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 March 31, 2020

 

or

 

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

 

For the transition period from _________ to __________.

 

Commission File Number: 000-12350

 

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 MARCH 31, 2020

 

TABLE OF CONTENTS

 

PART I — FINANCIAL INFORMATION  
     
Item 1. Consolidated Financial Statements (Unaudited)  
  Consolidated Balance Sheets as of March 31, 2020 (Unaudited) and September 30, 2019 3
  Consolidated Statements of Operations for the Three Months Ended March 31, 2020, and 2019 (Unaudited) 4
  Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020, and 2019 (Unaudited) 5
  Consolidated Statements of Stockholders Equity for the Three Months March 31, 2020, and 2019 (Unaudited) 6
  Notes to Unaudited Consolidated Financial Statements 9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 32
  Critical Accounting Policies and Estimates 33
  Results of Operations 33
  Liquidity and Capital Resources 34
Item 3. Quantitative and Qualitative Disclosures About Market Risk 35
Item 4. Control and Procedures 35
     
PART II — OTHER INFORMATION  
     
Item 1. Legal Proceedings 35
Item 1A. Risk Factors 36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 36
Item 3. Defaults Upon Senior Securities 36
Item 4. Mine Safety Disclosures 36
Item 5. Other Information 36
Item 6. Exhibits 36

 

  2  
     

 

PART I — FINANCIAL INFORMATION

 

EVIO, INC.

Consolidated Balance Sheets

 

    March 31,     September 30,  
    2020     2019  
             
ASSETS                
Current assets:                
Cash and cash equivalents   $ 16,457     $ 110,325  
Accounts receivable, net     172,389       133,022  
Prepaid expenses     141,602       190,460  
Other current assets     43,764       9,689  
Note receivable, current portion     538,904       538,904  
Total current assets     913,116       982,400  
Right of use assets     2,069,538       2,543,976  
Capital assets, net     1,206,745       1,383,828  
Land     212,550       212,550  
Property and equipment, net     2,834,587       3,080,426  
Security deposits     175,981       178,918  
Prepaid expenses, net     -       4,061  
Total assets   $ 7,412,517     $ 8,386,159  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current liabilities:                
Accounts payable and accrued liabilities   $ 4,644,361     $ 3,811,237  
Client deposits     53,009       108,418  
Interest payable     1,517,386       1,387,642  
Capital lease obligation, current     875,946       957,673  
Derivative liability     2,319,938       2,545,735  
Convertible notes payable, net of discounts     3,584,043       3,695,484  
Loans payable, net of discounts, current     787,960       762,476  
Total current liabilities     13,782,643       13,268,665  
Convertible debentures, net of loan discounts     3,049,007       1,734,890  
Lease liabilities     2,117,338       2,594,726  
Capital lease obligation, net     241,268       381,786  
Loans payable, net     708,550       657,603  
Loans payable, related party, net     1,406,162       1,560,849  
Total liabilities     21,304,968       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 March 31, 2020 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 March 31, 2020 and September 30, 2019, respectively     50       50  
Series D convertible preferred stock, $0.0001 par value. 1,000,000 authorized; 349,500 and 349,500 shares issued and outstanding at March 31, 2020 and September 30, 2019, respectively     34       34  
Common stock, $0.0001 par value. 1,000,000,000 authorized; 78,717,471 and 29,314,419 shares issued and outstanding at March 31, 2020 and September 30, 2019, respectively     7,872       2,931  
Stock subscriptions receivable     -       -  
Additional paid-in capital     29,695,137       26,498,076  
Retained earnings (accumulated deficit)     (43,042,535 )     (37,775,183 )
Accumulated other comprehensive income     (348,167 )     (353,090 )
Total stockholders’ equity     (13,687,109 )     (11,626,682 )
Noncontrolling interest     (205,342 )     (185,678 )
Total equity     (13,892,451 )     (11,812,360 )
Total liabilities and equity   $ 7,412,517     $ 8,386,159  

 

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

 

  3  
     

 

EVIO, INC.

Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

 

    Three Months Ended March 31,     Three Months Ended March 31,     Six Months Ended March 31,     Six Months Ended March 31,  
    2020     2019     2020     2019  
                         
Revenues                                
Testing revenue   $ 867,814     $ 735,179     $ 2,200,770     $ 1,922,417  
Consulting revenue     -       -       -       -  
Total revenues     867,814       735,179       2,200,770       1,922,417  
                                 
Cost of revenue                                
Testing services     820,080       835,186       1,766,840       1,849,166  
Consulting services     -       -       -       -  
Depreciation and amortization     200,366       321,856       455,920       612,304  
Total cost of revenue     1,020,446       1,157,042       2,222,760       2,461,470  
                                 
Gross margin     (152,632 )     (421,863 )     (21,990 )     (539,053 )
                                 
Operating expenses:                                
Selling, general and administrative     1,419,188       1,205,662       2,687,112       2,702,302  
Depreciation and amortization     27,277       57,116       55,507       115,982  
Total operating expenses     1,446,465       1,262,778       2,742,619       2,836,284  
                                 
Income (loss) from operations     (1,599,097 )     (1,684,641 )     (2,764,609 )     (3,375,337 )
                                 
Other income (expense)                                
Interest income (expense), net     (1,203,227 )     (692,419 )     (2,766,098 )     (2,457,297 )
Other income (expense)     13,874       (33,422 )     17,895       (97,517 )
Gain (loss) on settlement of debt     -       -       -       -  
Impairment charge     -       -       -       -  
Gain (loss) on change in fair market value of derivative liabilities     (194,236 )     (1,409,275 )     225,797       (556,647 )
Total other income (expense)     (1,383,589 )     (2,135,116 )     (2,522,406 )     (3,111,461 )
Income (loss) before income taxes     (2,982,686 )     (3,819,757 )     (5,287,015 )     (6,486,798 )
                                 
Provision for income taxes (benefit)     -       613       -       2,969  
                                 
Net income (loss)     (2,982,686 )     (3,820,370 )     (5,287,015 )     (6,489,767 )
Net income (loss) attributable to noncontrolling interest     (30,143 )     (106,645 )     (19,664 )     (161,383 )
Net income (loss) attributable to EVIO, Inc. shareholders   $ (2,952,543 )   $ (3,713,725 )   $ (5,267,351 )   $ (6,328,384 )
                                 
Basic and diluted earnings (loss) per common share   $ (0.06 )   $ (0.15 )   $ (0.10 )   $ (0.25 )
                                 
Weighted-average number of common shares outstanding:                                
Basic and diluted     49,561,707       25,366,021       51,581,428       25,366,021  
                                 
Comprehensive loss:                                
Net income (loss)   $ (2,982,686 )   $ (3,820,370 )   $ (5,287,015 )   $ (6,489,767 )
Foreign curreny translation adjustment     6,151       64,261       4,923       (115,561 )
Comprehensive income (loss)   $ (2,976,535 )   $ (3,756,109 )   $ (5,282,092 )   $ (6,605,328 )

 

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

 

  4  
     

 

EVIO, INC.

Consolidated Statements of Cash Flows (Unaudited)

 

    Six Months Ended March 31,     Six Months Ended March 31,  
    2020     2019  
Cash flows from operating activities of continuing operations:                
Net income (loss)   $ (5,287,015 )   $ (6,489,767 )
Adjustments to reconcile net loss to cash used in operating activities:                
Amortization of debt discount     2,077,153       1,951,983  
Common stock issued in exchange for fees and services     328,830       240,501  
Default penalties and other covenant adjustments on convertible debentures     62,500       -  
Depreciation and amortization     511,597       720,739  
Loss on disposal of assets     2,979       64,095  
Provision for doubtful accounts     25,253       35,333  
Stock based compensation     890,510       395,850  
Unrealized (gain) loss on derivative liability     (225,797 )     556,647  
Changes in operating assets and liabilities:                
Accounts receivable     (71,177 )     74,625  
Prepaid expenses     52,919       (142,911 )
Other current assets     (34,075 )     33,122  
Security deposits     1,775       (722 )
Operating lease right of use assets     (2,950 )     48,332  
Accounts payable and accrued liabilities     675,496       1,179,775  
Customer deposits and deferred revenues     (55,409 )     (156,363 )
Interest payable     339,380       410,712  
Net cash provided by (used in) operating activities     (698,031 )     (1,078,049 )
                 
