NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – ORGANIZATION AND NATURE OF ACTIVITIES
EVIO,
Inc., a Colorado corporation and its subsidiaries provide analytical testing and advisory services to the emerging legalized cannabis
industry. EVIO, Inc. was originally incorporated in the State of New York, December 12, 1977 under the name 3171 Holding Corporation.
On February 22, 1979, the name was changed to Electronomic Industries Corp. and on February 23, 1983 the name was changed to Quantech
Electronics Corp. The Company was reincorporated in the State of Colorado on December 15, 2003. On August 29, 2014, the Company
completed a reverse merger with Signal Bay Research, Inc., a Nevada Corporation, and assumed its operations. In September 2014,
the Company changed its name from Quantech Electronics Corp. to Signal Bay, Inc. then to EVIO, INC. in August 2018. The Company
has selected September 30 as its fiscal year end. The Company is domiciled in the State of Colorado, and its corporate headquarters
are located in Henderson, Nevada.
As
a part of and prior to the consummation of the reverse merger, William Waldrop and Lori Glauser, principals of Signal Bay Research,
Inc., purchased 80% of the issued and outstanding common stock from WB Partners. The merger between the Company and Signal Bay
Research was finalized and closed contemporaneously with the share purchase. As part of this share purchase, Mr. Waldrop and Ms.
Glauser became the officers and directors of the Company. Immediately after the reverse, WB Partners owned less than 5% of the
common stock. The company filed a Form 10-12G on November 25, 2014 and was determined to be a shell company by the SEC as per
the Form 10-12G/A which went effective on January 24, 2015. On January 29, 2015, the company filed an 8-K stating it entered into
a material agreement and was no longer a shell company.
After
the reverse merger, Signal Bay Research, Inc. continues to operate as a wholly owned subsidiary providing compliance, research
and advisory services for Signal Bay, Inc.
Signal
Bay Services was formed on January 25, 2015, as the management services division of EVIO.
On
September 17, 2015, EVIO entered into a share exchange agreement with CR Labs, Inc., an Oregon Corporation, pursuant to which
the Company acquired 80% of the outstanding common stock of CR Labs, Inc.
EVIO
Inc. was formed on April 4, 2016 to become the holding company for all laboratory operations.
EVIO
Labs Eugene was formed on May 23, 2016, as a wholly owned subsidiary of EVIO Inc. Subsequently on May 24, 2016, EVIO Labs Eugene
acquired all of the assets of Oregon Analytical Services, LLC, inclusive of client lists, equipment, trade names and personnel.
On
June 1, 2016, EVIO Inc. entered into a share purchase agreement to purchase 80% of the outstanding common stock of Smith Scientific
Industries, Inc. d/b/a Kenevir Research in Medford, OR.
On
October 19, 2016, the Company entered into a Membership Interest Purchase Agreement to purchase 100% of the ownership of GreenHaus
Analytical Labs, LLC.
On
October 26, 2016, the Company entered into an Asset Purchase Agreement with Green Style Consulting, LLC which was closed on November
1, 2016.
The
Company entered into a Membership Interest Purchase Agreement with Viridis Analytics MA, LLC which was closed on August 1, 2018.
On
December 29, 2018, the Company entered into a Membership Purchase Agreement to purchase 60% of the outstanding shares of C3 Labs,
LLC which closed On January 1, 2019.
On
June 27, 2018, Greenhaus Analytical Labs LLC, a wholly-owned subsidiary of EVIO, Inc. entered into a Purchase and Sale Agreement
with Michael G. Myers for the property located at 14775 SW 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.
EVIO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
A
summary of significant accounting policies of EVIO, INC. (the “Company”) is presented to assist in understanding the
Company’s financial statements. The accounting policies presented in these footnotes conform to accounting principles generally
accepted in the United States of America and have been consistently applied in the preparation of the accompanying financial statements.
These financial statements and notes are representations of the Company’s management who are responsible for their integrity
and objectivity.
Principles
of Consolidation
The
Company prepares its consolidated financial statements on the accrual basis of accounting. The accompanying consolidated financial
statements include the accounts of the Company and its wholly and partially owned subsidiaries, all of which have a fiscal year
end of September 30. All intercompany accounts, balances and transactions have been eliminated in the consolidation.
The
Company consolidates its subsidiaries in accordance with ASC 810, and specifically ASC 810-10-15-8 which states, the usual condition
for a controlling financial interest is ownership of a majority voting interest, and, therefore, as a general rule ownership by
one reporting entity, directly or indirectly, or over 50% of the outstanding voting shares of another entity is a condition pointing
toward consolidation.”
Cash
and Cash Equivalents
All
cash is maintained with major financial institutions. Deposits may exceed the amount of insurance provided on such deposits. For
the purposes of the cash flows, the Company considers all short-term debt securities purchased with original maturity of three
months or less to be cash equivalents. The Company did not have any cash equivalents as of September 30, 2019 or 2018.
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 $215,933 and $414,475 for 2019 and 2018, respectively.
Notes
Receivable
The
Company accounts investments for notes receivable in accordance with ASC 320. On September 6, 2017, the Company entered in a note
receivable with an unrelated entity for $1,300,000. The note is due on September 6, 2024 and carries interest at a rate of 8%
per annum. The note requires minimum principal payments of $100,000 plus accrued interest on each anniversary date with the unpaid
principal and interest being due on September 6, 2024. The note was purchased in May 2019, by an unrelated third party. The balance
on the purchased note as of September 30, 2019 was $538,904. The Company evaluated the collectability of the note receivable as
of September 30, 2019 and determined the full balance is collectible and no reserve for write off was recorded.
Goodwill
and Other Intangible Assets
Goodwill
and indefinite-lived intangible assets are not amortized but are evaluated for impairment annually or more often if indicators
of a potential impairment are present. Our annual impairment tests are conducted at the beginning of the fourth quarter. We use
a two-step process to quantitatively evaluate goodwill for impairment. In the first step, we compare the fair value of each reporting
unit with the carrying amount of the reporting unit, including goodwill. If the estimated fair value of the reporting unit is
less than the carrying amount of the reporting unit, we complete a second step to determine the amount of the goodwill impairment
that we should record. In the second step, we determine an implied fair value of the reporting unit’s goodwill by allocating
the reporting unit’s fair value to all of its assets and liabilities other than goodwill (including any unrecognized intangible
assets). We compare the resulting implied fair value of the goodwill to the carrying amount and record an impairment charge for
the difference. We test individual indefinite-lived intangible assets by comparing the estimated fair value with the book values
of each asset.
The
Company recognizes an acquired intangible apart from goodwill whenever the intangible arises from contractual or other legal rights,
or whenever it can be separated or divided from the acquired entity and sold, transferred, licensed, rented or exchanged, either
individually or in combination with a related contract, asset or liability. Such intangibles are amortized on a straight-line
basis over their estimated useful lives unless the estimated useful life is determined to be indefinite. The Company’s intangible
assets consist of client lists (amortized over five years), assembled workforce (amortized over five years), websites and domain
names (amortized over 15 years) and testing licenses (amortized over 5 years).
EVIO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The
Company performed its annual fair value assessment at September 30, 2019, on its subsidiaries with material goodwill and intangible
asset amounts on their respective balance sheets and determined that carrying value of its goodwill and Intangible assets on our
financial statements exceeds its fair value. As such, the Company recorded an impairment charge to its goodwill of $7,255,724.
The impairment charge included $1,569,911 for Greenhaus Analytical Labs, $477,900 for EVIO Labs Humboldt, $3,264,623 for Keystone
Labs, $784,814 for EVIO Labs Berkeley, $441,903 for Smith Scientific, and $643,729 for EVIO Labs MA due to changing outlook of
market conditions.
Business
Combinations. We have adopted the amendment to ASC 805 for the accounting for business acquisitions both during the period
of the acquisition and in subsequent periods. Among the more significant changes in the accounting for acquisitions are the following:
|
|
●
|
Contingent
consideration is recorded at fair value as an element of purchase price with subsequent adjustments recognized in operations.
|
|
|
●
|
Subsequent
decreases in valuation allowances on acquired deferred tax assets are recognized in operations after the measurement period.
|
|
|
●
|
Upon
gaining control of an entity in which an equity method or cost basis investment was held, the carrying value of that investment
is adjusted to fair value with the related gain or loss recorded in earnings.
|
Reclassification
Certain
amounts in the 2018 financial statements have been reclassified to conform to the 2019 financial presentation. These reclassifications
have no impact on net loss.
Use
of Estimates
The
preparation of financial statements in accounting principles generally accepted in the United States of America requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. A change in managements’ estimates or assumptions may have a material impact on the financial condition and results
of operations of the Company during the period in which such changes occurred. Actual results could differ from those estimates.
The Company’s financial statements reflect all adjustments that management believes are necessary for the fair presentation
of their financial condition and results of operations for the periods presented.
Revenue
Recognition
In
2019 the Company recognizes revenue under ASC 606, Revenue from Contracts with Customers. The core principle of the new revenue
standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount
that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following
five steps are applied to achieve that core principle:
|
|
●
|
Step
1: Identify the contract with the customer
|
|
|
|
|
|
|
●
|
Step
2: Identify the performance obligations in the contract
|
|
|
|
|
|
|
●
|
Step
3: Determine the transaction price
|
|
|
|
|
|
|
●
|
Step
4: Allocate the transaction price to the performance obligations in the contract
|
|
|
|
|
|
|
●
|
Step
5: Recognize revenue when the company satisfies a performance obligation
|
The
Company generates revenue from consulting services, licensing agreements and testing of cannabis and cannabis products for both
medicinal and recreational consumption.
The
Company accounts for a contract after it has been approved by all parties to the arrangement, the rights of the parties are identified,
payment terms are identified, the contract has commercial substance and collectability of consideration is probable.
The
Company evaluates the services promised in each contract at inception to determine whether the contract should be accounted for
as having one or more performance obligations. The Company’s services included in its contracts are distinct from one another.
EVIO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The
Company determines the transaction price for each contract based on the consideration it expects to receive for the distinct services
being provided under the contract.
The
Company recognizes revenue as performance obligations are satisfied and the customer obtains control of the goods or services
provided. In determining when performance obligations are satisfied, the Company considers factors such as contract terms, payment
terms and whether there is an alternative future use of the product or service.
The
Company recognizes revenue from testing services upon delivery of its testing results to the client. Customer orders for testing
services are generally completed within two weeks of receiving the order.
Consulting
engagements may vary in length and scope, but will generally include the review and/or preparation of regulatory filings, business
plans and financial models to customers within the same industry. Revenue from consulting services is recognized upon completion
of deliverables as outlined in the consulting agreement.
The
Company recognizes revenue from right of use license agreements upon transfer of control of the functional intellectual property.
In certain licensing agreements, the Company may receive royalty revenues based upon performance metrics which are recognized
as earned over time.
The
Company generated revenues of $3,789,815 and $3,365,525 during the years ended September 30, 2019 and 2018.
Cost
of Revenue Recognition
The
Company recognizes all costs incurred that are directly related to revenue generating activities as a cost of revenue. These costs
include salaries and payroll taxes associated with lab employees, rent and utilities on lab facilities, repairs and maintenance
to facilities and equipment, depreciation of lab equipment and outsourced professional services utilized for consulting engagements.
Cost of revenues totaled $4,725,855 and $3,837,288 during the years ended September 30, 2019 and 2018, respectively.
Stock
Based Compensation
In
accordance with ASC No. 718, Compensation – Stock Compensation (“ASC 718”), the Company measures the cost of
stock-based compensation arrangements based on the grant-date fair value and recognizes the cost in the financial statements at
the time goods are received or over the period during which employees and non-employees are required to provide services. If the
Company cannot estimate reliably the fair value of the goods and services received, the Company shall measure their value indirectly
by reference to the fair value of the equity instruments granted. For transactions with employees and others providing similar
services, the Company measures the fair value of the services by reference to the fair value of the equity instruments granted.
