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 June 30, 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 4, 2020 there were 89,142,473 shares of common stock outstanding.

 

 

 

 

 

 

EVIO, INC.

FORM 10-Q

QUARTERLY PERIOD ENDED JUNE 30, 2020

 

TABLE OF CONTENTS

 

PART I — FINANCIAL INFORMATION  
     
Item 1. Consolidated Financial Statements (Unaudited)  
  Consolidated Balance Sheets as of June 30, 2020 (Unaudited) and September 30, 2019 3
  Consolidated Statements of Operations for the Three Months Ended June 30, 2020, and 2019 (Unaudited) 4
  Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2020, and 2019 (Unaudited) 5
  Consolidated Statements of Stockholders Equity for the Three Months June 30, 2020, and 2019 (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

 

2

 

 

PART I — FINANCIAL INFORMATION

 

EVIO, INC.

Consolidated Balance Sheets (Unaudited)

 

    June 30,     September 30,  
    2020     2019  
             
ASSETS                
Current assets:                
Cash and cash equivalents   $ 71,396     $ 110,325  
Accounts receivable, net     110,786       133,022  
Prepaid expenses     105,039       190,460  
Other current assets     44,766       9,689  
Note receivable, current portion     538,904       538,904  
Total current assets     870,891       982,400  
Right of use assets     1,832,856       2,543,976  
Capital assets, net     1,116,734       1,383,828  
Land     212,550       212,550  
Property and equipment, net     2,643,460       3,080,426  
Security deposits     176,650       178,918  
Prepaid expenses, net     -       4,061  
Total assets   $ 6,853,141     $ 8,386,159  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current liabilities:                
Accounts payable and accrued liabilities   $ 4,443,243     $ 3,811,237  
Client deposits     42,022       108,418  
Interest payable     1,693,136       1,387,642  
Capital lease obligation, current     902,894       957,673  
Derivative liability     2,134,395       2,545,735  
Convertible notes payable, net of discounts     3,721,712       3,695,484  
Loans payable, net of discounts, current     788,006       762,476  
Total current liabilities     13,725,408       13,268,665  
Convertible debentures, net of loan discounts     3,694,043       1,734,890  
Lease liabilities     1,886,722       2,594,726  
Capital lease obligation, net     121,729       381,786  
Loans payable, net     702,578       657,603  
Loans payable, related party, net     1,417,793       1,560,849  
Total liabilities     21,548,273       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 June 30, 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 June 30, 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 June 30, 2020 and September 30, 2019, respectively     34       34  
Common stock, $0.0001 par value. 1,000,000,000 authorized; 94,217,473 and 29,314,419 shares issued and outstanding at June 30, 2020 and September 30, 2019, respectively     9,422       2,931  
Stock subscriptions receivable     -       -  
Additional paid-in capital     30,001,524       26,498,076  
Retained earnings (accumulated deficit)     (44,391,942 )     (37,775,183 )
Accumulated other comprehensive income     (328,036 )     (353,090 )
Total stockholders’ equity     (14,708,448 )     (11,626,682 )
Noncontrolling interest     13,317       (185,678 )
Total equity     (14,695,131 )     (11,812,360 )
Total liabilities and equity   $ 6,853,142     $ 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
June 30,
    Three Months Ended
June 30,
 
    2020     2019  
             
Revenues                
Testing revenue   $ 603,192     $ 1,098,310  
Consulting revenue     -       3,000  
Total revenues     603,192       1,101,310  
                 
Cost of revenue                
Testing services     455,497       823,540  
Consulting services     (1,824 )     -  
Depreciation and amortization     289,594       289,523  
Total cost of revenue     743,267       1,113,063  
                 
Gross margin     (140,075 )     (11,753 )
                 
Operating expenses:                
Selling, general and administrative     147,873       1,504,539  
Depreciation and amortization     17,907       62,291  
Total operating expenses     165,780       1,566,830  
                 
Income (loss) from operations     (305,855 )     (1,578,583 )
                 
Other income (expense)                
Interest income (expense), net     (960,485 )     (592,089 )
Other income (expense)     (359,805 )     (178,549 )
Gain (loss) on settlement of debt     -       -  
Impairment charge     -       -  
Gain (loss) on change in fair market value of derivative liabilities     224,783       981,421  
Total other income (expense)     (1,095,507 )     210,783  
Income (loss) before income taxes     (1,401,362 )     (1,367,800 )
                 
