Quarterly Report (10-q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended December 31, 2019

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

For the transition period from _________ to __________.

Commission File Number: 000-12350

EVIO, INC.

(Exact name of registrant as specified in its charter)

Colorado		47-1890509
(State of Incorporation)		(I.R.S. Employer Identification No.)

2654 W. Horizon Ridge Pkwy, Suite B5-208 Henderson, NV		89052
(Address of principal executive offices)		(Zip Code)

(702) 748-9944

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
N/A		N/A		N/A

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

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

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

Large accelerated filer	[ ]	Non-accelerated filer	[ ]
Accelerated filer	[ ]	Smaller reporting company	[X]
		Emerging growth company	[X]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

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

As of September 3, 2020, there were 89,142,473 shares of common stock outstanding.

EVIO, INC.

FORM 10-Q

QUARTERLY PERIOD ENDED DECEMBER 31, 2019

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements (Unaudited)
	Consolidated Balance Sheets as of December 31, 2019 (Unaudited) and September 30, 2019	3
	Consolidated Statements of Operations for the Three Months Ended December 31, 2019, and 2018 (Unaudited)	4
	Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2019, and 2018 (Unaudited)	5
	Consolidated Statements of Stockholders Equity for the Three Months December 31, 2019, and 2018 (Unaudited)	6
	Notes to Unaudited Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
	Critical Accounting Policies and Estimates	30
	Results of Operations	30
	Liquidity and Capital Resources	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Control and Procedures	32

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Mine Safety Disclosures	33
Item 5.	Other Information	33
Item 6.	Exhibits	33

PART I — FINANCIAL INFORMATION

EVIO, INC.

Consolidated Balance Sheets

	December 31,			September 30,
	2019			2019

ASSETS
Current assets:
Cash and cash equivalents	$	125,554		$	110,325
Accounts receivable, net		193,808			133,022
Prepaid expenses		163,771			190,460
Other current assets		11,818			9,689
Note receivable, current portion		538,904			538,904
Total current assets		1,033,855			982,400
Right of use assets		2,307,150			2,543,976
Capital assets, net		1,305,028			1,383,828
Land		212,550			212,550
Property and equipment, net		3,028,017			3,080,426
Security deposits		178,260			178,918
Prepaid expenses, net		989			4,061
Total assets	$	8,065,849		$	8,386,159

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	4,369,145		$	3,811,237
Client deposits		51,666			108,418
Interest payable		1,430,573			1,387,642
Capital lease obligation, current		963,316			957,673
Derivative liability		2,125,702			2,545,735
Convertible notes payable, net of discounts		3,051,499			3,695,484
Loans payable, net of discounts, current		785,931			762,476
Total current liabilities		12,777,832			13,268,665
Convertible debentures, net of loan discounts		2,403,970			1,734,890
Lease liabilities		2,356,425			2,594,726
Capital lease obligation, net		307,346			381,786
Loans payable, net		726,733			657,603
Loans payable, related party, net		1,575,950			1,560,849
Total liabilities		20,148,256			20,198,519

Commitments and contingencies		-			-

Stockholders’ Equity:
Series B convertible preferred stock, $0.0001 par value. 5,000,000 authorized; 5,000,000 shares issued and outstanding at December 31, 2019 and September 30, 2019, respectively		500			500
Series C convertible preferred stock, $0.0001 par value. 500,000 authorized; 500,000 shares issued and outstanding at December 31, 2019 and September 30, 2019, respectively		50			50
Series D convertible preferred stock, $0.0001 par value. 1,000,000,000 authorized; 349,500 and 349,500 shares issued and outstanding at December 31, 2019 and September 30, 2019, respectively		34			34
Common stock, $0.0001 par value. 1,000,000,000 authorized; 54,192,080 and 29,314,419 shares issued and outstanding at December 31, 2019 and September 30, 2019, respectively		5,419			2,931
Stock subscriptions receivable		-			-
Additional paid-in capital		28,531,100			26,498,076
Retained earnings (accumulated deficit)		(40,089,990	)		(37,775,183	)
Accumulated other comprehensive income		(354,320	)		(353,090	)
Total stockholders’ equity		(11,907,207	)		(11,626,682	)
Noncontrolling interest		(175,199	)		(185,678	)
Total equity		(12,082,406	)		(11,812,360	)
Total liabilities and equity	$	8,065,850		$	8,386,159

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

EVIO, INC.

Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

	Three Months Ended December 31,			Three Months Ended December 31,
	2019			2018

Revenues
Testing revenue	$	1,332,956		$	1,187,238
Consulting revenue		-			-
Total revenues		1,332,956			1,187,238

Cost of revenue
Testing services		946,760			1,013,980
Consulting services		-			-
Depreciation and amortization		255,554			290,448
Total cost of revenue		1,202,314			1,304,428

Gross margin		130,642			(117,190	)

Operating expenses:
Selling, general and administrative		1,267,924			1,496,640
Depreciation and amortization		28,230			58,866
Total operating expenses		1,296,154			1,555,506

Income (loss) from operations		(1,165,512	)		(1,672,696	)

Other income (expense)
Interest income (expense), net		(1,562,871	)		(1,764,878	)
Other income (expense)		4,021			(64,095	)
Gain (loss) on settlement of debt		-			-
Impairment charge		-			-
Gain (loss) on change in fair market value of derivative liabilities		420,033			852,628
Total other income (expense)		(1,138,817	)		(976,345	)
Income (loss) before income taxes		(2,304,329	)		(2,649,041	)

Provision for income taxes (benefit)		-			2,356

Net income (loss)		(2,304,329	)		(2,651,397	)
Net income (loss) attributable to noncontrolling interest		10,479			(54,738	)
Net income (loss) attributable to EVIO, Inc. shareholders	$	(2,314,808	)	$	(2,596,659	)

Basic and diluted earnings (loss) per common share	$	(0.07	)	$	(0.10	)

Weighted-average number of common shares outstanding:
Basic and diluted		33,979,456			24,753,397

Comprehensive loss:
Net income (loss)	$	(2,304,329	)	$	(2,651,397	)
Foreign curreny translation adjustment		(1,230	)		(179,822	)
Comprehensive income (loss)	$	(2,305,559	)	$	(2,831,219	)

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

EVIO, INC.

Consolidated Statements of Cash Flows (Unaudited)

	Three Months Ended December 31,			Three Months Ended December 31,
	2019			2018
Cash flows from operating activities of continuing operations:
Net income (loss)	$	(2,304,329	)	$	(2,651,397	)
Adjustments to reconcile net loss to cash used in operating activities:
Amortization of debt discount		1,244,194			1,519,971
Common stock issued in exchange for fees and services		16,730			143,823
Default penalties and other covenant adjustments on convertible debentures		62,500			-
Depreciation and amortization		283,784			349,424
Loss on disposal of assets		2,979			64,095
Provision for doubtful accounts		(1,670	)		18,310
Stock based compensation		360,958			205,797
Unrealized (gain) loss on derivative liability		(420,033	)		(852,628	)
Changes in operating assets and liabilities:
Accounts receivable		(56,828	)		(39,437	)
Prepaid expenses		29,762			(64,142	)
Other current assets		(2,129	)		(32,422	)
Security deposits		1,000			(4,470	)
Operating lease right of use assets		(1,475	)		47,123
Accounts payable and accrued liabilities		747,859			918,795
Customer deposits and deferred revenues		(56,752	)		(126,688	)
Interest payable		215,107			256,126
Net cash provided by (used in) operating activities		121,657			(247,720	)

Cash flows from investing activities:
Purchase of fixed assets		(33,124	)		(554,731	)
Net cash provided by (used in) financing activities		(33,124	)		(554,731	)

Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs		-			103,000
Proceeds from issuance of convertible debentures		-			910,413
Proceeds from issuance of convertible notes, net of issuance costs		204,407			-
Proceeds from related party advances		33,587			53,325
Repayments of capital leases		(81,399	)		(61,379	)
Repayments of convertible debentures		-			(61,595	)
Repayments of loans payable		(12,840	)		(7,947	)
Repayments of related party loans payable		(31,951	)		(1,941	)
Net cash provided by (used in) financing activities		111,804			933,876

Effect of exchange rates on cash and cash equivalents		(185,108	)		(3,076	)
Net increase (decrease) in cash and cash equivalents		15,229			128,349
Cash and cash equivalents at beginning of period		110,325			81,735
Cash and cash equivalents at end of period	$	125,554		$	210,084

Supplemental disclosure of cash flow information:
Cash paid for interest	$	-		$	-
Cash paid for income taxes	$	-		$	-

Supplemental disclosure of non-cash investing and financing activities:
Conversion of convertible note and accrued interest into common stock	$	1,414,004		$	708,089
Settlement of account payable for common stock	$	6,000		$	-
Debt discount recorded on convertible notes and debentures payable upon initial measurement of derivative liability	$	-		$	350,039
Debt discounts recorded for beneficial conversion features on convertible debentures and notes payable	$	175,320		$	-
Debt discounts recorded for original issue discounts on convertible debentures	$	-		$	280,144
Vehicles financed through notes payable	$	105,424		$	-
Equipment financed through capital leases	$	-		$	308,613

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

EVIO, INC.

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

	Series B Preferred Stock				Series C Preferred Stock				Series D Preferred Stock						Common Stock				Additional Paid-in			Retained			Accumulated Other Comprehensive			Total Stockholders’			Noncontrolling			Total
	Shares		Value		Shares		Value		Shares			Value			Shares		Value		Capital			Earnings			Income			Equity			Interest			Equity

Balance, September 30, 2018		5,000,000	$	500		500,000	$	50		552,500		$	55			23,255,411	$	2,326	$	21,495,621		$	(19,226,462	)	$	(263,985	)	$	2,008,105		$	1,934,634		$	3,942,739

Net income (loss)		-		-		-		-		-			-			-		-		-			(2,596,659	)		-			(2,596,659	)		(54,738	)		(2,651,397	)
Change in foreign currency translation		-		-		-		-		-			-			-		-		-			-			(179,822	)		(179,822	)		-			(179,822	)
Issuance of common stock in connection with the conversion of Series D preferred stock		-		-		-		-		(38,000	)		(4	)		95,000		10		(6	)		-			-			-			-			-
Issuance of common stock in connection with sales made under private offerings		-		-		-		-		-			-			200,000		20		105,980			-			-			106,000			-			106,000
Issuance of common stock as compensation to employees, officers and/or directors		-		-		-		-		-			-			50,000		5		35,870			-			-			35,875			-			35,875
Issuance of common stock in exchange for consulting, professional and other services provided		-		-		-		-		-			-			250,000		25		128,375			-			-			128,400			-			128,400
Issuance of common stock in connection with the conversion of loans payable		-		-		-		-		-			-			779,808		78		317,022			-			-			317,100			-			317,100
Issuance of common stock in connection with the conversion of debentures		-		-		-		-		-			-			669,362		66		387,934			-			-			388,000			-			388,000
Issuance of common stock in connection with the conversion of interest payable		-		-		-		-		-			-			10,163		1		2,987			-			-			2,988			-			2,988
Issuance of common stock in connection with the conversion of interest payable		-		-		-		-		-			-			-		-		12,423			-			-			12,423			-			12,423
Common stock options issued under employee equity incentive plan		-		-		-		-		-			-			-		-		169,922			-			-			169,922			-			169,922
Recognition of beneficial conversion features related to convertible debt instruments		-		-		-		-		-			-			-		-		280,144			-			-			280,144			-			280,144

Balance, December 31, 2018		5,000,000	$	500		500,000	$	50		514,500		$	51			25,309,744	$	2,531	$	22,936,272		$	(21,823,121	)	$	(443,807	)	$	672,476		$	1,879,896		$	2,552,372

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

EVIO, INC.

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

	Preferred Stock				Preferred Stock				Preferred Stock				Common Stock				Additional Paid-in		Retained			Accumulated Other Comprehensive			Total Stockholders’			Noncontrolling			Total
	Shares		Value		Shares		Value		Shares		Value		Shares		Value		Capital		Earnings			Income			Equity			Interest			Equity

Balance, September 30, 2019		5,000,000	$	500		500,000	$	50		339,500	$	34		29,314,419	$	2,931	$	26,498,076	$	(37,775,183	)	$	(353,090	)	$	(11,626,682	)	$	(185,678	)	$	(11,812,360	)

Net income (loss)		-		-		-		-		-		-		-		-		-		(2,314,808	)		-			(2,314,808	)		10,479			(2,304,329	)
Change in foreign currency translation		-		-		-		-		-		-		-		-		-		-			(1,230	)		(1,230	)		-			(1,230	)
Issuance of common stock as compensation to employees, officers and/or directors		-		-		-		-		-		-		422,500		42		234,335		-			-			234,377			-			234,377
Issuance of common stock in exchange for consulting, professional and other services provided		-		-		-		-		-		-		359,212		36		16,694		-			-			16,730			-			16,730
Issuance of common stock in satisfaction of debt issuances costs		-		-		-		-		-		-		2,285,449		229		62,271		-			-			62,500			-			62,500
Issuance of common stock in connection with the settlement of accounts payable		-		-		-		-		-		-		26,666		3		5,997		-			-			6,000			-			6,000
Issuance of common stock in connection with the conversion of debentures		-		-		-		-		-		-		18,317,481		1,832		1,239,950		-			-			1,241,782			-			1,241,782
Issuance of common stock in connection with the conversion of interest payable		-		-		-		-		-		-		3,466,353		346		171,876		-			-			172,222			-			172,222
Recognition of beneficial conversion features related to convertible debt instruments		-		-		-		-		-		-		-		-		175,320		-			-			175,320			-			175,320
Stock based compensation related to employee stock options		-		-		-		-		-		-		-		-		126,581		-			-			126,581			-			126,581

Balance, December 31, 2019		5,000,000	$	500		500,000	$	50		339,500	$	34		54,192,080	$	5,419	$	28,531,100	$	(40,089,991	)	$	(354,320	)	$	(11,907,208	)	$	(175,199	)	$	(12,082,407	)

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

EVIO, INC.

Notes To Unaudited Consolidated Financial Statements

For The Three Month Periods Ended December 31, 2019, And 2018

NOTE 1 – ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

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 2018. 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 a Membership Interest Purchase Agreement with Viridis Analytics MA, LLC which was closed on August 1, 2018.

On December 29, 2018, the Company entered into a Membership Purchase Agreement to purchase 60% of the outstanding shares of C3 Labs, LLC which closed On January 1, 2019.

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, 2019.

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.

Management’s Representation of Interim Financial Statements

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

Basis of Presentation

The consolidated financial statements of the Company have been prepared in accordance with GAAP and are expressed in United States dollars. For the three months ended December 31, 2019, and 2018, and the year ended September 30, 2019, the consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.

The subsidiaries of EVIO, Inc. are as follows:

Trade Name (dba)	Company Name	State of Incorporation	Ownership %			Acquisition Month
EVIO Labs Medford	Smith Scientific Industries, LLC	Oregon		80	%	June 2016
EVIO Labs Portland	Greenhaus Analytical Labs	Oregon		100	%	October 2016
EVIO Labs MA	Viridis Analytics	Massachusetts		100	%	August 2017
EVIO Labs Berkeley	C3 Labs, LLC	California		90	%	January 2018
Keystone Labs	Keystone Labs, Inc.	Ontario, Canada		50	%	May 2018

Revenue Recognition

The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. The core principle of the new revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:

	●	Step 1: Identify the contract with the customer
	●	Step 2: Identify the performance obligations in the contract
	●	Step 3: Determine the transaction price
	●	Step 4: Allocate the transaction price to the performance obligations in the contract
	●	Step 5: Recognize revenue when the company satisfies a performance obligation

The Company generates revenue from consulting services, licensing agreements, and testing of cannabis and hemp products for medicinal and adult-use consumption.