Cash flows from investing activities:                
Purchase of fixed assets     (44,674 )     (580,075 )
Net cash provided by (used in) financing activities     (44,674 )     (580,075 )
                 
Cash flows from financing activities:                
Proceeds from issuance of common stock, net of issuance costs     -       186,000  
Proceeds from issuance of convertible debentures    

-

      414,183  
Proceeds from issuance of convertible notes, net of issuance costs    

846,791

    971,014  
Proceeds from related party advances     64,069       199,040  
Repayments of capital leases     (181,931 )     (93,050 )
Repayments of convertible debentures     -       -  
Repayments of loans payable     (28,993 )     (18,617 )
Repayments of related party loans payable     (51,459 )     (27,151 )
Net cash provided by (used in) financing activities     648,477       1,631,419  
                 
Effect of exchange rates on cash and cash equivalents     360       (7,769 )
Net increase (decrease) in cash and cash equivalents     (93,868 )     (34,474 )
Cash and cash equivalents at beginning of period     110,325       81,735  
Cash and cash equivalents at end of period   $ 16,457     $ 47,261  
                 
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   $ 1,728,842     $ 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.

 

  5  
     

 

EVIO, INC.

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

 

    Series B
Preferred Stock
    Series C
Preferred Stock
    Series D
Preferred Stock
    Common Stock    

Stock

Subscriptions

   

Additional

Paid-in

    Retained    

Accumulated

Other

Comprehensive

   

Total

Stockholders’

    Noncontrolling     Total  
    Shares     Value     Shares     Value     Shares     Value     Shares     Value     Receivable     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  
Acquisition of equity interests in subsidiaries     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -  
                                                                                                                         
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  
                                                                                                                         
Net income (loss)     -       -       -       -       -       -       -       -       -       -       (3,731,725 )     -       (3,731,725 )     (106,645 )     (3,838,370 )
Change in foreign currency translation     -       -       -       -       -       -       -       -       -       -       -       64,261       64,261       -       64,261  
Issuance of common stock in connection with the conversion of Series D preferred stock     -       -       -       -       (165,000 )     (16 )     412,500       41       -       (24 )     -       -       1       -       1  
Issuance of common stock in connection with sales made under private offerings     -       -       -       -       -       -       200,000       20       -       79,980       -       -       80,000       -       80,000  
Issuance of common stock in connection with stock subscriptions received under private offerings     -       -       -       -       -       -       1,015,000       101       (406,000 )     405,899       -       -       -       -       -  
Issuance of common stock as compensation to employees, officers and/or directors     -       -       -       -       -       -       37,500       4       -       19,496       -       -       19,500       -       19,500  
Issuance of common stock in exchange for consulting, professional and other services provided     -       -       -       -       -       -       100,000       10       -       52,990       -       -       53,000       -       53,000  
Issuance of common stock and common stock purchase warrants in satisfaction of debt issuances costs     -       -       -       -       -       -       20,000       2       -       46,675       -       -       46,677       -       46,677  
Recognition of beneficial conversion features related to convertible debt instruments     -       -       -       -       -       -       -       -       -       566,841       -       -       566,841       -       566,841  
Stock based compensation related to employee stock options     -       -       -       -       -       -       -       -       -       170,553       -       -       170,553       -       170,553  
                                                                                                                         
Balance, March 31, 2019     5,000,000     $ 500       500,000     $ 50       349,500     $ 35       27,094,744     $ 2,709     $ (406,000 )   $ 24,278,682     $ (25,554,846 )   $ (379,546 )   $ (2,058,416 )   $ 1,773,251     $ (285,165 )

 

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

 

  6  
     

 

EVIO, INC.