Provision for income taxes (benefit)     -       2,735  
                 
Net income (loss)     (1,401,362 )     (1,370,535 )
Net income (loss) attributable to noncontrolling interest     (51,954 )     (49,257 )
Net income (loss) attributable to EVIO, Inc. shareholders   $ (1,349,408 )   $ (1,321,278 )
                 
Basic and diluted earnings (loss) per common share   $ (0.03 )   $ (0.05 )
                 
Weighted-average number of common shares outstanding:                
Basic and diluted     49,561,707       25,366,021  
                 
Comprehensive loss:                
Net income (loss)   $ (1,401,362 )   $ (1,370,535 )
Foreign currency translation adjustment     26,282       64,261  
Comprehensive income (loss)   $ (1,375,080 )   $ (1,306,274 )

 

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

 

4

 

 

EVIO, INC.

Consolidated Statements of Cash Flows (Unaudited)

 

    Nine Months Ended
June 30,
    Nine Months Ended
June 30,
 
    2020     2019  
Cash flows from operating activities of continuing operations:            
Net income (loss)   $ (6,688,377 )   $ (7,842,302 )
Adjustments to reconcile net loss to cash used in operating activities:                
Amortization of debt discount     2,875,551       2,241,279  
Common stock issued in exchange for fees and services     333,830       342,910  
Default penalties and other covenant adjustments on convertible debentures     62,500          
Deferred taxes     -       -  
Depreciation and amortization     819,099       1,080,100  
Impairment of goodwill and long lived assets     375,614       -  
Loss on disposal of assets     2,979       64,095  
Loss on settlement of accounts payable     -       -  
Loss on settlement of debt     10,000       -  
Provision for doubtful accounts     25,873       49,835  
Provision for excess or obsolete inventory     -       -  
Stock based compensation     903,683       576,124  
Unrealized (gain) loss on derivative liability     (450,580 )     (424,774 )
Changes in operating assets and liabilities:                
Accounts receivable     (7,944 )     (144,052 )
Prepaid expenses     89,483       (74,605 )
Other current assets     (35,115 )     89,842  
Security deposits     1,775       (35,646 )
Operating lease right of use assets     3,116       49,541  
Other assets     -       -  
Accounts payable and accrued liabilities     471,812       1,281,150  
Customer deposits and deferred revenues     (66,397 )     (206,113 )
Deposits, related party     -       -  
Income taxes payable     -       -  
Interest payable     515,321       595,752  
Net cash provided by (used in) operating activities     (757,777 )     (2,356,864 )
                 
Cash flows from investing activities:                
Cash consideration for acquisition of business     -       -  
Notes receivable     -       761,096  
Purchase of fixed assets     (39,206 )     (853,644 )
Purchase of intangible assets     -       -  
Net cash provided by (used in) financing activities     (39,206 )     (92,548 )
                 
Cash flows from financing activities:                
Proceeds from issuance of preferred stock, net of issuance costs     -       -  
Proceeds from issuance of common stock, net of issuance costs     -       592,000  
Proceeds from exercise of common stock purchase warrants, net of issuance costs     -       -  
Proceeds from issuance of convertible debentures     -       374,000  
Proceeds from issuance of convertible notes, net of issuance costs     1,055,102       1,078,732  
Proceeds from loans payable     -       2,718  
Proceeds from related party advances     80,431       144,193  
Repayments of capital leases     (294,727 )     274,553  
Repayments of convertible debentures     -       -  
Repayments of loans payable     (34,920 )     (30,476 )
Repayments of related party loans payable     (71,063 )     (11,906 )
Net cash provided by (used in) financing activities     734,823       2,423,814  
                 
Effect of exchange rates on cash and cash equivalents     23,232       4,927  
Net increase (decrease) in cash and cash equivalents     (38,928 )     (20,671 )
Cash and cash equivalents at beginning of period     110,325       81,735  
Cash and cash equivalents at end of period   $ 71,397     $ 61,064  
                 