The Company accounts for a contract after it has been approved by all parties to the arrangement, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable.

The Company evaluates the services promised in each contract at inception to determine whether the contract should be accounted for as having one or more performance obligations. The Company’s services included in its contracts are distinct from one another.

The Company determines the transaction price for each contract based on the consideration it expects to receive for the distinct services being provided under the contract.

The Company recognizes revenue as performance obligations are satisfied and the customer obtains control of the services provided. In determining when performance obligations are satisfied, the Company considers factors such as contract terms, payment terms, and whether there is an alternative future use of the service.

The Company recognizes revenue from testing services upon delivery of its testing results to the client. Customer orders for testing services are generally completed within two weeks of receiving the order.

Consulting engagements may vary in length and scope, but will generally include the review and/or preparation of regulatory filings, business plans, and financial models, operating plans, and technology support to customers within the same industry. Revenue from consulting services is recognized upon completion of deliverables as outlined in the consulting agreement.

The Company recognizes revenue from the 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.

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.

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 $154,836 and $215,593 for the periods ended December 31, 2019, and September 30, 2019, respectively.

Foreign Currency Translation

The functional currency of the Company’s subsidiary in Canada is the Canadian Dollar. The subsidiary’s assets and liabilities have been translated to U.S. Dollars using the exchange rates in effect at the balance sheet dates. Statements of operations amounts have been translated using the average exchange rate for each period. Resulting gains or losses from translating foreign currency financial statements are recorded as other comprehensive income (loss).

Fair Value of Financial Instruments

The Company has adopted the guidance under ASC Topic 820 for financial instruments measured on fair value on a recurring basis. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

Net Income (Loss) Per Share

Basic loss per share is computed by dividing net income, or loss, by the weighted average number of shares of common stock outstanding for the period. Diluted earnings (loss) per share is computed by dividing net income, or loss, by the weighted average number of shares of common stock outstanding for the period. There were 33,979,456 and 13,266,226 potentially dilutive common shares outstanding as of December 31, 2019 and 2018, respectively. Because of the net losses incurred during the three months ended December 31, 2019, and 2018, the impacts of dilutive instruments would have been anti-dilutive for the period presented and have been excluded from the diluted loss per share calculations.

Recently Issued Accounting Pronouncements

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.

Note 2 – Going concern

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

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

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

Historically, it has mostly relied upon convertible debentures, convertible promissory notes, internally generated funds such as shareholder loans and advances to finance its operations and growth. Management may raise additional capital by retaining net earnings or through future public or private offerings of the Company’s stock or loans from private investors, although there can be no assurance that it will be able to obtain such financing. Additionally, due to the onset of COVID-19 obtaining financing may be more difficult to obtain currently compared to historic levels. The Company’s failure to do so could have a material and adverse effect upon it and its shareholders.

Note 3 – FAIR VALUE OF FINANCIAL INSTRUMENTS

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.

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. Also, the fair value of freestanding derivative instruments such as warrant and option derivatives are valued using the Black-Scholes simulation model.

The Company’s derivative liabilities were adjusted to fair market value at the end of each reporting period, using Level 3 inputs.

The following table sets forth by level with the fair value hierarchy the Company’s financial assets and liabilities measured at fair value on December 31, 2019:

	Level 1		Level 2		Level 3		Total
Liabilities
Derivative financial instruments	$	-	$	-	$	2,125,702	$	2,125,702

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, 2019:

	Level 1		Level 2		Level 3		Total
Liabilities
Derivative financial instruments	$	-	$	-	$	2,545,735	$	2,545,735

Note 4 –leases

The Company determines if an arrangement is a lease at inception and has lease agreements for warehouses, office facilities, and equipment. These commitments have remaining non-cancelable lease terms, with lease expirations that range from 2020 to 2024.

As a result of the adoption of ASC 842, certain real estate and equipment operating leases have been recorded on the balance sheet with a lease liability and right-of-use asset (“ROU”). Application of this standard resulted in the recognition of ROU assets of $2,307,150, net of accumulated amortization, and a corresponding lease liability of $2,356,425. Accounting for finance leases is substantially unchanged.

Operating leases are included in operating lease ROU assets, operating lease obligations, current, and operating lease obligations, long term on the condensed consolidated balance sheets. Finance leases are included in property and equipment, finance lease obligations, short term, and finance lease obligations, long term, on the condensed consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make scheduled lease payments. ROU assets and liabilities are recognized on the lease commencement date based on the present value of lease payments over the lease term. The present value of lease payments is calculated using the incremental borrowing rate at lease commencement, which takes into consideration recent debt issuances as well as other applicable market data available.

Amortization of lease assets is included in general and administrative expenses. The future minimum lease payments of lease liabilities as of December 31, 2019, are as follows:

For the years ended September 30,	Operating Leases			Financing Leases
2020		970,425			433,087
2021		697,436			514,152
2022		549,390			183,020
2023		347,745			206,674
2024 and thereafter		27,911			5,022
Total lease payments		2,592,907			1,341,955
Less: Payments Made		(236,482	)		(71,333	)
Total Lease Liabilities	$	2,356,425			1,270,622

Note 5 – INTANGIBLE ASSETS

The Company’s intangible assets consist of customer lists, testing licenses, favorable leases, and websites. The components of intangible assets as of December 31, 2019, and September 30, 2019 consist of:

	December 31, 2019		September 30, 2019
Customer list	$	-	$	854,014
License		-		503,000
Favorable lease		-		3,100
Domains & Websites		-		49,516
Non-compete agreements		-		182,388
Assembled Workforce		-		50,750
Intellectual Property		-		342,610
Total		-		1,977,661
Accumulated amortization		-		(1,977,661	)
Net value	$	-	$	-

The Company had fully amortized all intangible assets during the fiscal year ended September 30, 2019.

Note 6 – Concentration of Credit Risk

Instruments that potentially subject the Company to concentration of credit risk consist principally of cash deposits, notes receivable and accounts receivable. As of December 31, 2019, 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.

No individual client represents greater than 10% of the annual revenue.

During the three months ended December 31, 2019, and December 31, 2018, there were no customers that represented over 10% of the Company’s revenues.

As of December 31, 2019, the Company had total accounts receivable net of allowances of $13,808. Five clients comprised a total of 36% of this balance as follows:

	Balance			Percent of Total
Customer 1	$	48,606			14	%
Customer 2		20,336			6	%
Customer 3		20,321			6	%
Customer 4		18,746			5	%
Customer 5		18,622			5	%
All others		222,014			64	%
Total		348,645			100	%
Allowance for doubtful accounts		(154,836	)
Net accounts receivable	$	193,809

As of September 30, 2019, the Company had total accounts receivable, net of allowances, of $133,022. Five separate clients comprised a total of 41% of this balance as follows:

	Balance			Percent of Total
Customer 1	$	48,606			14	%
Customer 2		33,572			10	%
Customer 3		20,336			6	%
Customer 4		20,321			6	%
Customer 5		20,208			6	%
All others		246,456			59	%
Total		348,955			100	%
Allowance for doubtful accounts		(215,933	)
Net accounts receivable	$	133,022

Note 7 – Property and Equipment

Property and equipment are carried at cost. Expenditures for maintenance and repairs are expensed in the period incurred. Renewals and betterments that materially extend the life of the assets are capitalized. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income for the period.