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 simulation 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.
Income
Taxes
The
Company uses the asset and liability method of accounting for income taxes in accordance with ASC 740-10, “Accounting for
Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for
the current year; and, (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized
in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period
that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if, based on the
weight of available positive and negative evidence, it is more likely than not that some portion or all of the deferred tax assets
will not be realized.
ASC
740-10 prescribes a recognition threshold and measurement attribute for the financial statement recognition of a tax position
taken or expected to be taken on a tax return. Under ASC 740-10, a tax benefit from an uncertain tax position taken or expected
to be taken may be recognized only if it is “more likely than not” that the position is sustainable upon examination,
based on its technical merits. The tax benefit of a qualifying position under ASC 740-10 would equal the largest amount of tax
benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority having full knowledge
of all the relevant information. A liability (including interest and penalties, if applicable) is established to the extent a
current benefit has been recognized on a tax return for matters that are considered contingent upon the outcome of an uncertain
tax position. Related interest and penalties, if any, are included as components of income tax expense and income taxes payable.
EVIO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Capital
Leases
The
Company determines if an arrangement is a lease at inception and has lease agreements for warehouses, office facilities, and equipment.
These commitments have remaining non-cancelable lease terms, with lease expirations which range from 2020 to 2024.
As
a result of the adoption of ASC 842, certain real estate and equipment operating leases have been recorded on the balance sheet
with a lease liability and right- of-use asset (“ROU”). Application of this standard resulted in the recognition of
ROU assets of $2,543,976, net of accumulated amortization, and a corresponding lease liability of $2,594,726. Accounting for finance
leases is substantially unchanged.
Operating
leases are included in operating lease ROU assets, operating lease obligations, current, and operating lease obligations, long
term on the condensed consolidated balance sheets. Finance leases are included in property and equipment, finance lease obligations,
short term, and finance lease obligations, long term, on the condensed consolidated balance sheets. ROU assets represent the Company’s
right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make scheduled lease payments.
ROU assets and liabilities are recognized on the lease commencement date based on the present value of lease payments over the
lease term. The present value of lease payments is calculated using the incremental borrowing rate at lease commencement, which
takes into consideration recent debt issuances as well as other applicable market data available.
Amortization
of lease assets is included in general and administrative expenses. The future minimum lease payments of lease liabilities as
of September 30, 2019, are as follows:
|
Year ended September 30,
|
|
Operating Leases
|
|
|
Financing Leases
|
|
|
2019
|
|
|
782,138
|
|
|
$
|
311,592
|
|
|
2020
|
|
|
970,425
|
|
|
|
433,087
|
|
|
2021
|
|
|
697,436
|
|
|
|
514,152
|
|
|
2022
|
|
|
549,390
|
|
|
|
183,020
|
|
|
2023
|
|
|
347,475
|
|
|
|
206,674
|
|
|
Thereafter
|
|
|
27,911
|
|
|
|
5,022
|
|
|
Total lease payments
|
|
|
3,374,775
|
|
|
|
1,653,547
|
|
|
Less: Payments Made
|
|
|
(780,049
|
)
|
|
|
(314,088
|
)
|
|
Total Lease Liabilities
|
|
$
|
2,594,726
|
|
|
$
|
1,339,459
|
|
Concentration
of Credit Risk
Instruments
that potentially subject the Company to concentration of credit risk consist principally of cash deposits, notes receivable and
accounts receivable. As of September 30, 2019, the Company did not hold cash at any financial institution in excess of the amount
insured by the Federal Deposit Insurance Corporation (“FDIC”) of up to $250,000.
No
individual client represents greater than 10% of the annual revenue.
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
|
|
|
|
|
|
EVIO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property
and Equipment
Property
and equipment are carried at cost. Expenditures for maintenance and repairs are expensed in the period incurred. Renewals and
betterments that materially extend the life of the assets are capitalized. When assets are retired or otherwise disposed of, the
cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income
for the period.
Depreciation
is computed for financial statement purposes on a straight-line basis over estimated useful lives of the related assets and the
modified accelerated cost recovery system for federal income tax purposes. The estimated useful lives of depreciable assets are:
|
|
|
Estimated
|
|
|
|
Useful Lives
|
|
Building
|
|
39 years
|
|
Laboratory and Computer Equipment
|
|
5 years
|
|
Furniture and Fixtures
|
|
7 years
|
|
Software
|
|
3 years
|
|
Domains
|
|
15 years
|
Impairment
of Long-Lived Assets
The
Company evaluates, on a periodic basis, long-lived assets to be held and used for impairment in accordance with the reporting
requirements of ASC 360-10. The evaluation is based on certain impairment indicators, such as the nature of the assets, the future
economic benefit of the assets, any historical or future profitability measurements, as well as other external market conditions
or factors that may be present. If these impairment indicators are present or other factors exist that indicate that the carrying
amount of the asset may not be recoverable, then an estimate of the undiscounted value of expected future operating cash flows
is used to determine whether the asset is recoverable and the amount of any impairment is measured as the difference between the
carrying amount of the asset and its estimated fair value. The fair value is estimated using valuation techniques such as market
prices for similar assets or discounted future operating cash flows.
The
Company performed its annual fair value assessment at September 30, 2019, on its subsidiaries with material long-lived asset amounts
on their respective balance sheets and determined that no impairment exists.
Financial
Instruments
The
Company has adopted the guidance under ASC Topic 820 for financial instruments measured on a fair value on a recurring basis.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants
on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize
the use of unobservable inputs.
ASC
Topic 820 establishes a fair value hierarchy, giving the highest priority to quoted prices in active markets and the lowest priority
to unobservable data and requires disclosures for assets and liabilities measured at fair value based on their level in the hierarchy.
The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable,
as follows:
|
●
|
Level
1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
|
|
|
|
|
●
|
Level
2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or
liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or
liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations
in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
|
|
|
|
|
●
|
Level
3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant
to the measurement of the fair value of the assets or liabilities.
|
The
Company’s financial instruments consist principally cash, accounts payable, and accrued liabilities. The carrying values
of these financial instruments approximate their fair value due to their short maturities. The carrying amount of the Company’s
debt approximates fair value because the interest rates on these instruments approximate the interest rate on debt with similar
terms available to the Company.
EVIO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The
Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities
from Equity” and ASC 815, “Derivatives and Hedging”. Derivative liabilities are adjusted to reflect fair value
at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to
fair value of derivatives. The effects of interactions between embedded derivatives are calculated and accounted for in arriving
at the overall fair value of the financial instruments. In addition, the fair value of free-standing derivative instruments such
as warrant and option derivatives are valued using the 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 September 30, 2019:
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,545,735
|
|
|
$
|
2,545,735
|
|
The
following table sets forth by level with the fair value hierarchy the Company’s financial assets and liabilities measured
at fair value on September 30, 2018:
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,181,278
|
|
|
$
|
1,181,278
|
|
EVIO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Non-Controlling
Interest
The
Company reports the non-controlling interest in its majority owned subsidiaries in the consolidated balance sheets within the
stockholders’ deficit section, separately from the Company’s stockholders’ deficit. Non-controlling interest
represents the non-controlling interest holders’ proportionate share of the equity of the Company’s majority-owned
subsidiaries. Non-controlling interest is adjusted for the non-controlling interest holders’ proportionate share of the
earnings or losses and other comprehensive income (loss) and the non-controlling interest continues to be attributed its share
of losses even if that attribution results in a deficit non-controlling interest balance.
Related
Parties
The
registrant follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and
disclosure of related party transactions.
Pursuant
to Section 850-10-20 the Related parties include (a) affiliates of the registrant; (b) entities for which investments in their
equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section
825–10–15, to be accounted for by the equity method by the investing entity; (c) trusts for the benefit of employees,
such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d) principal owners of
the registrant; (e) management of the registrant; (f) other parties with which the registrant may deal if one party controls or
can significantly influence the management or operating policies of the other to an extent that one of the transacting parties
might be prevented from fully pursuing its own separate interests; and (g) Other parties that can significantly influence the
management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties
and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully
pursuing its own separate interests.
The
financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense
allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated
in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall
include: (a) the nature of the relationship(s) involved; (b) description of the transactions, including transactions to which
no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other
information deemed necessary to an understanding of the effects of the transactions on the financial statements; (c) the dollar
amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the
method of establishing the terms from that used in the preceding period; and (d) amounts due from or to related parties as of
the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Basic
Earnings (Loss) Per Share
The
Company computes net income (loss) per share in accordance with Accounting Standards Codification (“ASC”) 260, “Earnings
per Share.” ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income
statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average
number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares
outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In
computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased
from the exercise of stock options or warrants. Given the net losses of the Company during the years ended September 30, 2019
and 2018, the effects of convertible equity and debt instruments were anti-dilutive resulting in basic and diluted loss per weighted
average common shares outstanding equal. There was a total of 26,887,932 and 16,548,473 common stock equivalents excluded from
diluted earnings per share for the years ended September 30, 2019 and 2018.
EVIO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recently
Issued Accounting Pronouncements
In
January 2017, the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350), Simplifying the Test for
Goodwill Impairment”. The amendments in this update simplify how an entity is required to test goodwill for impairment
by eliminating Step 2 from the goodwill impairment test. This update is effective for annual or interim goodwill impairment tests
in fiscal years beginning after December 31, 2019. Early adoption is permitted for interim or annual goodwill impairment tests
performed on testing after January 1, 2017. The Company notes that this guidance applies to its reporting requirements and will
implement the new guidance accordingly in performing goodwill impairment testing; however, the Company does not believe this update
will have a material impact on the consolidated financial statements.
In
January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,”
which revises the definition of a business. This update is effective for annual periods beginning after December 15, 2017, including
interim periods within those years. Early adoption is permitted. The Company notes that this guidance will impact its acquisitions
beginning January 1, 2018.
Management
believes recently issued accounting pronouncements will have no impact on the financial statements of the Company.
In
June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718) which simplifies certain aspects
of the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic 718, Compensation
- Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. Certain
areas of the simplification apply only to nonpublic entities. The amendments specify that Topic 718 applies to all share-based
payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations
by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used
to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers
as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. The amendments of the ASU are
effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that
fiscal year. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this standard on our
consolidated financial statements.
In
August 2018, the SEC issued Final Rule Release No. 33-10532, Disclosure Update and Simplification. Under the final rule Company’s
must now analyze changes in stockholders’ equity in the form of a reconciliation, for the current and comparative year-to-date,
with subtotals for each interim period.
Other
accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption
until a future date are not expected to have a material impact on our financial statements upon adoption.
EVIO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 – ACQUISITIONS
Completed
During the Year Ended September 30, 2019
Not
Applicable
Completed
During the Year Ended September 30, 2018
C3
Labs, LLC
On
January 1, 2018, the Company completed its acquisition of C3 Labs, LLC (“C3 Labs”). In consideration of a 60% ownership,
the Company issued a $500,000 convertible note payable which carries no interest and matures on June 30, 2018. Upon maturation,
the note will convert to common stock of the Company at $0.75 per share. Additionally, the Company issued a $100,000 note payable
due on March 31, 2018 which bears no interest.