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   $ 1,828,842     $ 708,089  
Reclassification of derivative liability to additional paid in capital   $ -     $ -  
Settlement of account payable for common stock   $ 6,000     $ -  
Common stock issued for settlement of note payable   $ -     $ 15,000  
Common stock issued for settlement of related party note payable   $ -     $ -  
Common stock issued for subscription receivable   $ -     $ -  
Conversion of Series D Preferred stock to common stock   $ -     $ 364,462  
Debt discount recorded on convertible notes and debentures payable upon initial measurement of derivative liability   $ 39,241     $ 846,985  
Debt discounts recorded for beneficial conversion features on convertible debentures and notes payable   $ 260,083     $ -  
Debt discounts recorded for original issue discounts on convertible debentures   $ -          
Vehicles financed through notes payable   $ 105,424     $ -  
Equipment financed through capital leases   $ -     $ 322,383  
Issuance of convertible notes payable and other obligations in connection with the acquisition of a business   $ -     $ -  
Sale and assumption of note payable and accrued interest   $ -     $ 556,658  

 

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

 

5

 

 

EVIO, INC.

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

 

                                                                      Accumulated                    
    Series B      Series C      Series D                 Stock     Additional           Other     Total              
    Preferred Stock     Preferred Stock     Preferred Stock     Common Stock     Subscriptions     Paid-in     Retained     Comprehensive     Stockholders’     Noncontrolling     Total  
    Shares     Value     Shares     Value     Shares     Value     Shares     Value     Receivable     Capital     Earnings     Income     Equity     Interest     Equity  
                                                                                                                         
Balance, March 31, 2019     5,000,000     $ 500       500,000     $ 50       552,500     $ 55       16,068,505     $ 1,606     $ -     $ 12,925,709     $ (10,258,765 )   $ -     $ 2,669,155     $ 545,328     $ 3,214,483  
                                                                                                                         
Net income (loss)     -       -       -       -       -       -       -       -       -       -       (3,199,989 )     -       (3,199,989 )     (257,101 )     (3,457,090 )
Change in foreign currency translation     -       -       -       -       -       -       -       -       -       -       -       (317,132 )     (317,132 )     -       (317,132 )
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     -       -       -       -       -       -       1,291,392       129       -       1,533,372       -       -       1,533,501       -       1,533,501  
Issuance of common stock in connection with the exercise of                                                                                                                        
common stock purchase warrants     -       -       -       -       -       -       13,333       1       -       7,998       -       -       7,999       -       7,999  
Issuance of common stock as compensation to employees, officers                                                                                                                        
and/or directors     -       -       -       -       -       -       140,000       14       -       272,548       -       -       272,562       -       272,562  
Issuance of common stock in exchange for consulting, professional                                                                                                                        
and other services provided     -       -       -       -       -       -       15,000       2       -       10,805       -       -       10,807       -       10,807  
Issuance of common stock in satisfaction of debt issuances costs     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -  
Issuance of common stock in connection with the settlement                                                                                                                        
of accounts payable     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -  
Issuance of common stock in connection with the settlement                                                                                                                        
of notes payable     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -  
Issuance of common stock in connection with the conversion                                                                                                                        
of loans payable     -       -       -       -       -       -       2,121,233       212       -       1,493,573       -       -       1,493,785       -       1,493,785  
Issuance of common stock in connection with the conversion                                                                                                                        
of debentures     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -  
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     -       -       -       -       -       -       70,440       7       -       48,096       -       -       48,103       -       48,103  
Common stock options issued under employee equity incentive plan     -       -       -       -       -       -       -       -       -       321,898       -       -       321,898       -       321,898  
Reclassifcation of derivative liability to additional paid-in capital     -       -       -       -       -       -       -       -       -       1,459,658       -       -       1,459,658       -       1,459,658  
Recognition of beneficial conversion features related to                                                                                                                        
convertible debt instruments     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -  
Acquisition of equity interests in subsidiaries     -       -       -       -       -       -       -       -       -       -       -       -       -       1,962,095       1,962,095  
                                                                                                                         
Balance, June 30, 2019     5,000,000     $ 500       500,000     $ 50       552,500     $ 55       19,719,903     $ 1,971     $ -     $ 18,073,657     $ (13,458,754 )   $ (317,132 )   $ 4,300,347     $ 2,250,322     $ 6,550,669  

 