Depreciation is computed for financial statement purposes on a straight-line basis over estimated useful lives of the related assets and the modified accelerated cost recovery system for federal income tax purposes. The estimated useful lives of depreciable assets are:

		Estimated
		Useful Lives
Building		39 years
Laboratory and Computer Equipment		5 years
Furniture and Fixtures		7 years
Software		3 years
Domains		15 years

The Company’s property and equipment consisted of the following as of December 31, 2019, and September 30, 2019:

	December 31, 2019			September 30, 2019
Assets Not-In-Service	$			$	-
Capital Assets		1,815,416			1,800,347
Land		212,550			212,550
Buildings & Real Estate		941,857			941,857
Furniture and Equipment		152,933			152,933
Laboratory Equipment		2,217,485			2,188,828
Software		79,653			78,996
Computers		35,086
Leasehold Improvements		704,627			697,333
Vehicles		183,589			83,915
Total		6,343,196			6,188,777
Accumulated depreciation		(1,797,597	)		(1,511,973	)
Net value	$	4,545,599		$	4,676,804

Note 8 – Related Party Transactions

During the periods ended December 31, 2019 and September 30, 2019 the Company received loans from its Chief Operating Officer totaling $3,283 and $194,820, respectively, and made repayments totaling $5,400 and $1,040, respectively. There was $141,662 and $143,780 due as of December 31, 2019, and September 30, 2019, respectively, and are included in the accompanying consolidated balance sheets as a current portion of notes payable to related parties. The loans carry a 0% interest rate and are due on demand.

During the periods ended December 30, 2019 and September 30, 2019 the Company received loans from its Chief Executive Officer totaling $0 and $75,000, respectively, and made repayments totaling $0 and $19,200, respectively. There was $55,800 and $55,800 due as of December 31, 2019, and September 30 2019, respectively, and are included in the accompanying consolidated balance sheets as a current portion of notes payable to related parties. The loans carry a 0% interest rate and are due on demand.

During the periods ended December 31, 2019, and September 30, 2019, the Company made payments to Sara Lausmann, associated with the asset purchase of Oregon Analytical Services, LLC, totaling $2,000 and $0, respectively. There was $566,289 and $568,299 of principal due as of December 31, 2019 and September 30, 2019, respectively. The note carries interest at a rate of 5% per annum and had accrued interest totaling $115,036 and $107,899 due as of December 31, 2019, and September 30, 2019, respectively.

During the periods ended December 31, 2019, and September 30, 2019, the Company made payments to Anthony Smith, our Chief Science Officer, associated with the purchase of 80% of Smith Scientific Industries, totaling $24,551 and $55,090, respectively. There was $156,359 and $180,910 of principal due as of December 31, 2019 and September 31, 2019, respectively. The note carries interest at a rate of 5% per annum and had accrued interest totaling $40,122 and $41,600 due as of December 31, 2019, and September 30, 2019, respectively.

During the periods ended December 31, 2019, and September 30, 2019, 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 $0 and $3,859, respectively. There was $113,554 and $113,554 of principal due as of December 31, 2019 and September 30, 2019, respectively. The note bears interest at 0% per annum and requires repayments of $25,000 quarterly.

During the periods ended December 31, 2019, and September 30, 2019, the Company made no payments to Henry Grimmett, prior Company Director (retired April 2018), associated with the acquisition of Greenhaus Analytical Services, LLC. The Company entered into a $340,000 note payable as part of its acquisition of Greenhaus Analytical Services, LLC. The note carries interest at a rate of 6% per annum and matures on October 16, 2020. During the year ended September 30, 2019, a third party purchased $170,000 of the note from Henry Grimmett, refer to Note 10, Convertible Notes; Noteholder 14. There was $170,000 and $170,000 of principal due as of December 31, 2019 and September 30, 2019, respectively. Unamortized debt discount of $20,159 and $25,563 as of December 31, 2019 and September 30, 2019, respectively and $31,982 and $59,412 of accrued interest due as of December 31, 2019 and September 30, 2019, respectively.

During the periods ended December 31, 2019 and September 30, 2019, the Company received loans from a related party associate with Keystone Labs totaling $30,796 and $191,515 and made repayments totaling $19,248 of $9,034. There was $372,538 and $354,050 due as of December 31, 2019 and September 30, 2019, respectively. Amounts have been adjusted for USD. The advances are non-interest bearing and due on demand and is included in the accompanying consolidated balance sheets as a current portion of notes payable to related parties.

Note 9 – STOCKHOLDERS’ EQUITY

Series A Convertible Preferred Stock

The Company has -0- shares of Series A Convertible Stock issued and outstanding as of December 31, 2019, and September 30, 2019.

Series B Convertible Preferred Stock

The Company designated 5,000,000 shares of Series B Convertible Preferred Stock (“Series B Preferred Stock”) with a par value of $0.0001 per share. The Company has 5,000,000 shares of Series B Convertible Stock issued and outstanding as of December 31, 2019, and September 30, 2019. These shares converted to common stock at a rate of 1 common share per each share of Series B Convertible Preferred Stock.

Series C Convertible Preferred Stock

The Company designated 500,000 shares of Series C Convertible Preferred Stock (“Series C Preferred Stock”) with a par value of $0.0001 per share. There were 500,000 shares of Series C Convertible Stock issued and outstanding as of December 31, 2019, and September 30, 2019. These shares converted to common stock at a rate of 5 common shares per each share of Series C Convertible Preferred Stock.

Series D Convertible Preferred Stock

The Company designated 1,000,000 shares of Series D Convertible Preferred Stock (“Series D Preferred Stock”) with a par value of $0.0001 per share. These shares converted to common stock at a rate of 2.5 common shares per each share of Series D Convertible Preferred Stock.

During the Year Ended September 30, 2019, the Company received conversion notices from Series D Preferred Stockholders resulting in a total of 532,500 shares of common stock being issued for the conversion of 213,000 shares of Series D Preferred Stock.

There were 349,500 shares of Series D Convertible Stock issued and outstanding as of December 31, 2019, and September 30, 2019, respectively.

Common Stock

During the three months ended December 31, 2019, the Company issued the following common shares:

Number of Shares issued		Description	$ Value
	422,500	Issuance of shares as compensation to employees, officers/directors		234,377
	359,212	Issuance of shares in exchange for consulting, professional and services		16,730
	2,285,449	Shares issued in satisfaction of debt issuance costs		62,500
	26,666	Shares issued in settlement of accounts payable		6,000
	18,317,481	Issuance of shares in connection with the conversion of debentures		1,241,782
	3,466,353	Issuance of shares in connection with the conversion of interest payable		172,222

	Total 24,877,661		$	1,733,611

During the year ended September 30, 2019, the Company issued 1,038,017 common shares valued at $336,891 for services; 1,415,000 common shares for cash proceeds of $586,000; 287,500 common shares valued at $397,980 as compensation to employees; 31,579 common shares for the settlement of $15,000 of accounts payable; 2,054,887 common shares for the settlement of $687,200 of convertible notes payable; 10,163 for the conversion of $25,110 of convertible accrued interest; 20,000 common shares for issuance of a stock purchase agreement valued at $11,760; 669,362 common shares for the settlement of $388,000 debenture conversions, and 532,500 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 54,192,080 and 29,314,419 shares of common stock issued and outstanding at December 31, 2019, and September 30, 2019

Note 10 – LOANS PAYABLE

The Company had the following loans payable outstanding as of December 31, 2019, and September 30, 2019:

	December 31, 2019		September 30, 2019

On March 16, 2018, 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.		44,082		47,551

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.		616,302		622,523

On July 5, 2018, the Company executed a note payable for $750,000 for the asset purchase of MRX Labs. The note carries interest at 8% annually and is due on January 5, 2019. (This note is in default as of 7/5/2019, which resulted in a 5% penalty on outstanding amount.)		750,000		750,000

On October 20, 2019, the Company executed notes payable for the purchase of four vehicles. The notes carry interest at 5.990% annually and mature on December 31, 2023.		102,280		-
Total loans payable		1,512,664		1,420,079
Less: current portion of loans payable		785,931		762,476

Long-term portion of loans payable	$	726,733	$	657,603

As of December 31, 2019 and September 30, 2019, the Company accrued interest of $89,425 and $74,301 respectively

Note 11 – Convertible NOTES PAYABLE

The Company has entered into convertible notes payable that convert to common stock of the Company at variable conversion prices. As further discussed in Note 13 – Derivative Liability, the Company analyzed the conversion features of the agreements for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.