The
Company has been granted two options to purchase additional interest of C3 Labs subject to the following terms and conditions.
|
|
(a)
|
30%
Option. Effective as of Closing and terminating the date three (3) years from the Closing
Date, the C3 Members hereby collectively grant EVIO the right to ratably purchase from
the C3 Members an aggregate of 30% of the Interests in C3 LABS following the issuance
of 60% of the Interests to EVIO. EVIO may exercise its option by providing C3 LABS and
the C3 Members written notice of its intent to exercise the option. The C3 Members shall
have three (3) days following the date of such notice to execute assignments of Interests
totaling 30% of the then outstanding membership interests in C3 LABS in favor of EVIO
California. If EVIO should elect to exercise its option within nine (9) months from the
Closing Date, the exercise price for the 30% of Interests shall be $450,000.00, to be
paid in cash or EVIO’s common stock, as agreed by the C3 Members. If EVIO does
not exercise the option within nine (9) months from the Closing Date, the exercise price
shall be set by mutual agreement between the parties or, if no such agreement can be
reached, as determined by an independent third-party valuation by an appraiser agreed
to by the parties. In August 2018, the company exercised its option to increase its ownership
to 90%.
|
|
|
(b)
|
10% Option. Effective as of three (3) years after the
Closing Date and terminating the date twenty four (24) months therefrom, the C3 Members hereby collectively grant EVIO the right
to ratably purchase from the C3 Members an aggregate of 10% of the then outstanding Interests in C3 LABS (comprising the remaining
Interests not owned by EVIO). EVIO may exercise its option by providing C3 LABS and the C3 Members written notice of its intent
to exercise the option. The C3 Members shall have three (3) days following the date of such notice to execute assignments of Interests
totaling 10% of the then outstanding membership interests in C3 LABS in favor of EVIO. Upon notice of its intent to exercise the
option granted hereby, the exercise price shall be set by mutual agreement between the parties or, if no such agreement can be
reached, as determined by an independent third-party valuation by an appraiser agreed to by the parties.
|
The
Company applied the acquisition method to the business combination and valued each of the assets acquired (cash, accounts receivable,
security deposits, customer lists, certain testing licenses, equipment and non-compete agreements) and liabilities assumed (accounts
payable and deferred rent payable) at fair value as of the acquisition date. The cash, accounts receivable, security deposits,
accounts payable and deferred rent payable were deemed to be recorded at fair value as of the acquisition date. The Company determined
the fair value of the equipment to be historical net book value. The preliminary allocation of the purchase price was based on
estimates of the fair value of the assets and liabilities assumed based on provisional amounts. The allocation of the excess purchase
price is not final and the amounts allocated to intangible assets are subject to change pending the completion of final valuations
of certain assets and liabilities. Under the purchase agreement, the Company issued a $100,000 promissory note and a $500,000
convertible promissory note for total consideration of $600,000 in exchange for a 60% interest. The following table shows the
estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
|
ASSETS ACQUIRED
|
|
|
|
|
Cash
|
|
$
|
20,468
|
|
|
Accounts receivable
|
|
|
5,110
|
|
|
Other current assets
|
|
|
3,461
|
|
|
Security deposits
|
|
|
20,000
|
|
|
Equipment
|
|
|
244,875
|
|
|
License
|
|
|
247,000
|
|
|
Customer list
|
|
|
112,000
|
|
|
Non-compete agreement
|
|
|
88,000
|
|
|
Goodwill
|
|
|
291,697
|
|
|
TOTAL ASSETS ACQUIRED
|
|
$
|
1,032,611
|
|
|
|
|
|
|
|
|
LIABILITIES ASSUMED
|
|
|
|
|
|
Accounts payable
|
|
|
4,314
|
|
|
Deferred rent
|
|
|
28,297
|
|
|
TOTAL LIABILITIES ASSUMED
|
|
|
32,611
|
|
|
|
|
|
|
|
|
Non-controlling interest
|
|
|
(400,000
|
)
|
|
NET ASSETS ACQUIRED
|
|
$
|
600,000
|
|
The
license and customer list will be amortized over 7 years and non-compete agreement over 5 years
EVIO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 ACQUISITIONS (CONTINUED)
Keystone
Labs
On
May 2, 2018, EVIO Canada, Inc, (“EVIO Canada”), a wholly-owned subsidiary of the Company consummated certain agreements
to acquire a 50% interest of Keystone Labs, Inc. (“Keystone”) for $2,495,000 Canadian Dollars in cash.
The
Company applied the acquisition method to the business combination and valued each of the assets acquired (cash, accounts receivable,
prepaid expenses and other current assets, websites, customer lists, certain testing licenses, equipment, non-compete agreements
and other intellectual property) and liabilities assumed (accounts payable, capital lease obligations, deferred revenue and related
party payables) at fair value as of the acquisition date. The cash, accounts receivable, prepaid expenses and other current assets,
accounts payable, related party payables and deferred revenues were deemed to be recorded at fair value as of the acquisition
date. The Company determined the fair value of the equipment to be historical net book value. The preliminary allocation of the
purchase price was based on estimates of the fair value of the assets and liabilities assumed based on provisional amounts. The
allocation of the excess purchase price is not final and the amounts allocated to intangible assets are subject to change pending
the completion of final valuations of certain assets and liabilities. Under the purchase agreement, the Company paid a total of
$2,495,000 Canadian Dollars which equated to $1,962,095 US Dollars in exchange for a 50% interest. The following table shows the
estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
|
ASSETS ACQUIRED
|
|
|
|
|
Cash
|
|
$
|
371,278
|
|
|
Accounts receivable
|
|
|
65,815
|
|
|
Prepaid expenses and other current assets
|
|
|
38,415
|
|
|
Equipment
|
|
|
40,774
|
|
|
Intellectual property
|
|
|
334,719
|
|
|
Websites and domain names
|
|
|
18,299
|
|
|
Customer list
|
|
|
521,539
|
|
|
Non-compete agreement
|
|
|
97,302
|
|
|
Goodwill
|
|
|
2,716,027
|
|
|
TOTAL ASSETS ACQUIRED
|
|
$
|
4,204,167
|
|
|
|
|
|
|
|
|
LIABILITIES ASSUMED
|
|
|
|
|
|
Accounts payable
|
|
|
108,207
|
|
|
Capital lease obligation
|
|
|
12,826
|
|
|
Related party payables
|
|
|
153,755
|
|
|
Deferred revenue
|
|
|
5,189
|
|
|
TOTAL LIABILITIES ASSUMED
|
|
|
279,977
|
|
|
|
|
|
|
|
|
Non-controlling interest
|
|
|
(1,962,095
|
)
|
|
NET ASSETS ACQUIRED
|
|
$
|
1,962,095
|
|
MRX
Labs
On
July 5, 2018, the Company acquired the assets of MRX Labs for $2,705,000. $750,000. The note carries interest at 8% annually and
is due on January 5, 2019. The acquisition included purchase of the property in Tigard, OR valued at $1,150,000 for the land and
building, property, plant and equipment valued at $721,000; customer contracts and relationships for $50,750, and goodwill valued
at $718,000.
|
ASSETS ACQUIRED
|
|
|
|
|
LAND
|
|
$
|
212,550
|
|
|
BUILDING
|
|
|
937,450
|
|
|
PROPERTY PLANT AND EQUIPMENT
|
|
|
721,000
|
|
|
CUSTOMER CONTRACTS/RELATIONSHIPS
|
|
|
65,250
|
|
|
ASSEMBLED WORKFORCE
|
|
|
50,750
|
|
|
GOODWILL
|
|
|
718,000
|
|
|
|
|
|
|
|
|
TOTAL ASSETS ACQUIRED
|
|
$
|
2,705,000
|
|
|
|
|
|
|
|
|
LIABILITIES ASSUMED
|
|
|
174,000
|
|
|
NET ASSETS ACQUIRED FROM MRX
|
|
$
|
2,531,000
|
|
EVIO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 – ACQUISITIONS (CONTINUED)
In
accordance with ASC 805-10-50, the Company is providing the following unaudited pro-forma to present a summary of the combined
results of the Company’s consolidated operations with all acquisitions. as if the acquisitions had been completed as of
the beginning of the reporting period. Adjustments were made to eliminate any inter-company transactions in the periods presented.
EVIO, INC.
UNAUDITED PROFORMA CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
Year
ended September 30,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Revenues
|
|
|
|
|
|
|
|
Testing
services
|
|
$
|
3,576,919
|
|
|
$
|
3,499,135
|
|
|
Consulting
services
|
|
|
176,832
|
|
|
|
347,044
|
|
|
Total
revenue
|
|
|
3,753,751
|
|
|
|
3,846,179
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenue
|
|
|
|
|
|
|
|
|
|
Testing
services
|
|
|
3,301,016
|
|
|
|
3,089,092
|
|
|
Consulting
services
|
|
|
190,125
|
|
|
|
115,387
|
|
|
Depreciation
and amortization
|
|
|
529,732
|
|
|
|
145,203
|
|
|
Total
cost of revenue
|
|
|
4,020,873
|
|
|
|
3,349,681
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
margin
|
|
|
(267,122
|
)
|
|
|
496,498
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
7,766,313
|
|
|
|
3,396,397
|
|
|
Depreciation
and amortization
|
|
|
202,873
|
|
|
|
222,714
|
|
|
Total
operating expenses
|
|
|
7,969,186
|
|
|
|
3,619,111
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(8,236,308
|
)
|
|
|
(3,122,614
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
|
Interest
expense, net of interest income
|
|
|
(4,872,084
|
)
|
|
|
(1,011,259
|
)
|
|
Other
income
|
|
|
7,246
|
|
|
|
(22,170
|
)
|
|
Loss
on settlement of debt and account payable
|
|
|
(56,093
|
)
|
|
|
-
|
|
|
Impairment
loss
|
|
|
(1,396,319
|
)
|
|
|
(200,000
|
)
|
|
Gain
(loss) on change in fair market value of derivative liabilities
|
|
|
2,555,350
|
|
|
|
(285,887
|
)
|
|
Total
other income (expense)
|
|
|
(3,761,900
|
)
|
|
|
(1,519,316
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(11,998,208
|
)
|
|
$
|
(4,641,930
|
)
|
EVIO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
4 – GOING CONCERN
The
Company’s consolidated financial statements are prepared using accounting principles generally accepted in the United States
of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal
course of business. However, the Company has negative working capital, recurring losses, and does not have a source of revenues
sufficient to cover its operating costs. These factors raise substantial doubt about the Company’s ability to continue as
a going concern.
The
ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plan described
in the preceding paragraph and eventually attain profitable operations. The accompanying financial statements do not include any
adjustments that may be necessary if the Company is unable to continue as a going concern.
In
the coming year, the Company’s foreseeable cash requirements will relate to continual development of the operations of its
business, maintaining its good standing and making the requisite filings with the Securities and Exchange Commission, and the
payment of expenses associated with operations and business developments. The Company may experience a cash shortfall and be required
to raise additional capital.
Historically,
it has mostly relied upon internally generated funds such as shareholder loans and advances to finance its operations and growth.
Management may raise additional capital by retaining net earnings or through future public or private offerings of the Company’s
stock or through loans from private investors, although there can be no assurance that it will be able to obtain such financing.
The Company’s failure to do so could have a material and adverse effect upon it and its shareholders.
NOTE
5 – INTANGIBLE ASSETS
The
Company’s intangible assets consist of customer lists, testing licenses, favorable leases and websites. The components of
intangible assets as of September 30, 2019 and 2018 consist of:
|
|
|
2019
|
|
|
2018
|
|
|
Customer list
|
|
$
|
854,014
|
|
|
$
|
865,672
|
|
|
License
|
|
|
503,000
|
|
|
|
503,000
|
|
|
Favorable lease
|
|
|
3,100
|
|
|
|
3,100
|
|
|
Website
|
|
|
49,516
|
|
|
|
49,690
|
|
|
Non-Compete
|
|
|
182,388
|
|
|
|
184,563
|
|
|
Assembled Workforce
|
|
|
50,750
|
|
|
|
50,750
|
|
|
Intellectual Property
|
|
|
334,893
|
|
|
|
342,610
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,977,661
|
|
|
|
1,999,385
|
|
|
Accumulated amortization
|
|
|
(1,977,661
|
)
|
|
|
(318,815
|
)
|
|
Net value
|
|
$
|
-
|
|
|
$
|
1,680,570
|
|
The
Company has fully amortized the intangible assets during the fiscal year ended September 30, 2020, and no future amortization
is to calculated.