                                                                      Accumulated                    
                                                    Additional     Additional           Other     Total              
    Preferred Stock     Preferred Stock     Preferred Stock     Common Stock     Paid-in     Paid-in     Retained     Comprehensive     Stockholders’     Noncontrolling     Total  
    Shares     Value     Shares     Value     Shares     Value     Shares     Value     Capital     Capital     Earnings     Income     Equity     Interest     Equity  
                                                                                                                         
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 )
                                                                                                                         
Net income (loss)     -       -       -       -       -       -       -       -       -       -       (1,349,408 )     -       (1,349,408 )     (51,954 )     (1,401,362 )
Change in foreign currency translation     -       -       -       -       -       -       -       -       -       -       -       20,131       20,131       -       20,131  
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     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -  
Issuance of common stock in exchange for consulting, professional                                                                                                                        
and other services provided     -       -       -       -       -       -       500,000       50       -       4,950       -       -       5,000       -       5,000  
Issuance of common stock in satisfaction of debt issuances costs     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -  
Issuance of common stock in connection with the settlement                                                                                                                        
of accounts payable     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -  
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     -       -       -       -       -       -       10,000,000       1,000       -       99,000       -       -       100,000       -       100,000  
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     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -  
Issuance of common stock purchase warrants in satisfaction of                                                                                                                        
debt issuances costs     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -  
Reclassifcation of derivative liability to additional paid-in capital     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -  
Recognition of beneficial conversion features related to                                                                                                                        
convertible debt instruments     -       -       -       -       -       -       -       -       -       84,763       -       -       84,763       -       84,763  
Stock based compensation related to employee stock options     -       -       -       -       -       -       -       -       -       13,173       -       -       13,173       -       13,173  
Acquisition of equity interests in subsidiaries     -       -       -       -       -       -       5,000,000       500       -       104,500       -       -       105,000       270,614       375,614  
                                                                                                                         
Balance, June 30, 2020     5,000,000     $ 500       500,000     $ 50       339,500     $ 34       94,217,473     $ 9,422     $ -     $ 30,001,523     $ (44,391,942 )   $ (328,036 )   $ (14,708,449 )   $ 13,318     $ (14,695,131 )

 

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

 

6

 

 

EVIO, INC.

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

 

                                                                Accumulated                    
    Series B     Series C     Series D                 Additional           Other     Total              
    Preferred Stock     Preferred Stock     Preferred Stock     Common Stock     Paid-in     Retained     Comprehensive     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)     -       -       -       -       -       -       -       -       -       (6,616,759 )     -       (6,616,759 )     (71,618 )     (6,688,377 )
Change in foreign currency translation     -       -       -       -       -       -       -       -       -       -       25,054       25,054       -       25,054  
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     -       -       -       -       -       -       5,775,670       578       333,252       -       -       333,830       -       333,830  
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     -       -       -       -       -       -       39,606,438       3,961       1,615,424       -       -       1,619,385       -       1,619,385  
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     -       -       -       -       -       -       -       -       260,083       -       -       260,083       -       260,083  
Stock based compensation related to employee stock options     -       -       -       -       -       -       -       -       160,571       -       -       160,571       -       160,571  
Acquisition of equity interests in subsidiaries     -       -       -       -       -       -       5,000,000       500       104,500       -       -       105,000       270,614       375,614  
                                                                                                                 
Balance, March 31, 2020     5,000,000     $ 500       500,000     $ 50       339,500     $ 34       94,217,473     $ 9,422     $ 30,001,523     $ (44,391,942 )   $ (328,036 )   $ (14,708,449 )   $ 13,318     $ (14,695,131 )

 

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

 

7

 

 

EVIO, INC.

Notes To Unaudited Consolidated Financial Statements

For The Three Month Periods Ended June 30, 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.

 

8

 

 

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.

 

On May 29, 2020, the Company entered into a Membership Interest Purchase Agreement with Green Analytics to sell 100% of Viridis Analytics, MA, subject to permission of the Massachusetts Cannabis Control Commission.

 

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 June 30, 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  

 

9

 

 

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.

 

10

 

 

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 $170,666 and $215,593 for the periods ended June 30, 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 94,142,473 and 26,160,911 potentially dilutive common shares outstanding as of June 30, 2020 and 2019, respectively. Because of the net losses incurred during the three months ended June 30, 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.

 

11

 

 

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.

 

12

 

 

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 June 30, 2020:

 

    Level 1     Level 2     Level 3     Total  
Liabilities                        
Derivative financial instruments   $