The following table summarizes all convertible notes outstanding as of December 31, 2019:

Holder	Issue Date	Due Date	Principal		Unamortized Debt Discount			Carrying Value		Accrued Interest

Noteholder #1	04/24/18	04/24/19		500,000		-			500,000		-
Noteholder #2	07/01/19	09/30/19		675,930		-			675,930		34,191
Noteholder #3	08/01/18	01/01/19		396,000		-			396,000		84,457
Noteholder #3	10/02/18	01/01/19		264,000		-			264,000		45,070
Noteholder #5	09/17/18	09/17/19		5,371		-			5,371		10,260
Noteholder #6	11/15/18	11/15/19		-		-			-		15,564
Noteholder #6	01/14/19	01/14/20		131,250		(12,945	)		118,305		10,010
Noteholder #6	02/04/19	02/04/20		230,000		(22,055	)		207,945		19,159
Noteholder #6	08/08/19	08/08/20		33,092		(7,266	)		25,826		1,052
Noteholder #6	11/04/19	11/04/20		33,516		(16,018	)		17,498		419
Noteholder #6	12/23/19	12/23/20		137,375		(134,372	)		3,003		241
Noteholder #7	12/27/18	12/27/19		20,000		-			20,000		2,898
Noteholder #7	02/05/19	02/05/20		131,250		(15,103	)		116,147		9,262
Noteholder #7	03/15/19	03/15/20		70,913		-			70,913		4,523
Noteholder #7	08/08/19	08/08/20		33,092		(7,266	)		25,826		1,052
Noteholder #7	11/04/19	11/04/20		33,516		(16,018	)		17,498		419
Noteholder #8	02/08/19	02/08/20		498,498		(31,554	)		466,944		30,962
Noteholder #10	03/15/19	03/15/20		70,913		-			70,913		4,523
Noteholder #11	08/30/19	05/30/20		110,000		(60,620	)		49,380		2,965

			$	3,374,716	$	(323,217	)	$	3,051,499	$	277,027

The following table summarizes all convertible notes outstanding as of September 30, 2019:

Holder	Issue Date	Due Date	Principal		Unamortized Debt Discount			Carrying Value			Accrued Interest

Noteholder #1	04/24/18	04/24/19		500,000		-			500,000			-
Noteholder #2	07/01/19	09/30/19		825,930		-			825,930			18,983
Noteholder #3	08/01/18	01/01/19		396,000		-			396,000			76,471
Noteholder #3	10/02/18	01/01/19		264,000		-			264,000			40,634
Noteholder #4	09/06/18	09/06/19		145,000		-			145,000			15,575
Noteholder #5	09/17/18	09/17/19		82,500		-			82,500			8,586
Noteholder #6	11/15/18	11/15/19		222,600		(28,054	)		194,546			15,564
Noteholder #6	01/14/19	01/14/20		131,250		(46,027	)		85,223			7,364
Noteholder #6	02/04/19	02/04/20		265,000		(92,205	)		172,795			13,824
Noteholder #6	03/15/19	03/15/20		70,913		-			70,913			3,093
Noteholder #6	08/08/19	08/08/20		33,092		(10,291	)		22,801			384
Noteholder #7	12/27/18	12/27/19		105,000		(25,603	)		79,397			18,204
Noteholder #7	02/05/19	02/05/20		131,250		(48,185	)		83,065			6,616
Noteholder #7	03/15/19	03/15/20		70,913		-			70,913			3,093
Noteholder #7	08/08/19	08/08/20		33,092		(10,291	)		22,801			384
Noteholder #8	02/08/19	02/08/20		783,724		(208,357	)		575,367			89,627
Noteholder #9	03/15/19	03/15/20		70,913		-			70,913			3,093
Noteholder #10	03/15/19	03/15/20		70,913		-			70,913			3,093
Noteholder #11	08/29/19	05/29/20		100,000		(150,146	)		(50,146	)		964
Noteholder #11	08/30/19	05/30/20		110,000		(97,555	)		12,445			747

			$	4,412,090	$	(716,714	)	$	3,695,376		$	326,145

Noteholder #1

On April 24, 2018, the Company entered into a convertible note payable totaling $500,000 in exchange for 100% of the assets of Leaf Detective LLC. The note bears no interest, matures on April 24, 2019, and automatically converted to common stock at $1.25 per share on the maturity date. In the event the average lowest trading price of the Company’s common stock during the five days prior to maturity is less than $1.25 per share, the Company will pay the noteholder the difference between $1.25 and the average lowest trading price during the preceding five days per share converted in cash. On or about April 30, 2020, Michele Malaret and Gordon Griswold filed, filed a breach of contract in the original principal amount of $500,000, with the Superior Court of California, County of Humboldt. The Company currently recognizes the full liability on its balance sheet. There is no interest due associated with the note.

Noteholder #2

On July 2, 2018, the Company sold and issued a convertible promissory note 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. The note, together with accrued interest at the annual rate of 8%, was due on October 1, 2018. The principal amount of the note and any accrued interest thereon are convertible at the option of the holder into common shares of the Company at any time at a conversion price of $0.60 per share. This note was replaced on July 1, 2019.

On September 13, 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 the 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. This note was replaced on July 1, 2019.

On July 1, 2019, the two previous notes were replaced for the aggregate principal amount of $825,890. This included a default penalty of $150,000 for non-payment of the prior two notes. The note, together with accrued interest at the annual rate of 8%, is due on September 30, 2019. The note is convertible into common stock of the Company at the option of the noteholder 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. There was $675,930 of principal and $34,191 of accrued interest on December 31, 2019.

Noteholder #3

On August 1, 2018, the Company sold and issued a convertible promissory note 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. The note, together with accrued interest at the annual rate of 8%, was due on October 1, 2018. The principal amount of the note and any accrued interest thereon are convertible at the option of the holder into common shares of the Company at any time the lower of a conversion price of $0.50 per share or 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 September 30, 2019, a fee for payment default of $66,000 was added to the principal. There was $396,000 of principal and $84,457 of accrued interest due on December 31, 2019.

On October 2, 2018, the Company sold and issued a convertible promissory note 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. The note, together with accrued interest at the annual rate of 8%, is due on January 1, 2019. The principal amount of the note and any accrued interest thereon are convertible at the option of the holder into common shares of the Company at any time at a conversion price of $0.50 per share or 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 September 30, 2019, a fee for payment default of $44,000 was added to the principal. There was $264,000 of principal and $45,070 of accrued interest on December 31, 2019.

Noteholder #4

On September 6, 2018, the Company sold and issued a convertible promissory note to an unrelated party for the principal amount of $125,000 of which $15,000 was an original issue discount resulting in cash proceeds to the Company of $110,000 pursuant to the terms of a securities purchase agreement. 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 the lower of a conversion price of $0.50 per share or 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 July 5, 2019, a fee for payment default of $20,000 was added to the principal. There was no note principal or accrued interest due on December 31, 2019.

Noteholder #5

On September 6, 2018, the Company sold and issued a convertible promissory note 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. 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 the lower of a conversion price of $0.50 per share or 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 July 5, 2019, a fee for payment default of $20,000 was added to the principal. There was $5,371 of principal and $10,260 of accrued interest due on December 31, 2019.