EVIO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
6 – PROPERTY, PLANT AND EQUIPMENT
The
Company’s property and equipment consisted of the following as of September 30, 2019 and 2018:
|
|
|
2019
|
|
|
2018
|
|
|
Assets Not-In-Service
|
|
$
|
-
|
|
|
$
|
455,540
|
|
|
Capital Assets
|
|
|
1,800,347
|
|
|
|
535,095
|
|
|
Land
|
|
|
212,550
|
|
|
|
212,550
|
|
|
Buildings & Real Estate
|
|
|
941,857
|
|
|
|
937,450
|
|
|
Furniture and Equipment
|
|
|
152,933
|
|
|
|
189,459
|
|
|
Laboratory Equipment
|
|
|
2,188,828
|
|
|
|
2,468,141
|
|
|
Software
|
|
|
78,996
|
|
|
|
63,913
|
|
|
Leasehold Improvements
|
|
|
697,333
|
|
|
|
303,331
|
|
|
Vehicles
|
|
|
83,915
|
|
|
|
83,915
|
|
|
Total
|
|
|
6,188,777
|
|
|
|
5,249,394
|
|
|
Accumulated depreciation
|
|
|
(1,511,973
|
)
|
|
|
(644,291
|
)
|
|
Net value
|
|
$
|
4,676,804
|
|
|
$
|
4,605,103
|
|
NOTE
7 – RELATED PARTY TRANSACTIONS
During
the years ended September 30, 2019 and 2018, the Company received loans from its Chief Operating Officer totaling $194,820 and
$0 and made repayments totaling $1,040 and $0, respectively. There was $193,780 and $0 due as of September 30, 2019 and 2018,
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 years ended September 30, 2019 and 2018, the Company received loans from its Chief Executive Officer totaling $75,000 and
$0 and made repayments totaling $19,200 and $0, respectively. There was $55,800 and $0 due as of September 30, 2019 and 2018,
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 years ended September 30, 2019 and 2018 the Company made payments to Sara Lausmann, associated with the asset purchase of
Oregon Analytical Services, LLC, totaling $12,000 and $97,500, respectively. There was $568,299 and $580,299 of principal due
as of September 30, 2019 and 2018, respectively. The note carries interest at a rate of 5% per annum and had accrued interest
totaling $107,899 and $79,295 due as of September 30, 2019 and 2018, respectively.
During
the years ended September 30, 2019 and 2018 the Company made payments to Anthony Smith, our Chief Science Officer, associated
with the purchase of 80% of Smith Scientific Industries, totaling $55,090 and $25,000, respectively. There was $180,910 and $236,000
of principal due as of September 30, 2019 and 2018, respectively. The note carries interest at a rate of 5% per annum and had
accrued interest totaling $41,600 and $30,960 due as of September 30, 2019 and 2018, respectively.
During
the years ended September 30, 2019 and 2018 the Company made repayments to Henry Grimmett, prior Company Director (retired April
2018), on an outstanding loan from member assumed by the Company, totaling a note payable of Greenhaus Analytical Services, LLC,
totaling $3,859 and $52,000, respectively. There was $113,554 and $117,412 of principal due as of September 30, 2019 and 2018,
respectively. The note bears interest at 0% per annum and requires repayments of $25,000 quarterly.
During
the years ended September 30, 2019 and 2018, the Company made no payments to Henry Grimmett, prior Company Director (retired April
2018), associated with the acquisition of Greenhaus Analytical Services, LLC. The Company entered into a $340,000 note payable
as part of its acquisition of Greenhaus Analytical Services, LLC. The note carries interest at a rate of 6% per annum and matures
on October 16, 2020. During the quarter ending September 30, 2019, a third party purchased $170,000 of the note from Henry Grimmett,
refer to Note 10, Convertible Notes; Noteholder 14. There was $170,000 and $340,000 of principal due as of September 30, 2019
and 2018, respectively. Unamortized debt discount of $26,563 and $51,971 as of September 30, 2019 and 2018, respectively and $59,412
and $39,905 of accrued interest due as of September 30, 2019 and 2018, respectively.
During
the years ended September 30, 2019 and 2018, the Company received loans from a related party associate with Keystone Labs totaling
$191,515 and $171,425 and made repayments totaling $9,034 of $18,733. There was $354,050 and $153,17 due as of September 30, 2019
and 2018, respectively. Amounts have been adjusted for USD. The advances are non-interest bearing and due on demand and is included
in the accompanying consolidated balance sheets as a current portion of notes payable to related parties.
EVIO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
8 – STOCKHOLDERS’ EQUITY
Series
A Convertible Preferred Stock
The
Company designated 1,850,000 shares of Series A Convertible Preferred Stock (“Series A Preferred Stock”) with a par
value of $0.0001 per share. Initially, there will be no dividends due or payable on the Series A Preferred Stock. Any future terms
with respect to dividends shall be determined by the Board consistent with the Corporation’s Certificate of Incorporation.
Any and all such future terms concerning dividends shall be reflected in an amendment to this Certificate, which the Board shall
promptly file or cause to be filed.
All
shares of the Series A Preferred Stock shall rank (i) senior to the Corporation’s Common Stock and any other class or series
of capital stock of the Corporation hereafter created, (ii) pari passu with any class or series of capital stock of the Corporation
hereafter created and specifically ranking, by its terms, on par with the Series A Preferred Stock and (iii) junior to any class
or series of capital stock of the Corporation hereafter created specifically ranking, by its terms, senior to the Series A Preferred
Stock, in each case as to distribution of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary
or involuntary.
The
Series A Preferred shall have no liquidation preference over any other class of stock.
Except
as otherwise required by law, holders of Series A Preferred Stock shall have no special voting rights and their consent shall
not be required (except to the extent they are entitled to vote with holders of Common Stock or any other class or series of preferred
stock) for the taking of any corporate action.
Conversion
at the Option of the Holder. From 12 months from the date of issuance, each holder of shares of Series A Preferred Stock may,
at any time and from time to time, convert (an “Optional Conversion”) each of its shares of Series A Preferred Stock
into fully paid and nonassessable shares of Common Stock at a rate equal to 4.9% of the Common Stock.
For
a period of 18 months after the Preferred is convertible, the conversion price of the Series A Preferred will be subject to adjustment
to prevent dilution in the event that the Company issues additional shares at a purchase price less than the applicable conversion
price. The conversion price will be subject to adjustment on a weighted basis that takes into account issuances of additional
shares. At the expiration of the antidilution period, the conversion rate in Section VI (A) above shall be equal to a conversion
rate equal to 4.9% on the Common Stock. For example, if on the date of expiration of the antidilution clause there are 500,000,000
shares of Common Stock issued and outstanding then each Series A Preferred Stock shall convert at a rate of 13.24 common shares
for each 1 Series Preferred Share.
The
Company has evaluated the Series A Preferred Stock in accordance with ASC 815 and has determined their conversion options were
for equity and ASC 815 does not apply.
The
Company has evaluated the Series A Preferred Stock in accordance with FASB ASC Subtopic 470-20, and has determined that there
is no beneficial conversion feature that must be accounted.
The
Company has 0 shares of Series A Convertible Stock issued and outstanding as of September 30, 2019 and 2018.
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.
Initially,
there will be no dividends due or payable on the Series B Preferred Stock. Any future terms with respect to dividends shall be
determined by the Board consistent with the Corporation’s Certificate of Incorporation. Any and all such future terms concerning
dividends shall be reflected in an amendment to this Certificate, which the Board shall promptly file or cause to be filed.
All
shares of the Series B Preferred Stock shall rank (i) senior to the Corporation’s Common Stock and any other class or series
of capital stock of the Corporation hereafter created, (ii) pari passu with any class or series of capital stock of the Corporation
hereafter created and specifically ranking, by its terms, on par with the Series B Preferred Stock and (iii) junior to any class
or series of capital stock of the Corporation hereafter created specifically ranking, by its terms, senior to the Series B Preferred
Stock, in each case as to distribution of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary
or involuntary.
The
Series B Preferred shall have no liquidation preference over any other class of stock.
Each
holder of outstanding shares of Series B Preferred Stock shall be entitled to the number of votes equal to one Common Share. Except
as provided by law, or by the provisions establishing any other series of Preferred Stock, holders of Series B Preferred Stock
and of any other outstanding series of Preferred Stock shall vote together with the holders of Common Stock as a single class.
Each
holder of shares of Series B Preferred Stock may, at any time and from time to time, convert (an “Optional Conversion”)
each of its shares of Series B Preferred Stock into one (1) fully paid and nonassessable shares of Common Stock.
EVIO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
8 – STOCKHOLDERS’ EQUITY (CONTINUED)
Series
B Convertible Preferred Stock (continued)
The
Company has evaluated the Series B Preferred Stock in accordance with ASC 815 and has determined their conversion options were
for equity and ASC 815 does not apply.
The
Company has evaluated the Series B Preferred Stock in accordance with FASB ASC Subtopic 470-20, and has determined that there
is no beneficial conversion feature that must be accounted.
The
Company has 5,000,000 shares of Series B Convertible Stock issued and outstanding as of September 30, 2019 and 2018.
Series
C Convertible Preferred Stock
The
Company designated 500,000 shares of Series C Convertible Preferred Stock (“Series C Preferred Stock”) with a par
value of $0.0001 per share.
Initially,
there will be no dividends due or payable on the Series C Preferred Stock. Any future terms with respect to dividends shall be
determined by the Board consistent with the Corporation’s Certificate of Incorporation. Any and all such future terms concerning
dividends shall be reflected in an amendment to this Certificate, which the Board shall promptly file or cause to be filed.
All
shares of the Series C Preferred Stock shall rank (i) senior to the Corporation’s Common Stock and any other class or series
of capital stock of the Corporation hereafter created, (ii) pari passu with any class or series of capital stock of the Corporation
hereafter created and specifically ranking, by its terms, on par with the Series B Preferred Stock and (iii) junior to any class
or series of capital stock of the Corporation hereafter created specifically ranking, by its terms, senior to the Series B Preferred
Stock, in each case as to distribution of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary
or involuntary.
In
any liquidation, dissolution, or winding up of the Corporation, the holders of the Series C Preferred Stock shall be entitled
to receive (a) in preference to the holders of the Common Stock (b) on a pari passu basis to any sum that the holders of the Series
B Preferred Stock shall be entitled to receive, but (c) subordinate in preference to any sum that the holders of any shares of
any other series of the Corporation’s Preferred Stock shall be entitled, an amount equal to $1 per share (subject to appropriate
adjustment in the event of any stock dividend, forward stock split, or other similar recapitalization). After payment of such
sums, (i) the holders of the Series A Preferred Stock and (ii) the holders of the Common Stock, shall be entitled to receive any
remaining assets of the Corporation on a pro rata, as-converted basis assuming conversion of the Series A Preferred Stock into
Common Stock at the then- current Conversion Rate.
Each
holder of outstanding shares of Series C Preferred Stock shall be entitled to the number of votes equal to five (5) Common Shares.
Except as provided by law, or by the provisions establishing any other series of Preferred Stock, holders of Series B Preferred
Stock and of any other outstanding series of Preferred Stock shall vote together with the holders of Common Stock as a single
class.
Each
holder of shares of Series C Preferred Stock may, at any time and from time to time, convert (an “Optional Conversion”)
each of its shares of Series C Preferred Stock into five (5) fully paid and nonassessable shares of Common Stock; provided, however,
that any Optional Conversion must involve the issuance of at least 100 shares of Common Stock.
In
the event of a forward or reverse split, the conversion ratio shall be modified on a pro rata basis to align with the forward
or reverse split.
The
Company has evaluated the Series C Preferred Stock in accordance with ASC 815 and has determined their conversion options were
for equity and ASC 815 does not apply.
The
Company has evaluated the Series C Preferred Stock in accordance with FASB ASC Subtopic 470-20, and has determined that there
is no beneficial conversion feature that must be accounted.
There
were 500,000 shares of Series C Convertible Stock issued and outstanding as of September 30, 2019 and 2018.
