disclosed in Item 3:
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 17
th
Judicial Circuit in and for Broward County, Florida. Since such filing, the Company and Creditor have entered into a Settlement Agreement and Stipulation, pursuant to which the Company has agreed to issue the Creditor 1,000,000 shares of its common stock under 3(a)(10) of the Securities Act of 1933 in settlement for all claims. The settlement is conditioned upon a fairness hear and approval by the court.