Noteholder #6

On November 15, 2018, the Company sold and issued a convertible promissory note to an unrelated party for the principal amount of $222,600 of which $12,600 was an original issue discount resulting in cash proceeds to the Company of $210,000 pursuant to the terms of a securities purchase agreement. The note, together with accrued interest at the annual rate of 8%, is due on November 15, 2019. The principal amount of the note and any accrued interest thereon are convertible at the option of the holder into common shares of the Company at any time at the lower of a conversion price of $0.50 per share or 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. There was $00 of principal and $15,564 of accrued interest due on December 31, 2019.

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. There was $131,250 of principal and $10,010 of accrued interest due on December 31, 2019.

On February 4, 2019, the Company entered into a convertible note payable with an unrelated party for $265,000 of which $15,000 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. There was $230,000 of principal and $19,159 accrued interest due on December 31, 2019.

On March 15, 2019, the Company entered into an exchange agreement with an unrelated party for $70,913, of which the loan payable to Noteholder 2, dated July 2, 2018, outstanding and principal would be assumed by the new note holder. The new convertible note payable carries an interest rate of 8% per annum is due on March 15, 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. There was no note principal or accrued interest due on December 31, 2019.

On August 8, 2019, the Company entered into a convertible note agreement with an unrelated party for $33,092 of which $1,576 in third party fees resulting in net cash proceeds to the Company of $31,516. 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. There was $33,092 of principal and $1,052 of accrued interest due on December 31, 2019.

Noteholder #7

On December 27, 2018, the Company sold and issued a Convertible Promissory to an unrelated party for the principal amount of $105,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, is due on December 27, 2019, 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. There was $20,000 of principal and $2,898 of accrued interest due on December 31, 2019.

On February 5, 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 5, 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. There was $131,250 of principal and $9,262 of accrued interest due on December 31, 2019.

On March 15, 2019, the Company entered into an exchange agreement with an unrelated party for $70,913, of which the loan payable to Noteholder 2, dated July 2, 2018, outstanding and principal would be assumed by the new note holder. The new convertible note payable carries an interest rate of 8% per annum is due on March 15, 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. There was $70,913 of principal and $4,523 of accrued interest due on December 31, 2019.

Noteholder #8

On February 8, 2019, the Company entered into an exchange agreement with an unrelated party for $580,537, 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. A principal non-pay default was applied in the amount of $203,188. There was $498,498 of principal and $30,962 of accrued interest due on December 31, 2019.

Noteholder #9

Noteholder #10

On March 15, 2019, the Company entered into an exchange agreement with an unrelated party for $70,913, of which the loan payable to Noteholder 2, dated July 2, 2018, outstanding and principal would be assumed by the new note holder. The new convertible note payable carries an interest rate of 8% per annum is due on March 15, 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. There was $70,913 of principal and $4,523 of accrued interest due on December 31, 2019.

Noteholder #11

On August 30, 2019, the Company entered into a convertible note payable with an unrelated party for $110,000 which included $10,000 original issue discount resulting in net cash proceeds to the Company of $100,000. The convertible note payable carries interest at a rate of 8% per annum, is due on May 30, 2020, and is convertible into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days. There was $110,000 of principal and $2,965 of accrued interest due on December 31, 2019.

On August 29, 2019, the Company entered into an exchange agreement with an unrelated party for $170,000, of which the loan payable to Henry Grimmett, dated October 16, 2016, outstanding and principal would be assumed by the new note holder. The new convertible note payable carries an interest rate of 8% per annum, is due on May 29, 2020, and is convertible into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days. There was no note principal or accrued interest due on December 31, 2019.

NOTE 12 – CONVERTIBLE DEBENTURES

On January 29, 2018, the Company issued a total of 5,973 units of 8% unsecured convertible debentures. Each unit consists of one convertible debenture with a principal face value of $1,000 and 250 warrants. The gross proceeds were $5,973,000. Each warrant entitles the holder thereof to purchase one additional common share of the Company at an exercise price of $0.80 per warrant for 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 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.

Note 13 – Derivative Liability

As of December 31, 2019 and September 30, 2019, Company had a derivative liability balance of $2,125,702 and $2,545,735 on the balance sheets and recorded unrealized gains of $420,033 and $852,628 from derivative liability fair value adjustments during the three months ended December 31, 2019 and 2018, respectively.

On November 15, 2018, the Company issued a $222,600 convertible promissory note to an unrelated party that matures on November 15, 2019. Refer to Noteholder 8 under “Note 12 – Convertible Debentures” for more information. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15, Derivatives and Hedging and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.

The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the issuance date of the note was $220,463 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $184,957 which was up to the face value of the convertible note with the excess fair value at an initial measurement of $35,506 being recognized as a loss on derivative fair value measurement.

On December 27, 2018, the Company issued a $105,000 convertible promissory note to an unrelated party that matures on December 27, 2019. Refer to Noteholder 9 under “Note 12 – Convertible Debentures” for more information. The Company analyzed the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes is subject to a variable conversion rate.

The aggregate fair value of the derivative at the issuance date of the note was $98,091 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $38,365 which was up to the face value of the convertible note with the excess fair value at an initial measurement of $59,725 being recognized as a loss on derivative fair value measurement.

On January 14, 2019, the Company issued a $131,250 convertible promissory note to an unrelated party that matures on February 5, 2020. Refer to Noteholder 8 under “Note 12 – Convertible Debentures” for more information. The Company analyzed the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate.

The aggregate fair value of the derivative at the issuance date of the note was $144,752 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $14,423 which was up to the face value of the convertible note with the excess fair value at an initial measurement of $130,329 being recognized as a loss on derivative fair value measurement

On February 4, 2019, the Company issued a $265,000 convertible promissory note to an unrelated party that matures on February 4, 2020. Refer to Noteholder 8 under “Note 12 – Convertible Debentures” for more information. The Company analyzed the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate.

The aggregate fair value of the derivative at the issuance date of the note was $322,521 which was recorded as a derivative liability on the balance sheet. The Company recognized a loss of $322,521 on derivative fair value measurement.

On February 5, 2019, the Company issued a $131,250 convertible promissory note to an unrelated party that matures on February 11, 2020. Refer to Noteholder 9 under “Note 12 – Convertible Debentures” for more information. The Company analyzed the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate.

The aggregate fair value of the derivative at the issuance date of the note was $228,916 which was recorded as a derivative liability on the balance sheet. The Company recognized a loss of $228,916 on derivative fair value measurement.

On July 1, 2019, the Company issued a $825,930 convertible promissory note to an unrelated party that matures on September 30, 2019. Refer to Noteholder 3 under “Note 12 – Convertible Debentures” for more information. The Company analyzed the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate.

The aggregate fair value of the derivative at the issuance date of the note was $1,807,875 which was recorded as a derivative liability on the balance sheet. The Company recognized a loss of $1,807,875 on derivative fair value measurement.

On August 29, 2019, the Company issued a $170,000 convertible promissory note to an unrelated party that matures on May 29, 2020. Refer to Noteholder 14 under “Note 12 – Convertible Debentures” for more information. The Company analyzed the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate.

The aggregate fair value of the derivative at the issuance date of the note was $143,951 which was recorded as a derivative liability on the balance sheet. The Company recognized a loss of $65,965 on derivative fair value measurement.

On August 30, 2019, the Company issued a $110,000 convertible promissory note to an unrelated party that matures on May 30, 2020. Refer to Noteholder 14 under “Note 12 – Convertible Debentures” for more information. The Company analyzed the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate.

The aggregate fair value of the derivative at the issuance date of the note was $109,936 which was recorded as a derivative liability on the balance sheet. The Company recognized a loss of $79,183 on derivative fair value measurement.