EVIO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
8 – STOCKHOLDERS’ EQUITY (CONTINUED)
Series
D Convertible Preferred Stock
The
Company designated 1,000,000 shares of Series D Convertible Preferred Stock (“Series D Preferred Stock”) with a par
value of $0.0001 per share.
Initially,
there will be no dividends due or payable on the Series D Preferred Stock. Any future terms with respect to dividends shall be
determined by the Board consistent with the Corporation’s Certificate of Incorporation. Any and all such future terms concerning
dividends shall be reflected in an amendment to this Certificate, which the Board shall promptly file or cause to be filed.
All
shares of the Series D Preferred Stock shall rank (i) senior to the Corporation’s Common Stock and any other class or series
of capital stock of the Corporation hereafter created, (ii) pari passu with any class or series of capital stock of the Corporation
hereafter created and specifically ranking, by its terms, on par with the Series B Preferred Stock and (iii) junior to any class
or series of capital stock of the Corporation hereafter created specifically ranking, by its terms, senior to the Series B Preferred
Stock, in each case as to distribution of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary
or involuntary.
As
originally issued, in any liquidation, dissolution, or winding up of the Corporation, the holders of the Series D Preferred Stock
shall be entitled to receive (a) in preference to the holders of the Common Stock (b) on a pari passu basis to any sum that the
holders of the Series B Preferred Stock shall be entitled to receive, but (c) subordinate in preference to any sum that the holders
of any shares of any other series of the Corporation’s Preferred Stock shall be entitled, an amount equal to $1 per share
(subject to appropriate adjustment in the event of any stock dividend, forward stock split, or other similar recapitalization).
After payment of such sums, (i) the holders of the Series A Preferred Stock and (ii) the holders of the Common Stock, shall be
entitled to receive any remaining assets of the Corporation on a pro rata, as-converted basis assuming conversion of the Series
A Preferred Stock into Common Stock at the then- current Conversion Rate. On July 31, 2018, the Company amended its articles of
incorporation such that the Series D Preferred Stock shall have no liquidation preference over any other class of stock.
Each
holder of outstanding shares of Series D Preferred Stock shall be entitled to the number of votes equal to two hundred fifty (250)
Common Shares. Except as provided by law, or by the provisions establishing any other series of Preferred Stock, holders of Series
B Preferred Stock and of any other outstanding series of Preferred Stock shall vote together with the holders of Common Stock
as a single class.
Each
holder of shares of Series D Preferred Stock may, at any time and from time to time, convert (an “Optional Conversion”)
each of its shares of Series D Preferred Stock into 2.5 fully paid and nonassessable shares of Common Stock; provided, however,
that any Optional Conversion must involve the issuance of at least 500 shares of Common Stock.
In
the event of a forward or reverse split, the conversion ratio shall be modified on a pro rata basis to align with the forward
or reverse split.
The
Company has evaluated the Series D Preferred Stock in accordance with ASC 815 and has determined their conversion options were
for equity and ASC 815 does not apply.
The
Company has evaluated the Series D Preferred Stock in accordance with FASB ASC Subtopic 470-20, and has determined that there
is no beneficial conversion feature that must be accounted.
During
the Year Ended September 30, 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.
During
the Year Ended September, 2018, the Company received conversion notices from Series D Preferred Stockholders resulting in a total
of 700,000 shares of common stock being issued for the conversion of 280,000 shares of Series D Preferred Stock.
There
were 339,500 and 552,500 shares of Series D Convertible Stock issued and outstanding as September 30, 2019 and 2018, respectively.
EVIO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
8 – STOCKHOLDERS’ EQUITY (CONTINUED)
Common
Stock
During
the year ended September 30, 2018, the Company issued 131,250 common shares valued at $153,788 for services; 2,561,392 common
shares for cash proceeds of $2,041,501; 478,500 common shares valued at $831,133 under its employee equity incentive plan; 37,500
common shares for the settlement of $18,750 of accounts payable; 324,000 common shares for the settlement of $162,000 of notes
payable, 4,918,580 common shares for the conversion of $2,805,008 of outstanding principal on convertible notes payable; 210,553
for the conversion of $114,792 of convertible accrued interest; 548,780 common shares for the settlement of non-convertible debt
totaling $450,000; 2,309,997 common shares for the settlement of $1,386,000 debenture conversions, and 700,000 common shares for
the conversion of Preferred Series D stock. All conversions of outstanding principal and accrued interest on convertible notes
payable were done so at contractual terms.
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 29,314,419 and 23,255,411 shares of common stock issued and outstanding at September 30, 2019 and 2018, respectively.
NOTE
9 – LOANS PAYABLE
The
Company had the following loans payable outstanding as of September 30, 2019 and September 30, 2018:
|
|
|
September
30, 2019
|
|
|
September
30, 2018
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
47,551
|
|
|
|
60,477
|
|
|
|
|
|
|
|
|
|
|
|
|
On September 6, 2017, the Company
entered into a note payable totaling $1,000,000 for the purchase of an outstanding note receivable. The note carries interest
at 8% annually and is due on July 6, 2018.
|
|
|
-
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
622,523
|
|
|
|
646,231
|
|
|
|
|
|
|
|
|
|
|
|
|
On July 5,
2018, the Company executed a note payable for $750,000 for the asset purchase of MRX Labs, The note carries interest at 8%
annually and is due on January 5, 2019. (This note is in default as of 7/5/2019, which resulted in 5% penalty on outstanding
amount.)
|
|
|
750,000
|
|
|
|
750,000
|
|
|
|
|
|
|
|
|
|
1,956,708
|
|
|
Less: unamortized
original issue discounts
|
|
|
-
|
|
|
|
(119,000
|
)
|
|
Total loans payable
|
|
|
1,420,079
|
|
|
|
1,837,708
|
|
|
Less: current
portion of loans payable
|
|
|
762,476
|
|
|
|
643,627
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
portion of loans payable
|
|
$
|
657,603
|
|
|
$
|
1,193,781
|
|
As
of September 30, 2019 and 2018, the Company accrued interest of $74,301 and $47,767, respectively.
EVIO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
10 – CONVERTIBLE NOTES PAYABLE
The
Company has entered into convertible notes payable that convert to common stock of the Company at variable conversion prices.
As further discussed in Note 11 – Derivative Liabilities, the Company analyzed the conversion features of the agreements
for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded
conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to
a variable conversion rate. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded
a derivative liability.
The
following table summarizes all convertible notes outstanding as of September 30, 2019:
|
Holder
|
|
Issue
Date
|
|
Due
Date
|
|
Principal
|
|
|
Unamortized
Debt Discount
|
|
|
Carrying
Value
|
|
|
Accrued
Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noteholder 10
|
|
4/24/18
|
|
4/24/19
|
|
|
500,000
|
|
|
|
-
|
|
|
|
500,000
|
|
|
|
-
|
|
|
Noteholder 4
|
|
8/1/18
|
|
1/1/19
|
|
|
396,000
|
|
|
|
-
|
|
|
|
396,000
|
|
|
|
76,471
|
|
|
Noteholder 6
|
|
9/6/18
|
|
9/6/19
|
|
|
145,000
|
|
|
|
|
|
|
|
145,000
|
|
|
|
15,575
|
|
|
Noteholder 7
|
|
9/17/18
|
|
9/17/19
|
|
|
82,500
|
|
|
|
|
|
|
|
82,500
|
|
|
|
8,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noteholder 4
|
|
10/2/18
|
|
1/1/19
|
|
|
264,000
|
|
|
|
-
|
|
|
|
264,000
|
|
|
|
40,634
|
|
|
Noteholder 8
|
|
11/15/18
|
|
11/15/19
|
|
|
222,600
|
|
|
|
(28,054
|
)
|
|
|
194,546
|
|
|
|
15,564
|
|
|
Noteholder 9
|
|
12/27/18
|
|
12/27/19
|
|
|
105,000
|
|
|
|
(25,603
|
)
|
|
|
79,397
|
|
|
|
18,204
|
|
|
Noteholder 8
|
|
1/14/19
|
|
1/14/20
|
|
|
131,250
|
|
|
|
(46,027
|
)
|
|
|
85,223
|
|
|
|
7,364
|
|
|
Noteholder 8
|
|
2/04/19
|
|
2/04/20
|
|
|
265,000
|
|
|
|
(92,205
|
)
|
|
|
172,795
|
|
|
|
13,824
|
|
|
Noteholder 9
|
|
2/05/19
|
|
2/05/20
|
|
|
131,250
|
|
|
|
(48,185
|
)
|
|
|
83,065
|
|
|
|
6,616
|
|
|
Noteholder 11
|
|
2/08/19
|
|
2/08/20
|
|
|
783,724
|
|
|
|
(208,357
|
)
|
|
|
575,367
|
|
|
|
89,627
|
|
|
Noteholder 8
|
|
3/15/19
|
|
3/15/20
|
|
|
70,913
|
|
|
|
-
|
|
|
|
70,913
|
|
|
|
3,093
|
|
|
Noteholder 9
|
|
3/15/19
|
|
3/15/20
|
|
|
70,913
|
|
|
|
-
|
|
|
|
70,913
|
|
|
|
2,938
|
|
|
Noteholder 12
|
|
3/15/19
|
|
3/15/20
|
|
|
70,913
|
|
|
|
-
|
|
|
|
70,913
|
|
|
|
3,093
|
|
|
Noteholder 13
|
|
3/15/19
|
|
3/15/20
|
|
|
70,913
|
|
|
|
-
|
|
|
|
70,913
|
|
|
|
3,093
|
|
|
Noteholder 3
|
|
7/1/19
|
|
9/30/19
|
|
|
825,930
|
|
|
|
|
|
|
|
825,930
|
|
|
|
18,983
|
|
|
Noteholder 8
|
|
8/8/19
|
|
8/8/20
|
|
|
33,092
|
|
|
|
(10,291
|
)
|
|
|
22,801
|
|
|
|
384
|
|
|
Noteholder 9
|
|
8/8/19
|
|
8/8/20
|
|
|
33,092
|
|
|
|
(10,291
|
)
|
|
|
22,801
|
|
|
|
384
|
|
|
Noteholder 14
|
|
8/29/19
|
|
5/29/19
|
|
|
100,000
|
|
|
|
(150,146
|
)
|
|
|
(50,146
|
)
|
|
|
964
|
|
|
Noteholder 14
|
|
8/30/19
|
|
5/30/19
|
|
|
110,000
|
|
|
|
(97,555
|
)
|
|
|
12,445
|
|
|
|
747
|
|
|
|
|
|
|
|
|
$
|
4,412,090
|
|
|
$
|
(716,714
|
)
|
|
|
3,695,376
|
|
|
$
|
326,145
|
|
The
following table summarizes all convertible notes outstanding as of September 30, 2018:
|
Holder
|
|
Issue
Date
|
|
Due
Date
|
|
Principal
|
|
|
Unamortized
Debt Discount
|
|
|
Carrying
Value
|
|
|
Accrued
Interest
|
|
|
Noteholder 2
|
|
7/2/18
|
|
10/1/18
|
|
|
220,000
|
|
|
|
(220
|
)
|
|
|
219,780
|
|
|
|
4,340
|
|
|
Noteholder 3
|
|
7/2/18
|
|
10/1/18
|
|
|
220,000
|
|
|
|
(220
|
)
|
|
|
219,780
|
|
|
|
4,340
|
|
|
Noteholder 4
|
|
8/1/18
|
|
10/1/18
|
|
|
330,000
|
|
|
|
(492
|
)
|
|
|
329,508
|
|
|
|
-
|
|
|
Noteholder 1
|
|
8/14/18
|
|
8/14/19
|
|
|
167,100
|
|
|
|
(13,591
|
)
|
|
|
153,509
|
|
|
|
2,839
|
|
|
Noteholder 5
|
|
8/29/18
|
|
2/28/19
|
|
|
222,222
|
|
|
|
(78,670
|
)
|
|
|
143,552
|
|
|
|
-
|
|
|
Noteholder 6
|
|
9/6/18
|
|
9/6/19
|
|
|
125,000
|
|
|
|
(89,921
|
)
|
|
|
35,079
|
|
|
|
-
|
|
|
Noteholder 3
|
|
9/13/18
|
|
3/11/19
|
|
|
585,000
|
|
|
|
(513,062
|
)
|
|
|
71,938
|
|
|
|
-
|
|
|
Noteholder 7
|
|
9/17/18
|
|
9/17/19
|
|
|
62,500
|
|
|
|
(57,381
|
)
|
|
|
5,119
|
|
|
|
-
|
|
|
Noteholder 10
|
|
4/24/18
|
|
4/24/19
|
|
|
500,000
|
|
|
|
0
|
|
|
|
500,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
$
|
2,431,822
|
|
|
$
|
(753,557
|
)
|
|
$
|
1,678,265
|
|
|
$
|
11,519
|
|
Noteholder
1
On
August 14, 2017, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of
$275,600 of which $15,600 was an original issue discount and $10,000 was paid directly to third parties resulting in cash proceeds
to the Company of $250,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together
with accrued interest at the annual rate of 8%, was due on August 14, 2018. The Note is convertible into the Company’s common
stock commencing 180 days from the date of issuance at a conversion price equal to 75% of the lowest trade price of the Company’s
common stock for the fifteen prior trading days including the date of conversion. During the year ended September 30, 2018, the
holder elected to convert $167,100 of principal due in exchange for 479,848 shares of common stock and the holder elected to convert
$2,988 of interest due in exchange for 10,163 shares of common stock. There was $0 and $167,100 of principal and $0 and $2,839
of accrued interest due at September 30, 2019 and September 30, 2018, respectively.