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

 

    Preferred Stock     Preferred Stock     Preferred Stock     Common Stock    

Additional

Paid-in

   

Additional

Paid-in

    Retained    

Accumulated

Other

Comprehensive

   

Total

Stockholders’

    Noncontrolling     Total  
    Shares     Value     Shares     Value     Shares     Value     Shares     Value     Capital     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 )
                                                                                                                         
Net income (loss)     -       -       -       -       -       -       -       -       -       -       (2,952,543 )     -       (2,952,543 )     (30,143 )     (2,982,686 )
Change in foreign currency translation     -       -       -       -       -       -       -       -       -       -       -       6,153       6,153       -       6,153  
Issuance of common stock as compensation to employees, officers and/or directors     -       -       -       -       -       -       7,031,038       703       -       508,032       -       -       508,735       -       508,735  
Issuance of common stock in exchange for consulting, professional and other services provided     -       -       -       -       -       -       4,916,458       492       -       311,608       -       -       312,100       -       312,100  
Issuance of common stock in connection with the settlement of a legal matter     -       -       -       -       -       -       144,928       14       -       9,986       -       -       10,000       -       10,000  
Issuance of common stock in connection with the conversion of debentures     -       -       -       -       -       -       11,288,957       1,129       -       276,474       -       -       277,603       -       277,603  
Issuance of common stock in connection with the conversion of interest payable     -       -       -       -       -       -       1,144,012       115       -       37,120       -       -       37,235       -       37,235  
Stock based compensation related to employee stock options     -       -       -       -       -       -       -       -       -       20,817       -       -       20,817       -       20,817  
                                                                                                                         
Balance, March 31, 2020     5,000,000     $ 500       500,000     $ 50       339,500     $ 34       78,717,473     $ 7,872     $ -     $ 29,695,137     $ (43,042,534 )   $ (348,167 )   $ (13,687,108 )   $ (205,342 )   $ (13,892,450 )

 

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

 

  7  
     

 

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)     -       -       -       -       -       -       -       -       -       (18,548,721 )     -       (18,548,721 )     (2,120,312 )     (20,669,033 )
Change in foreign currency translation     -       -       -       -       -       -       -       -       -       -       (89,105 )     (89,105 )     -       (89,105 )
Issuance of common stock in connection with the conversion of Series D preferred stock     -       -       -       -       (213,000 )     (21 )     532,500       53       (32 )     -       -       -       -       -  
Issuance of common stock in connection with sales made under private offerings     -       -       -       -       -       -       1,415,000       141       591,859       -       -       592,000       -       592,000  
Issuance of common stock in connection with stock subscriptions received under private offerings     -       -       -       -       -       -       -       -       -       -       -       -       -       -  
Issuance of common stock in connection with the exercise of common stock purchase warrants     -       -       -       -       -       -       -       -       -       -       -       -       -       -  
Issuance of common stock as compensation to employees, officers and/or directors     -       -       -       -       -       -       287,500       29       397,691       -       -       397,720       -       397,720  
Issuance of common stock in exchange for consulting, professional and other services provided     -       -       -       -       -       -       1,038,017       104       331,047       -       -       331,151       -       331,151  
Issuance of common stock in satisfaction of debt issuances costs     -       -       -       -       -       -       -       -       -       -       -       -       -       -  
Issuance of common stock in connection with the settlement of accounts payable     -       -       -       -       -       -       31,579       3       14,997       -       -       15,000       -       15,000  
Issuance of common stock in connection with the settlement                                                                                                                
of notes payable     -       -       -       -       -       -       -       -       -       -       -       -       -       -  
Issuance of common stock in connection with the conversion of loans payable     -       -       -       -       -       -       2,054,887       205       686,995       -       -       687,200       -       687,200  
Issuance of common stock in connection with the conversion of debentures     -       -       -       -       -       -       669,362       67       387,933       -       -       388,000       -       388,000  
Issuance of common stock in connection with the conversion of related party notes payable     -       -       -       -       -       -       -       -       -       -       -       -       -       -  
Issuance of common stock in connection with the conversion of interest payable     -       -       -       -       -       -       10,163       1       25,109       -       -       25,110       -       25,110  
Issuance of common stock purchase warrants in satisfaction of debt issuances costs     -       -       -       -       -       -       20,000       2       11,758       -       -       11,760       -       11,760  
Reclassification of derivative liability to additional paid-in capital     -       -       -       -       -       -       -       -       -       -       -       -       -       -  
Recognition of beneficial conversion features related to convertible debt instruments     -       -       -       -       -       -       -       -       1,844,834       -       -       1,844,834       -       1,844,834  
Stock based compensation related to employee stock options     -       -       -       -       -       -       -       -       710,264       -       -       710,264       -       710,264  
Acquisition of equity interests in subsidiaries     -       -       -       -       -       -       -       -       -       -       -       -       -       -  
                                                                                                                 