At December 31, 2019, the Company marked-to-market the fair value of the derivative liabilities related to conversion features and determined an aggregate fair value of $2,125,050 and recorded a $238,869 gain from change in fair value for the three months ended December 31, 2019. The fair value of the embedded derivatives was determined using a Black-Scholes option pricing model based on the following assumptions: (1) expected volatility of 144%, (2) risk-free interest rate of 1.59%, (3) exercise prices of $0.027 - $0.034, and (4) expected lives of 0.10 – 1.00 of a year.

On October 2, 2018, the Company issued a total of $220,000 convertible debenture to an unrelated party that matures on January 1, 2019. The Company issued a total of 100,000 warrants to purchase additional shares of common stock of the Company in connection with the convertible debenture. The Company analyzed the issued warrants for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the warrants should be classified as a derivative because the Company is unable to ascertain there will be adequate unissued authorized shares of common stock to fulfill its obligations should the warrants be exercised. In accordance with AC 815, the Company has recorded a derivative liability related to the warrants.

The derivative for the warrants is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the issuance date of the warrants was $57,014 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $53,333 which was up to the face value of the convertible debentures with the excess fair value at an initial measurement of $3,681 being recognized as a loss on derivative fair value measurement.

As discussed in “Note 12 – Convertible Debentures”, the Company issued a total of $374,000 of convertible debentures to unrelated parties that mature on dates ranging from October 17, 2020 to October 23, 2020. The Company issued a total of 187,000 warrants to purchase additional shares of common stock of the Company in connection with the convertible debentures. The Company analyzed the issued warrants for derivative accounting consideration and determined that the warrants should be classified as a derivative. The aggregate fair value of the derivative at the issuance date of the warrants was $73,383 which was recorded as a derivative liability on the balance sheet, for which the Company recorded an equivalent debt discount to the convertible debentures.

At December 31, 2019, the Company marked-to-market the fair value of the derivative liabilities related to warrants and determined an aggregate fair value of $652 and recorded a $181,164 gain from change in fair value for the three months ended December 31, 2019. The fair value of the derivatives was determined using a Black-Scholes option pricing model based on the following assumptions: (1) expected volatility of 144%, (2) risk-free interest rate of 1.59%, (3) exercise prices of $0.60 to $0.80, and (4) expected lives of 0.08 – 0.81 years.

The following table summarizes the change in derivative liabilities included in the balance sheet at December 31, 2019:

Fair Value of Embedded Derivative Liabilities:
Balance, September 30, 2019	$	2,545,735
Change in fair market value		(420,033	)
Balance, December 31, 2019	$	2,125,702

The following table summarizes the gain (loss) on derivative liability included in the income statement for the three months ended December 31, 2019 and 2018, respectively.

	Three Months Ended December 31,
	2019		2018
Day one loss due to derivatives on convertible debt	$	-		(98,912	)
Change in fair value of derivatives		420,033		951,540
Total derivative gain (loss)	$	420,033		852,628

NOTE 14 – STOCK OPTIONS AND WARRANTS

The following tables summarize all stock option and warrant activity for the three months ended December 31, 2019:

	Shares		Weighted- Average Exercise Price Per Share
Outstanding, September 30, 2019		5,484,970		0.742
Granted		-		-
Exercised		-		-
Forfeited		-		-
Expired		-		-
Outstanding, December 31, 2019		5,484,970		0.742

The following table discloses information regarding outstanding and exercisable options and warrants at December 31, 2019:

		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
$	0.225		200,000	$	0.225		4.46		200,000	$	0.225
$	0.400		110,000	$	0.400		1.62		110,000	$	0.400
$	0.420		330,000	$	0.420		4.05		330,000	$	0.420
$	0.500		165,000	$	0.500		1.70		162,500	$	0.500
$	0.600		627,220	$	0.600		0.11		627,220	$	0.600
$	0.650		145,000	$	0.650		2.82		36,250	$	0.650
$	0.800		3,482,750	$	0.800		1.43		3,095,250	$	0.800
$	0.850		100,000	$	0.850		3.29		-	$	0.850
$	1.050		25,000	$	1.050		3.79		-	$	1.050
$	1.260		220,000	$	1.260		2.50		110,000	$	1.260
$	1.300		10,000	$	1.300		1.80		7,500	$	1.300
$	1.386		60,000	$	1.386		2.50		30,000	$	1.386
$	1.666		10,000	$	1.666		2.59		5,000	$	1.666
	Total		5,484,970	$	0.742		1.95		4,713,720	$	0.718

Compensation related to stock-based compensation was $126,581 and $169,922, respectively, for the three months ended December 31, 2019 and 2018.

Note 15 – Subsequent Events

Common Stock Issuances

The Company made the following issuances of common stock subsequent to September 30, 2019:

●	35,170,123 common shares for the conversion of $1,518,022 of principal on convertible debentures.

●	4,452,443 common shares for the conversion of $203,820 of interest on convertible debentures

●	681,183 common shares issued for the conversion of debt conversion fees of $23,000

●	7,353,538 common shares issued for deferral of executive compensation

●	385,000 common shares issued for vesting of restricted stock grants for officers and directors

●	3,930,000 common shares issued for services

●	144,928 common shares issued for settlement of lawsuit

●	26,666 common shares issued for settlement of accounts payable.

On January 13, 2020, the Company entered into a convertible note payable with an unrelated party for $52,500 which included $2,500 third party fees resulting in net cash proceeds to the Company of $50,000. The convertible note payable carries interest at a rate of 8% per annum, is due on January 13, 2021 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 April 13, 2020, the Company entered into a convertible note payable with an unrelated party for $66,000 which included $6,000 originator issuer discount resulting in net cash proceeds to the Company of $60,000. The convertible note payable carries interest at a rate of 12% per annum, is due on November 30, 2020 and is convertible into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days.

Legal Proceedings

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.

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. In December 2018, EVIO Labs Eugene, LLC terminated Stephanie Head because she was not available to work full-time. In February 2019, Ms. Head filed a complaint to the Oregon Bureau of Labor & Industries (“BOLI”) with allegations that she was discriminated against and unlawfully terminated. In October 2019 BOLI found substantial evidence of unlawful employment on the basis of protected whistle-blowing, but found no substantial evidence of Ms. Head’s seven other allegations of unlawful employment practice. In April 2019, BOLI notified EVIO Labs Eugene, LLC that BOLI elected not to pursue the charges further and closed the file. On January 28, 2020, the case was settled for $35,000, $25,000 payable in cash, and $10,000 in EVIO Common Stock.

On February 6, 2020, MC CRE Investments, LLC landlord for the Palm Desert location, filed a Breach of Lease Agreement with the Superior Court of the State of California, County of Riverside. EVIO Labs Palm Desert has vacated the space and turned it back over to the landlord. The Company has expensed past due rents and late fees and these items are included in the liabilities in the balance sheet.

On or about March 5, 2020, Paul Tomaso, and Jonah Barber beneficiaries for MRX Labs, LLC, filed a Breach of Promissory Note in the original principal amount of $750,000, plus late fees and penalties, with the Circuit Court of the State in Oregon, in Multnomah County against Greenhaus Analytical Labs, LLC. The Company has expensed penalties and late fees and these items are included in the liabilities in the balance sheet.

On or about April 30, 2020, Michele Malaret and Gordon Griswold filed, filed a Breach of Contract in the original principal amount of $500,000, with the Superior Court of California, County of Humboldt. The Company currently recognizes the full liability on its balance sheet. There is no interest due associated with the note.

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

NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

	●	our future operating results;
	●	our business prospects;
	●	our contractual arrangements and relationships with third parties;
	●	the dependence of our future success on the general economy;
	●	our possible financings; and
	●	the adequacy of our cash resources and working capital.

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

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

Overview

We operate as a Colorado corporation and through our subsidiaries which provide analytical testing and advisory services to the emerging legalized cannabis industry.