EVIO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
10 – CONVERTIBLE NOTES PAYABLE (CONTINUED)
Noteholder
2
On
July 2, 2018, the Company sold and issued a Convertible Promissory to an unrelated party for the principal amount of $220,000
of which $20,000 was an original issue discount and $17,000 was paid directly to third parties resulting in cash proceeds to the
Company of $183,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued
interest at the annual rate of 8%, is due on October 1, 2018. The principal amount of the note and any accrued interest thereon
are convertible at the option of the holder into common shares of the Company at any time at a conversion price of $0.60 per share.
There was $0 and $220,000 of principal and $0 and $4,340 of accrued interest due at September 30, 2019 and September 30, 2018,
respectively. This note was purchased by Noteholders 8, 9, 12 & 13.
Noteholder
3
On
July 2, 2018, the Company sold and issued a Convertible Promissory to an unrelated party for the principal amount of $220,000
of which $20,000 was an original issue discount resulting in cash proceeds to the Company of $200,000 pursuant to the terms of
a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, was
due on October 1, 2018. The principal amount of the note and any accrued interest thereon are convertible at the option of the
holder into common shares of the Company at any time at a conversion price of $0.60 per share. There was $0 and $220,000 of principal
and $0 and $4,340 of accrued interest due at September 30, 2019 and September 30, 2018, respectively. 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 difference of $35,348 to be treated as an original issue discount. The new convertible note payable carries
an interest rate of 0% per annum is convertible into common stock of the Company at the option of the noteholder immediately at
80% of the lowest volume weighted average price of the Company’s common stock in the preceding 20 trading days. There was
$0 and $585,000 of principal and $0 and $0 of accrued interest due at September 30, 2019 and September 30, 2018, respectively.
This note was replaced on July 1, 2019.
On
July 1, 2019, the two previous notes were replaced for the 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 9/30/2019.
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 $825,890 of principal
and $18,893.35 of accrued interest at September 30, 2019.
Noteholder
4
On
August 1, 2018, the Company sold and issued a Convertible Promissory to an unrelated party for the principal amount of $330,000
of which $30,000 was an original issue discount resulting in cash proceeds to the Company of $300,000 pursuant to the terms of
a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, was
due on October 1, 2018. The principal amount of the note and any accrued interest thereon are convertible at the option of the
holder into common shares of the Company at any time 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 and $330,000 of principal and $76,472
and $10,994 of accrued interest due at September 30, 2019 and September 30, 2018, respectively.
On
October 2, 2018, the Company sold and issued a Convertible Promissory to an unrelated party for the principal amount of $220,000
of which $20,000 was an original issue discount resulting in cash proceeds to the Company of $200,000 pursuant to the terms of
a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, is
due on January 1, 2019. The principal amount of the note and any accrued interest thereon are convertible at the option of the
holder into common shares of the Company at any time at a conversion price of $0.50 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 $44,000 was added to the principal. There was $264,000 of principal and $40,634 of accrued interest at
September 30, 2019.
EVIO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
10 – CONVERTIBLE NOTES PAYABLE (CONTINUED)
Noteholder
5
On
August 29, 2018, the Company sold and issued a Convertible Promissory to an unrelated party for the principal amount of $222,222
of which $22,222 was an original issue discount and $5,500 was paid directly to third parties resulting in cash proceeds to the
Company of $194,500 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued
interest at the annual rate of 5%, is due on February 28, 2019. The principal amount of the note and any accrued interest thereon
are convertible at the option of the holder into common shares of the Company at any time at a conversion price of $0.70 per share.
This note was previously placed in default and has been settled for issuance of shares. There was $0 and $222,222 of principal
and $0 and $0 of accrued interest due at September 30, 2019 and September 30, 2018, respectively.
Noteholder
6
On
September 6, 2018, the Company sold and issued a Convertible Promissory to an unrelated party for the principal amount of $125,000
of which $15,000 was an original issue discount parties resulting in cash proceeds to the Company of $110,000 pursuant to the
terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of
10%, is due on September 6, 2019. The principal amount of the note and any accrued interest thereon are convertible at the option
of the holder into common shares of the Company at any time at the lower of a conversion price of $0.50 per share or at a rate
equal to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days. On
July 5, 2019 a fee for payment default of $20,000 was added to the principal. There was $145,000 and $125,000 of principal and
$15,575 and $10,171 of accrued interest due at September 30, 2019 and September 30, 2018, respectively.
Noteholder
7
On
September 6, 2018, the Company sold and issued a Convertible Promissory to an unrelated party for the principal amount of $62,500
of which $6,250 was an original issue discount resulting in cash proceeds to the Company of $56,250 pursuant to the terms of a
Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 10%, is due
on September 6, 2019. The principal amount of the note and any accrued interest thereon are convertible at the option of the holder
into common shares of the Company at any time at the lower of a conversion price of $0.50 per share or at a rate equal to a 35%
discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days. On July 5, 2019 a
fee for payment default of $20,000 was added to the principal. There was $82,500 and $62,500 of principal and $8,586 and $4,897
of accrued interest due at September 30, 2019 and September 30, 2018, respectively.
Noteholder
8
On
November 15, 2018, the Company sold and issued a Convertible Promissory to an unrelated party for the principal amount of $222,600
of which $12,600 was an original issue discount resulting in cash proceeds to the Company of $210,000 pursuant to the terms of
a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, is
due on November 15, 2019. The principal amount of the note and any accrued interest thereon are convertible at the option of the
holder into common shares of the Company at any time at the lower of a conversion price of $0.50 per share or at a rate equal
to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days. There was
$222,600 of principal and $15,564 of accrued interest due at September 30, 2019.
On
January 14, 2019, the Company entered into a convertible note payable with an unrelated party for $131,250 of which included $6,250
in third party fees resulting in net cash proceeds to the Company of $125,000. The convertible note payable carries interest at
a rate of 8% per annum, is due on January 14, 2020 and is convertible into common stock of the Company at the option of the noteholder
six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock
in the preceding 15 trading days. There was $131,250 of principal and $7,364 of accrued interest due at September 30, 2019.
On
February 4, 2019, the Company entered into a convertible note payable with an unrelated party for $265,000 of which $15,000 was
an original issue discount and $10,000 in third party fees resulting in net cash proceeds to the Company of $240,000. The convertible
note payable carries interest at a rate of 8% per annum, is due on February 4, 2020 and is convertible into common stock of the
Company at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price
of the Company’s common stock in the preceding 15 trading days. There was $265,000 of principal and $13,824 accrued interest
due at September 30, 2019.
On
March 15, 2019, the Company entered into an exchange agreement with an unrelated party for $70,913, of which the loan payable
to Noteholder 2, dated July 2, 2018, outstanding and principal would be assumed by the new note holder. The new convertible note
payable carries an interest rate of 8% per annum is due on March 15, 2020 and is convertible into common stock of the Company
at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of the
Company’s common stock in the preceding 15 trading days. There was $70,913 of principal and $3,093 of accrued interest due
at September 30, 2019.
On
August 8, 2019, the Company entered into a convertible note agreement with an unrelated party for $33,092 of which $1,576 in third
party fees resulting in net cash proceeds to the Company of $31,516. The convertible note payable carries interest at a rate of
8% per annum, is due on August 8, 2020 and is convertible into common stock of the Company at the option of the noteholder six
months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the
preceding 15 trading days. There was $33,092 of principal and $384 of accrued interest due at September 30, 2019.
EVIO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
10 – CONVERTIBLE NOTES PAYABLE (CONTINUED)
Noteholder
9
On
December 27, 2018, the Company sold and issued a Convertible Promissory to an unrelated party for the principal amount of $105,000
pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the
annual rate of 8%, is due on December 27, 2019 and is convertible into common stock of the Company at the option of the noteholder
six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock
in the preceding 15 trading days. There was $105,000 of principal and $18,204 of accrued interest due at September 30, 2019.
On
February 5, 2019, the Company entered into a convertible note payable with an unrelated party for $131,250 of which included $6,250
in third party fees resulting in net cash proceeds to the Company of $125,000. The convertible note payable carries interest at
a rate of 8% per annum, is due on February 5, 2020 and is convertible into common stock of the Company at the option of the noteholder
six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock
in the preceding 15 trading days. There was $131,250 of principal and $6,616 of accrued interest due at September 30, 2019.
On
March 15, 2019, the Company entered into an exchange agreement with an unrelated party for $70,913, of which the loan payable
to Noteholder 2, dated July 2, 2018, outstanding and principal would be assumed by the new note holder. The new convertible note
payable carries an interest rate of 8% per annum is due on March 15, 2020 and is convertible into common stock of the Company
at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of the
Company’s common stock in the preceding 15 trading days. There was $70,913 of principal and $2,938 of accrued interest due
at September 30, 2019.
On
August 8, 2019, the Company entered into a convertible note agreement with an unrelated party for $33,092 of which $1,576 in third
party fees resulting in net cash proceeds to the Company of $31,516. The convertible note payable carries interest at a rate of
8% per annum, is due on August 8, 2020 and is convertible into common stock of the Company at the option of the noteholder six
months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock in the
preceding 15 trading days. There was $33,092 of principal and $384 of accrued interest due at September 30, 2019.
Noteholder
10
On
April 24, 2018, the Company entered into a convertible note payable totaling $500,000 in exchange for 100% of the assets of Leaf
Detective LLC. The note bears no interest, matures on April 24, 2019 and automatically converted to common stock at $1.25 per
share on the maturity date. In the event the average lowest trading price of the Company’s common stock during the five
days prior to maturity is less than $1.25 per share, the Company will pay the noteholder the difference between $1.25 and the
average lowest trading price during the preceding five days per share converted in cash. There was $500,000 principal and $0 interest
due on both September 30, 2019 and September 30, 2018. As disclosed in item #3, 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 fully liability on its balance sheet. There is no interest due associated
with the note.