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)     -       -       -       -       -       -       -       -       -       (5,267,351 )     -       (5,267,351 )     (19,664 )     (5,287,015 )
Change in foreign currency translation     -       -       -       -       -       -       -       -       -       -       4,923       4,923       -       4,923  
Issuance of common stock in connection with the conversion of Series D preferred stock     -       -       -       -       -       -       -       -       -       -       -       -       -       -  
Issuance of common stock in connection with sales made under private offerings     -       -       -       -       -       -       -       -       -       -       -       -       -       -  
Issuance of common stock in connection with stock subscriptions received under private offerings     -       -       -       -       -       -       -       -       -       -       -       -       -       -  
Issuance of common stock in connection with the exercise of common stock purchase warrants     -       -       -       -       -       -       -       -       -       -       -       -       -       -  
Issuance of common stock as compensation to employees, officers and/or directors     -       -       -       -       -       -       7,453,538       745       742,367       -       -       743,112       -       743,112  
Issuance of common stock in exchange for consulting, professional and other services provided     -       -       -       -       -       -       5,275,670       528       328,302       -       -       328,830       -       328,830  
Issuance of common stock in satisfaction of debt default penalties     -       -       -       -       -       -       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 settlement of a legal matter     -       -       -       -       -       -       144,928       14       9,986       -       -       10,000       -       10,000  
Issuance of common stock in connection with the settlement of notes payable     -       -       -       -       -       -       -       -       -       -       -       -       -       -  
Issuance of common stock in connection with the conversion of loans payable     -       -       -       -       -       -       -       -       -       -       -       -       -       -  
Issuance of common stock in connection with the conversion of debentures     -       -       -       -       -       -       29,606,438       2,961       1,516,424       -       -       1,519,385       -       1,519,385  
Issuance of common stock in connection with the conversion of related party notes payable     -       -       -       -       -       -       -       -       -       -       -       -       -       -  
Issuance of common stock in connection with the conversion of interest payable     -       -       -       -       -       -       4,610,365       461       208,996       -       -       209,457       -       209,457  
Issuance of common stock purchase warrants in satisfaction of debt issuances costs     -       -       -       -       -       -       -       -       -       -       -       -       -       -  
Reclassification of derivative liability to additional paid-in capital     -       -       -       -       -       -       -       -       -       -       -       -       -       -  
Recognition of beneficial conversion features related to convertible debt instruments     -       -       -       -       -       -       -       -       175,320       -       -       175,320       -       175,320  
Stock based compensation related to employee stock options     -       -       -       -       -       -       -       -       147,398       -       -       147,398       -       147,398  
Acquisition of equity interests in subsidiaries     -       -       -       -       -       -       -       -       -       -       -       -       -       -  
                                                                                                                 
Balance, March 31, 2020     5,000,000     $ 500       500,000     $ 50       339,500     $ 34       78,717,473     $ 7,872     $ 29,695,137     $ (43,042,534 )   $ (348,167 )   $ (13,687,108 )   $ (205,342 )   $ (13,892,450 )

 

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

 

  8  
     

 

EVIO, INC.

Notes To Unaudited Consolidated Financial Statements

For The Three Month Periods Ended March 31, 2020, and 2019

 

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.

 

  9  
     

 

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 74th 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 March 31, 2020, and 2019, 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  

 

  10  
     

 

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.

 

  11  
     

 

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 $171,443 and $215,593 for the periods ended March 31, 2020, 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 49,561,707 and 26,160,911 potentially dilutive common shares outstanding as of March 31, 2020 and 2019, respectively. Because of the net losses incurred during the three months ended March 31, 2020, and 2019, 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.

 

  12  
     

 

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.

 

  13  
     

 

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 March 31, 2020:

 

    Level 1     Level 2     Level 3     Total  
Liabilities                                
Derivative financial instruments   $ -     $ -     $ 2,319,938     $ 2,319,938  

 

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 $2,069,538, net of accumulated amortization, and a corresponding lease liability of $2,117,338. 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.