Our active subsidiaries as of December 31, 2019, are as follows:

Trade Name (dba)	Company Name	State of Incorporation	Ownership %			Acquisition Month
EVIO Labs Medford	Smith Scientific Industries, LLC	Oregon		80	%	June 2016
EVIO Labs Portland	Greenhaus Analytical Labs	Oregon		100	%	October 2016
EVIO Labs MA	Viridis Analytics	Massachusetts		100	%	August 2017
EVIO Labs Berkeley	C3 Labs, LLC	California		90	%	January 2018
Keystone Labs	Keystone Labs, Inc.	Ontario, Canada		50	%	May 2018

In addition to the wholly-owned subsidiaries, the Company has entered into license agreements with independent testing laboratories in Florida and Colorado. Under the terms of the agreements, the independent laboratories are granted non-transferable and non-exclusive rights to use the Company’s trademarks and trade name.

Going Concern

Historically, it has mostly relied upon private offerings and 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.

Critical Accounting Policies and Estimates.

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

RESULTS OF OPERATIONS

Three Months Ended December 31, 2019, compared to Three Months Ended December 31, 2018

COVID-19

On March 11, 2020, the World Health Organization (“WHO”) declared the COVID-19 outbreak to be a global pandemic. In addition to the devastating effects on human life, the pandemic is having a negative ripple effect on the global economy, leading to disruptions and volatility in the global financial markets. Most US states and many countries have issued policies intended to stop or slow the further spread of the disease.

COVID-19 and the US’s response to the pandemic are significantly affecting the economy. There are no comparable events that provide guidance as to the effect the COVID-19 pandemic may have, and, as a result, the ultimate effect of the pandemic is highly uncertain and subject to change. We do not yet know the full extent of the effects on the economy, the markets we serve, our business, or our operations.

Revenues

For the three months ended December 31, 2019, we generated revenues of $1,332,956 compared to $1,187,238 for the three months ended December 30, 2018, an increase of $145,758 or approximately 12.3%. The increase was due primarily to increased testing sales in Oregon, partially offset by decreased testing revenue in California. California revenues decreased due to increased regulatory requirements which necessitated changes in instrumentation and associated methods for pesticide testing.

Gross Profit

For the three months ended December 31, 2019, the gross profit margin was $130,642 compared to a gross loss of $(117,190) for the three months ended December 2018 an increase of $247,832. The increase was primarily attributed to increased revenue and decreased operating costs in Oregon and Massachusetts.

Operating Expenses

For the three months ended December 31, 2019, total operating expenses were $1,296,153 compared to $1,555,506 for the three months ended December 31, 2018, a decrease of $259,353. The decrease is primarily attributable to consolidated operations in Oregon, and lower operating expenses in Massachusetts.

Other (Expense)

For the three months ended December 30, 2019, other expense, net was $1,138,817, compared to other expense, net of $976,345 for the three months ended December 31, 2018. The increase in other income, net of $162,472, was primarily attributable to a decrease of interest expense of $202,007, offset by a reduction in the gain on the change in the fair market value of derivative liabilities of $432,595.

Net Loss

Net loss during the three months ended December 31, 2019, was $1,684,109, compared to a net loss of $2,596,659 during the three months ended December 31, 2018. The reduction of $912,550 in net loss is the result of an increase in gross margin, a reduction in operating expenses, and a reduction in other expenses, net.

Liquidity and Capital Resources

During the three months ended December 2019, the Company provided $121,657 in cash from operating activities compared to cash used in operating activities of $(247,720) for the three months ended December 31, 2018. The improvement of $369,377 is primarily attributable to a reduction in operating losses in 2019.

During the three months ended December 31, 2019, the Company used $33,124 in investing activities compared to $554,731 used in investing activities during the same period ended December 31, 2018. The reduction of $521,607 is attributable to a decrease in the purchase of fixed assets

During the three months ended December 31, 2019, net cash from financing activities was $111,804 compared to $933,876 during the same three month period ended December 31, 2018. The decrease in the 2019 period is primarily attributable a decrease in proceeds from the sale convertible notes of $910,413 and the sale of common stock of $103,000 in the 2018 period; compared to the sale of $204,407 in convertible notes and $-0- in common stock, respectively, during the 2019 period.

Dividends

The Company has never declared dividends.

Critical Accounting Policies and Estimates.

Our Critical Accounting Policies can be found in Note 1. ORGANIZATION, BASIS OF PRESENTATION, AND SIGNIFICANT ACCOUNTING POLICIES to our consolidated financial statements.

Our Website.

Our website can be found at www.eviolabs.com.

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4 – CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

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

Our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report for the reasons disclosed in our annual report on Form 10-K.

This quarterly report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to Rule 308(b) of Regulation S-K, which permits the Company to provide only management’s report in this Quarterly Report.

(b) Changes in Internal Control over Financial Reporting

There were no changes in Internal Controls over financial reporting during the three months ended December 31, 2019. Upon hiring additional financial staff, EVIO will prepare written policies and procedures for accounting and financial reporting to establish a formal process to close our books monthly on an accrual basis and account for all transactions, including equity transactions, and prepare, review, and submit SEC filings in a timely manner.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On May 9, 2019, Stephanie Head, a former part-time lab administrator for EVIO Labs Eugene, LLC, filed a wrongful termination lawsuit with the US District Court - District of Oregon, Eugene Division, Case No. 6:19-CV-00681, against EVIO Labs Eugene, LLC, EVIO, Inc., and Lori Glauser. In December 2018, EVIO Labs Eugene, LLC terminated Stephanie Head because she was not available to work full-time. In February 2019, Ms. Head filed complaint to Oregon Bureau of Labor & Industries (“BOLI”) with allegations that she was discriminated against and unlawfully terminated. In October, 2019 BOLI found substantial evidence of unlawful employment on the basis of protected whistle-blowing, but found no substantial evidence of Ms. Head’s seven other allegations of unlawful employment practice. In April 2019, BOLI notified EVIO Labs Eugene, LLC that BOLI elected not to pursue the charges further and closed the file. On January 28, 2020, the case was settled for $35,000, $25,000 payable in cash, and $10,000 in EVIO Common Stock.

On August 29, 2019, the Company issued FIRSTFIRE GLOBAL OPPORTUNITIES FUND, LLC (“Creditor”) a Promissory Note in the original principal amount of $220,000.00 (the “Note”). The Company failed to timely pay certain sums under the Note and, as a result of the Breach, on or about August 7, 2019, Creditor filed a Complaint - Breach of Promissory Note in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida. Since such filing, the Company and Creditor have entered into a Settlement Agreement and Stipulation, pursuant to which the Company has agreed to issue the Creditor 1,000,000 shares of its common stock under 3(a)(10) of the Securities Act of 1933 in settlement for all claims. The settlement was approved by the court on August 27, 2019. The shares were issued on September 6, 2019.

ITEM 1A. RISK FACTORS

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

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

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

There was no other information during the quarter ended December 31, 2019, which was not previously disclosed in our filings during that period.

ITEM 6. EXHIBITS

31.1		Certifications pursuant to Section 302 of Sarbanes Oxley Act of 2002
31.2		Certifications pursuant to Section 302 of Sarbanes Oxley Act of 2002
32.1		Certifications pursuant to Section 906 of Sarbanes Oxley Act of 2002
32.2		Certifications pursuant to Section 906 of Sarbanes Oxley Act of 2002
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation Linkbase
101.DEF		XBRL Taxonomy Extension Definition Linkbase
101.LAB		XBRL Taxonomy Extension Label Linkbase
101.PRE		XBRL Taxonomy Extension Presentation Linkbase

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on September 8, 2020.

	EVIO, INC.

	By:	/s/ William Waldrop
		William Waldrop
		Chief Executive Officer, Interim Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on September 8, 2020.