EVIO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
10 – CONVERTIBLE NOTES PAYABLE (CONTINUED)
Noteholder
11
On
February 8, 2019, the Company entered into an exchange agreement with an unrelated party for $580,537, of which the loan payable
to Palliatech, dated September 1, 2017, outstanding and principal would be assumed by the new note holder. The new convertible
note payable carries an interest rate of 10% per annum, with one year interest guaranteed, is due on February 8, 2020 and is convertible
into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 30% discount from
the lowest trading price of the Company’s common stock in the preceding 15 trading days. A principal non-pay default was
applied in the amount of $203,188. There was $783,724 of principal and $89,627 of accrued interest due at September 30, 2019.
Noteholder
12
On
March 15, 2019, the Company entered into an exchange agreement with an unrelated party for $70,913, of which the loan payable
to Noteholder 2, dated July 2, 2018, outstanding and principal would be assumed by the new note holder. The new convertible note
payable carries an interest rate of 8% per annum is due on March 15, 2020 and is convertible into common stock of the Company
at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of the
Company’s common stock in the preceding 15 trading days. There was $70,913 of principal and $3,093 of accrued interest due
at September 30, 2019.
Noteholder
13
On
March 15, 2019, the Company entered into an exchange agreement with an unrelated party for $70,913, of which the loan payable
to Noteholder 2, dated July 2, 2018, outstanding and principal would be assumed by the new note holder. The new convertible note
payable carries an interest rate of 8% per annum is due on March 15, 2020 and is convertible into common stock of the Company
at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of the
Company’s common stock in the preceding 15 trading days. There was $70,913 of principal and $3,093 of accrued interest due
at September 30, 2019.
Noteholder
14
On
August 30, 2019, the Company entered into a convertible note payable with an unrelated party for $110,000 which included $10,000
original issue discount resulting in net cash proceeds to the Company of $100,000. The convertible note payable carries interest
at a rate of 8% per annum, is due on May 30, 2020 and is convertible into common stock of the Company at the option of the noteholder
six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock
in the preceding 15 trading days. There was $110,000 of principal and $747 of accrued interest due at September 30, 2019.
On
August 29, 2019, the Company entered into an exchange agreement with an unrelated party for $170,000, of which the loan payable
to Henry Grimmett, dated October 16, 2016, outstanding and principal would be assumed by the new note holder. The new convertible
note payable carries an interest rate of 8% per annum, is due on May 29, 2020 and is convertible into common stock of the Company
at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of the
Company’s common stock in the preceding 15 trading days. There was $100,000 of principal and $964 of accrued interest due
at September 30, 2019.
NOTE
11 – CONVERTIBLE DEBENTURES
On
January 29, 2018, the Company issued a total of 5,973 units of 8% unsecured convertible debentures. Each unit consists of one
convertible debenture with a principal face value of $1,000 and 250 warrants. The gross proceeds were $5,973,000. Each warrant
entitles the holder thereof to purchase one additional common share of the Company at an exercise price of $0.80 per warrant for
a period of 24 months. The convertible debentures have a maturity date of 36 months from issuance. Simple interest will be paid
at a rate of 8% per annum in arrears until maturity or until conversion. The principal amount of the debentures and any accrued
interest thereon are convertible at the option of the holder into common shares of the Company at any time at a conversion price
of $0.60 per share.
In
addition to the warrants associated with the convertible debentures, the Company issued an additional 597,300 warrants to purchase
common stock of the Company as offering costs representing an equivalent of 6% of the fully converted debentures. The warrants
are exercisable at $0.60 per share for a period of two years.
The
Company also issued three separate debentures under the same terms for additional cash proceeds of $610,000. The additional debentures
carry an additional 152,500 warrants to purchase additional common shares of the Company at $0.80 per share. Additionally, the
outstanding principal and interest may be converted to common stock of the Company at $0.60 per share.
EVIO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
12 – DERIVATIVE LIABILITY
As
of September 30, 2019 and 2018, Company had a derivative liability balance of $2,545,735 and $1,181,278 on the balance sheets
and recorded a loss of $366,974 and a gain of $2,555,350 from derivative liability fair value adjustments during the year ended
September 30, 2019 and 2018, respectively.
On
November 15, 2018, the Company issued a $222,600 convertible promissory note to an unrelated party that matures on November 15,
2019. Refer to Noteholder 8 under “Note 10 – Convertible Debentures” for more information. The Company
analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15, Derivatives and
Hedging and determined that the embedded conversion features should be classified as a derivative because the exercise price
of these convertible notes are subject to a variable conversion rate. In accordance with AC 815, the Company has bifurcated the
conversion feature of the note and recorded a derivative liability.
The
embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market
each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated
fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using
the Black-Scholes option pricing model. The aggregate fair value of the derivative at the issuance date of the note was $220,463
which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $184,957 which was
up to the face value of the convertible note with the excess fair value at initial measurement of $35,506 being recognized as
a loss on derivative fair value measurement.
On
December 27, 2018, the Company issued a $105,000 convertible promissory note to an unrelated party that matures on December 27,
2019. Refer to Noteholder 9 under “Note 10 – Convertible Debentures” for more information. The Company
analyzed the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion
features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable
conversion rate.
The
aggregate fair value of the derivative at the issuance date of the note was $98,091 which was recorded as a derivative liability
on the balance sheet. The Company recorded a debt discount of $38,365 which was up to the face value of the convertible note with
the excess fair value at initial measurement of $59,725 being recognized as a loss on derivative fair value measurement.
On
January 14, 2019, the Company issued a $131,250 convertible promissory note to an unrelated party that matures on February 5,
2020. Refer to Noteholder 8 under “Note 10 – Convertible Debentures” for more information. The Company
analyzed the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion
features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable
conversion rate.
The
aggregate fair value of the derivative at the issuance date of the note was $144,752 which was recorded as a derivative liability
on the balance sheet. The Company recorded a debt discount of $14,423 which was up to the face value of the convertible note with
the excess fair value at initial measurement of $130,329 being recognized as a loss on derivative fair value measurement
On
February 4, 2019, the Company issued a $265,000 convertible promissory note to an unrelated party that matures on February 4,
2020. Refer to Noteholder 8 under “Note 10 – Convertible Debentures” for more information. The Company
analyzed the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion
features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable
conversion rate.
The
aggregate fair value of the derivative at the issuance date of the note was $322,521 which was recorded as a derivative liability
on the balance sheet. The Company recognized a loss of $322,521 on derivative fair value measurement.
On
February 5, 2019, the Company issued a $131,250 convertible promissory note to an unrelated party that matures on February 11,
2020. Refer to Noteholder 9 under “Note 10 – Convertible Debentures” for more information. The Company
analyzed the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion
features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable
conversion rate.
The
aggregate fair value of the derivative at the issuance date of the note was $228,916 which was recorded as a derivative liability
on the balance sheet. The Company recognized a loss of $228,916 on derivative fair value measurement.
On
July 1, 2019, the Company issued a $825,930 convertible promissory note to an unrelated party that matures on September 30, 2019.
Refer to Noteholder 3 under “Note 10 – Convertible Debentures” for more information. The Company analyzed
the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion features
should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion
rate.
EVIO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
12 – DERIVATIVE LIABILITY (CONTINUED)
The
aggregate fair value of the derivative at the issuance date of the note was $1,807,875 which was recorded as a derivative liability
on the balance sheet. The Company recognized a loss of $1,807,875 on derivative fair value measurement.
On
August 29, 2019, the Company issued a $170,000 convertible promissory note to an unrelated party that matures on May 29, 2020.
Refer to Noteholder 14 under “Note 10 – Convertible Debentures” for more information. The Company analyzed
the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion features
should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion
rate.
The
aggregate fair value of the derivative at the issuance date of the note was $143,951 which was recorded as a derivative liability
on the balance sheet. The Company recognized a loss of $65,965 on derivative fair value measurement.
On
August 30, 2019, the Company issued a $110,000 convertible promissory note to an unrelated party that matures on May 30, 2020.
Refer to Noteholder 14 under “Note 10 – Convertible Debentures” for more information. The Company analyzed
the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion features
should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion
rate.
The
aggregate fair value of the derivative at the issuance date of the note was $109,936 which was recorded as a derivative liability
on the balance sheet. The Company recognized a loss of $79,183 on derivative fair value measurement.
At
September 30, 2019, the Company marked-to-market the fair value of the derivative liabilities related to conversion features and
determined an aggregate fair value of $2,363,919 and recorded a $1,502,833 gain from change in fair value for the year ended September
30, 2019. The fair value of the embedded derivatives was determined using a Black-Scholes option pricing model based on the following
assumptions: (1) expected volatility of 128%, (2) risk-free interest rate of 1.75%, (3) exercise prices of $0.21 - $0.26, and
(4) expected lives of 0.13 – 0.67 of a year.
On
October 2, 2018, the Company issued a total of $220,000 convertible debenture to an unrelated party that matures on January 1,
2019. The Company issued a total of 100,000 warrants to purchase additional shares of common stock of the Company in connection
with the convertible debenture. The Company analyzed the issued warrants for derivative accounting consideration under ASC 815-15
“Derivatives and Hedging” and determined that the warrants should be classified as a derivative because the Company
is unable to ascertain there will be adequate unissued authorized shares of common stock to fulfill its obligations should the
warrants be exercised. In accordance with AC 815, the Company has recorded a derivative liability related to the warrants.
The
derivative for the warrants is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market
each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated
fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the derivative using the Black-Scholes
option pricing model. The aggregate fair value of the derivative at the issuance date of the warrants was $57,014 which was recorded
as a derivative liability on the balance sheet. The Company recorded a debt discount of $53,333 which was up to the face value
of the convertible debentures with the excess fair value at initial measurement of $3,681 being recognized as a loss on derivative
fair value measurement.
As
discussed in “Note 10 – Convertible Debentures”, the Company issued a total of $374,000 of convertible
debentures to unrelated parties that mature on dates ranging from October 17, 2020 to October 23, 2020. The Company issued a total
of 187,000 warrants to purchase additional shares of common stock of the Company in connection with the convertible debentures.
The Company analyzed the issued warrants for derivative accounting consideration and determined that the warrants should be classified
as a derivative. The aggregate fair value of the derivative at the issuance date of the warrants was $73,383 which was recorded
as a derivative liability on the balance sheet, for which the Company recorded an equivalent debt discount to the convertible
debentures.
At
September 30, 2019, the Company marked-to-market the fair value of the derivative liabilities related to warrants and determined
an aggregate fair value of $181,816 and recorded a $1,100,643 gain from change in fair value for the nine months ended September
30, 2019. The fair value of the derivatives was determined using a Black-Scholes option pricing model based on the following assumptions:
(1) expected volatility of 128%, (2) risk-free interest rate of 1.75%, (3) exercise prices of $0.60 to $0.80, and (4) expected
lives of 0.33 – 1.07 years.