 

  14  
     

 

Amortization of lease assets is included in general and administrative expenses. The future minimum lease payments of lease liabilities as of March 31, 2020, are as follows:

 

For the years ended September 30,   Operating Leases     Financing Leases  
2020     972,244       430,591  
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     2,594,726       1,339,450  
Less: Payments Made     (477,388 )     (222,236 )
Total Lease Liabilities   $ 2,117,338       1,117,214  

 

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 March 31, 2020, and September 30, 2019 consist of:

 

   

March 31,

2020

    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 March 31, 2020, 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.

 

  15  
     

 

As of March 31, 2020, the Company had total accounts receivable net of allowances of $153,383. Five clients comprised a total of 29% of this balance as follows:

 

    Balance     Percent of Total  
Customer 1   $ 26,181       8 %
Customer 2     20,336       6 %
Customer 3     18,065       6 %
Customer 4     14,651       5 %
Customer 5     14,330       4 %
All others     231,263       71 %
Total     324,826       100 %
Allowance for doubtful accounts     (171,443 )        
Net accounts receivable   $ 153,383          

 

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

 

  16  
     

 

The Company’s property and equipment consisted of the following as of March 31, 2020, and September 30, 2019:

 

    March 31, 2020     September 30, 2019  
Assets Not-In-Service   $     $ -  
Capital Assets     1,850,093       1,800,347  
Land     212,550       212,550  
Buildings & Real Estate     941,857       941,857  
Furniture and Equipment     157,614       152,933  
Laboratory Equipment     2,054,901       2,188,828  
Software     77,865       78,996  
Computers     27,597        
Leasehold Improvements     696,756       697,333  
Vehicles     129,790       83,915  
Total     6,149,825       6,188,777  
Accumulated depreciation     (1,553,052 )     (1,511,973 )
Net value   $ 4,596,772     $ 4,676,804  

 

Note 8 – Related Party Transactions

 

During the periods ended March 31, 2020 and September 30, 2019 the Company received loans from its Chief Operating Officer totaling $17,014 and $194,820, respectively, and made repayments totaling $0 and $1,040, respectively. There was $158,676 and $143,780 due as of March 31, 2020, 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 March 31, 2020 and September 30, 2019 the Company received loans from its Chief Executive Officer totaling $14,000 and $75,000, respectively, and made repayments totaling $0 and $19,200, respectively. There was $69,800 and $55,800 due as of March 31, 2020, 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 March 31, 2020, 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 March 31, 2020 and September 30, 2019, respectively. The note carries interest at a rate of 5% per annum and had accrued interest totaling $122,095 and $107,899 due as of March 31, 2020, and September 30, 2019, respectively.

 

During the periods ended March 31, 2020, 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 $44,059 and $55,090, respectively. There was $136,851 and $180,910 of principal due as of March 31, 2020 and September 31, 2019, respectively. The note carries interest at a rate of 5% per annum and had accrued interest totaling $41,828 and $41,600 due as of March 31, 2020, and September 30, 2019, respectively.

 

During the periods ended March 31, 2020, 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 March 31, 2020 and September 30, 2019, respectively. The note bears interest at 0% per annum and requires repayments of $25,000 quarterly.

 

During the periods ended March 31, 2020, 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 quarter ended March 31, 2020, a third party purchased the remaining balance of the $170,000 note. 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 $0 and $170,000 of principal due as of March 31, 2020 and September 30, 2019, respectively. Unamortized debt discount of $0 and $25,563 as of March 31, 2020 and September 30, 2019, respectively and $0 and $59,412 of accrued interest due as of March 31, 2020 and September 30, 2019, respectively.

 

  17  
     

 

During the periods ended March 31, 2020 and September 30, 2019, the Company received loans from a related party associate with Keystone Labs totaling $30,796 and $191,515, respectively, and made repayments totaling $19,248 and $9,034, respectively. There was $372,538 and $354,050 due as of March 31, 2020 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 March 31, 2020, 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 March 31, 2020, 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 March 31, 2020, 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 30, 2019, and September 30, 2019, respectively.

 

Common Stock

 

During the three months ended March 31, 2020, the Company issued the following common shares:

 

Number of

Shares issued

    Description   $ Value  
7,353,538     Issuance of shares as compensation to employees, officers/directors     525,778  
3,750,000     Issuance of shares in exchange for consulting, professional and services     262,500  
501,972     Shares issued in satisfaction of debt issuance costs     15,500  
144,928     Shares issued in settlement of litigation     10,000  
7,209,271     Issuance of shares in connection with the conversion of debentures     207,603  
1,144,012     Issuance of shares in connection with the conversion of interest payable     37,121  
               
Total   20,103,721         $ 1,056,106  

 

  18  
     

 

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 78,642,473 and 29,314,419 shares of common stock issued and outstanding at March 31, 2020, and September 30, 2019

 

Note 10 – LOANS PAYABLE

 

The Company had the following loans payable outstanding as of March 31, 2020, and September 30, 2019:

 

    March 31, 2020     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.     43,575       47,551  
                 
On June 28, 2018, the Company executed a note payable for $650,000 for the purchase of the building at 14775 SW 74th Ave, Tigard, OR. The note carries interest at 8% annually and is due on June 28, 2021.     609,907       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.     93,028       -  
Total loans payable     1,496,510       1,420,079  
Less: current portion of loans payable     785,960       762,476  
                 
Long-term portion of loans payable   $ 708,550     $ 657,603  

 

As of March 31, 2020 and September 30, 2019, the Company accrued interest of $104,384 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.

 

  19  
     

 

The following table summarizes all convertible notes outstanding as of March 31, 2020:

 

Holder   Issue Date   Due Date   Principal     Unamortized
Debt Discount
    Carrying Value     Accrued Interest  
                                 
31Noteholder #1   04/24/18   04/24/19     500,000       -       500,000       -  
Noteholder #2   07/01/19   09/30/19     675,930       -       675,930       47,672  
Noteholder #3   08/01/18   01/01/19     396,000       -       396,000       92,355  
Noteholder #3   10/02/18   01/01/19     264,000       -       264,000       49,458  
Noteholder #5   09/17/18   09/17/19     -       -       -       10,260  
Noteholder #6   11/15/18   11/15/19     -       -       -       15,564  
Noteholder #6   02/04/19   02/04/20     230,000       -       230,000       23,048  
Noteholder #6   08/08/19   08/08/20     33,092       (4,274 )     28,818       1,712  
Noteholder #6   11/04/19   11/04/20     33,516       (11,301 )     22,215       1,087  
Noteholder #6   12/23/19   12/23/20     137,375       (100,216 )     37,159       2,981  
Noteholder #6   01/21/20   02/21/21     52,500               52,500       805  
Noteholder #6   02/04/20   02/04/20     265,637       -       265,637       4,076  
Noteholder #7   12/27/18   12/27/19     20,000       -       20,000       3,297  
Noteholder #7   02/05/19   02/05/20     131,250       -       131,250       11,995  
Noteholder #7   02/11/19   02/11/20     131,250       -       131,250       11,708  
Noteholder #7   03/15/19   03/15/20     70,913       -       70,913       5,937  
Noteholder #7   08/08/19   08/08/20     33,092       (4,274 )     28,818       1,712  
Noteholder #7   11/04/19   11/04/20     33,516       (11,301 )     22,215       1,087  
Noteholder #7   01/03/20   01/03/21     137,375               137,375       2,740  
Noteholder #7   01/21/20   02/22/21     52,500       -       52,500       805  
Noteholder #7   02/04/20   02/04/20     265,637       -       265,637       4,076  
Noteholder #10   03/15/19   03/15/20     70,913       -       70,913       5,937  
Noteholder #11   08/30/19   05/30/20     110,000       (24,088 )     85,912       5,159  
Noteholder #11   08/29/19   08/29/20     100,000       0       100,000       -  
                                         
            $ 3,744,496     $ (155,453 )   $ 3,589,042     $ 303,472  

 

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  

 

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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 $47,672 of accrued interest on March 31, 2020.

 

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 $92,355 of accrued interest due on March 31, 2020.

 

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