EVIO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
12 – DERIVATIVE LIABILITY (CONTINUED)
The
following table summarizes the derivative liabilities included in the balance sheet at September 30, 2019:
|
Fair Value of
Embedded Derivative Liabilities:
|
|
|
|
|
Balance, September 30,
2018
|
|
$
|
1,181,278
|
|
|
Initial measurement of derivative
liabilities
|
|
|
3,967,933
|
|
|
Change in fair market value
|
|
|
(2,603,476
|
)
|
|
Write off
due to conversion
|
|
|
(–
|
)
|
|
Balance,
September 30, 2019
|
|
$
|
2,545,735
|
|
The
following table summarizes the gain (loss) on derivative liability included in the income statement for the years ended September
30, 2019 and 2018, respectively.
|
|
|
Year
Ended September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Day one loss due to derivatives
on convertible debt
|
|
$
|
(2,970,450
|
)
|
|
$
|
(765,114
|
)
|
|
Change in
fair value of derivatives
|
|
|
2,603,476
|
|
|
|
3,320,464
|
|
|
Total derivative
gain (loss)
|
|
$
|
(366,974
|
)
|
|
$
|
2,555,350
|
|
Associated
with the issuance of the convertible debentures during the fiscal year ended September 30, 2018; the Company incurred cash-based
issuance costs of $702,963, issued common shares valued at $1,414,907 and warrants to purchase additional shares of common stock
valued at $1,265,385 for total debt issuance costs of $3,383,255. The debt issuance costs were recorded as a discount to the carrying
value of the convertible debentures. The warrants associated with the debt issue costs were valued using a Black-Scholes model
with the following assumptions:
|
Expected term of options granted
|
|
|
2.00
years
|
|
|
Expected volatility
|
|
|
223
|
%
|
|
Risk-free interest rate
|
|
|
2.49
|
%
|
|
Expected dividend yield
|
|
|
0
|
%
|
The
Company separately assessed the value of the detachable warrants and conversion features of the convertible debentures. The Company
separately initially valued the detachable warrants issued with the convertible debentures at $3,351,160 using a Black-Scholes
model with the following assumptions:
|
Expected term of options granted
|
|
|
2.00
years
|
|
|
Expected volatility
|
|
|
211-223
|
%
|
|
Risk-free interest rate
|
|
|
2.09-2.25
|
%
|
|
Expected dividend yield
|
|
|
0
|
%
|
Additionally,
the outstanding principal on convertible debentures totaling $6,583,000 may be converted into common stock of the Company at $0.60
per share for a total of 10,971,667 shares. Due to the variable conversion features of the outstanding convertible notes payable
as discussed in Note 10 – Convertible Notes Payable, the Company cannot ascertain there will be adequate unissued authorized
common shares to fulfill all share based obligations. As a result, the warrants issued in connection with the convertible debentures
are not afforded equity treatment and were recorded as a derivative liability upon initial measurement. The total initial measurement
of warrants issued with the convertible debentures was $4,616,545 of which $4,465,131 was recorded as a debt discount and, when
combined with debt issuance costs, represents a total debt discount of $6,583,000.
As
of September 30, 2018 the Company has amortized $1,226,994 of the total outstanding debt discount leaving an unamortized debt
discount of $2,156,261. The remaining debt discount will be amortized to interest expense over the expected life of the note.
There was $5,197,000 of principal and accrued interest totaling $234,626 outstanding as of September 30, 2018.
EVIO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
13 – INCOME TAXES
We
did not provide any current or deferred U.S. federal income tax provision or benefit for any of the periods presented because
we have experienced operating losses since inception. When it is more likely than not that a tax asset cannot be realized through
future income the Company must allow for this future tax benefit. We provided a full valuation allowance on the net deferred tax
asset, consisting of net operating loss carry forwards, because management has determined that it is more likely than not that
we will not earn income sufficient to realize the deferred tax assets during the carry forward period.
The
Company has not taken a tax position that, if challenged, would have a material effect on the financial statements for the years
ended September 30, 2019 and 2018 applicable under FASB ASC 740. We did not recognize any adjustment to the liability for uncertain
tax position and therefore did not record any adjustment to the beginning balance of accumulated deficit on the balance sheet.
The
provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before
provision for income taxes. The sources and tax effects of the differences for the periods presented are as follows:
|
|
|
September
30, 2019
|
|
|
September
30, 2018
|
|
|
Income tax provision
at the federal statutory rate
|
|
|
21.0
|
%
|
|
|
35.0
|
%
|
|
Effect on operating losses
|
|
|
-21.0
|
%
|
|
|
-35.0
|
%
|
|
|
|
September
30, 2019
|
|
|
September
30, 2018
|
|
|
Net deferred tax assets co nsisted of
the following:
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
3,895,231
|
|
|
$
|
4,071,932
|
|
|
Valuation
allowance
|
|
|
(3,895,231
|
)
|
|
|
(4,071,932
|
)
|
|
Net deferred
tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
A
reconciliation of income taxes computed at the statutory rate is as follows.
|
|
|
September
30, 2019
|
|
|
September
30, 2018
|
|
|
|
|
|
|
|
|
|
|
Computed federal income
tax expense at statutory rate is as follows.
|
|
$
|
(3,895,231
|
)
|
|
$
|
(4,071,932
|
)
|
|
Depreciation and amortization
|
|
|
307,802
|
|
|
|
253,703
|
|
|
Deferred revenue
|
|
|
22,768
|
|
|
|
127,124
|
|
|
Common stock issued for services
|
|
|
69,520
|
|
|
|
136,671
|
|
|
Common stock issued under employee
incentive plan
|
|
|
36,025
|
|
|
|
251,791
|
|
|
Stock option expense
|
|
|
149,155
|
|
|
|
595,304
|
|
|
Amortization of debt discounts
|
|
|
779,793
|
|
|
|
1,519,967
|
|
|
Default penalties on convertible
notes payable
|
|
|
98,378
|
|
|
|
-
|
|
|
Change in derivative liability
|
|
|
387,415
|
|
|
|
254,788
|
|
|
Change in
valuation allowance
|
|
|
2,044,376
|
|
|
|
932,585
|
|
|
Income tax
expense
|
|
$
|
-
|
|
|
$
|
-
|
|
EVIO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
13 – INCOME TAXES (CONTINUED)
This
summary reflects the Company’s current segments, as described below.
Corporate
The
parent Company provides overall management and corporate reporting functions for the entire organization.
Consulting
The
Company provides advisory, licensing and compliance services to the cannabis industry. Consulting clients are located in states
that have state managed medical and/or recreational programs. EVIO assists these companies with license applications, business
planning, state compliance and ongoing operational support.
Testing
Services
The
Company provides analytical testing services to the cannabis industry under the EVIO Labs brand. As of September 30, 2019, EVIO
Labs has operating labs located in Oregon, California and Massachusetts. Clients consist of growers, processors, dispensaries
and individuals. Operating under the rules of the appropriate state regulating body, EVIO Labs certifies products have been tested
and are free from pesticides and other containments before resale to patients and consumers.
|
Year
ended September 30, 2019
|
|
Corporate
|
|
|
Consulting
Services
|
|
|
Testing
Services
|
|
|
Total
Consolidated
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
3,000
|
|
|
$
|
3,786,815
|
|
|
$
|
3,789,815
|
|
|
Segment income (loss) from operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,325,704
|
)
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
)
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended September 30, 2018
|
|
Corporate
|
|
|
Consulting
Services
|
|
|
Testing
Services
|
|
|
Total
Consolidated
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
176,832
|
|
|
$
|
3,188,693
|
|
|
$
|
3,365,525
|
|
|
Segment income (loss) from operations
|
|
|
(3,802,702
|
)
|
|
|
(1,835,901
|
)
|
|
|
(2,537,821
|
)
|
|
|
(8,176,424
|
)
|
|
Total assets
|
|
|
(16,650
|
)
|
|
|
1,534,823
|
|
|
|
12,836,787
|
|
|
|
14,354,960
|
|
|
Capital expenditures
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,246,770
|
)
|
|
|
(4,246,770
|
)
|
|
Depreciation and amortization
|
|
|
-
|
|
|
|
-
|
|
|
|
724,865
|
|
|
|
724,865
|
|
EVIO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
14 – COMMITTMENTS AND CONTINGENCIES
From
time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business.
However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time
to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have,
individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.
The
Company has entered into various office and laboratory leases as well as a long-term operating lease. Future minimum rental payments
under the terms of the lease are:
|
Year
ending September 30,
|
|
|
|
|
2019
|
|
|
782,138
|
|
|
2020
|
|
|
970,425
|
|
|
2021
|
|
|
697,436
|
|
|
2022
|
|
|
549,390
|
|
|
2023
|
|
|
347,475
|
|
|
Thereafter
|
|
|
27,911
|
|
|
Total
|
|
$
|
2,594,726
|
|
NOTE
15 – REVENUE CONCENTRATION
The
Company generated revenues of $3,789,815 and $3,365,525 for the years ended September 30, 2019 and 2018, respectively. The Company
did not have any customer that represented greater than 10% of revenues during the years ended September 30, 2019 or 2018.
NOTE
16 – STOCK OPTIONS AND WARRANTS
The
following tables summarizes all stock option and warrant activity for the year ended September 30, 2019 and 2018:
|
|
|
Shares
|
|
|
Weighted-
Average
Exercise
Price
Per
Share
|
|
|
Outstanding, September
30, 2017
|
|
|
655,000
|
|
|
$
|
0.902
|
|
|
Granted
|
|
|
4,073,000
|
|
|
|
0.767
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited
|
|
|
(90,000
|
)
|
|
|
0.878
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding,
September 30, 2018
|
|
|
4,638,050
|
|
|
$
|
0.784
|
|
|
|
|
Shares
|
|
|
Weighted-
Average
Exercise
Price
Per
Share
|
|
|
Outstanding, September
30, 2018
|
|
|
4,638,050
|
|
|
|
0.902
|
|
|
Granted
|
|
|
846,920
|
|
|
|
0.519
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding,
September 30, 2019
|
|
|
5,484,970
|
|
|
|
0.742
|
|
EVIO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
16 STOCK OPTIONS AND WARRANTS (CONTINUED)
The
following table discloses information regarding outstanding and exercisable options and warrants at September 30, 2019:
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Exercise
Prices
|
|
|
Number
of Option Shares
|
|
|
Weighted
Average Exercise Price
|
|
|
Weighted
Average Remaining Life (Years)
|
|
|
Number
of Option Shares
|
|
|
Weighted
Average Exercise Price
|
|
|
$
|
0.225
|
|
|
|
200,000
|
|
|
$
|
0.225
|
|
|
|
4.71
|
|
|
|
200,000
|
|
|
$
|
0.225
|
|
|
$
|
0.400
|
|
|
|
110,000
|
|
|
$
|
0.400
|
|
|
|
1.88
|
|
|
|
110,000
|
|
|
$
|
0.400
|
|
|
$
|
0.420
|
|
|
|
330,000
|
|
|
$
|
0.420
|
|
|
|
4.30
|
|
|
|
330,000
|
|
|
$
|
0.420
|
|
|
$
|
0.500
|
|
|
|
165,000
|
|
|
$
|
0.500
|
|
|
|
1.95
|
|
|
|
162,500
|
|
|
$
|
0.500
|
|
|
$
|
0.600
|
|
|
|
627,220
|
|
|
$
|
0.600
|
|
|
|
0.37
|
|
|
|
627,220
|
|
|
$
|
0.600
|
|
|
$
|
0.650
|
|
|
|
145,000
|
|
|
$
|
0.650
|
|
|
|
3.07
|
|
|
|
36,250
|
|
|
$
|
0.650
|
|
|
$
|
0.800
|
|
|
|
3,482,750
|
|
|
$
|
0.800
|
|
|
|
1.68
|
|
|
|
3,095,250
|
|
|
$
|
0.800
|
|
|
$
|
0.850
|
|
|
|
100,000
|
|
|
$
|
0.850
|
|
|
|
3.55
|
|
|
|
-
|
|
|
$
|
0.850
|
|
|
$
|
1.050
|
|
|
|
25,000
|
|
|
$
|
1.050
|
|
|
|
4.04
|
|
|
|
-
|
|
|
$
|
1.050
|
|
|
$
|
1.260
|
|
|
|
220,000
|
|
|
$
|
1.260
|
|
|
|
2.75
|
|
|
|
110,000
|
|
|
$
|
1.260
|
|
|
$
|
1.300
|
|
|
|
10,000
|
|
|
$
|
1.300
|
|
|
|
2.05
|
|
|
|
7,500
|
|
|
$
|
1.300
|
|
|
$
|
1.386
|
|
|
|
60,000
|
|
|
$
|
1.386
|
|
|
|
2.75
|
|
|
|
30,000
|
|
|
$
|
1.386
|
|
|
$
|
1.666
|
|
|
|
10,000
|
|
|
$
|
1.666
|
|
|
|
2.84
|
|
|
|
5,000
|
|
|
$
|
1.666
|
|
|
|
Total
|
|
|
|
5,484,970
|
|
|
$
|
0.742
|
|
|
|
1.95
|
|
|
|
4,713,720
|
|
|
$
|
0.718
|
|
In
determining the compensation cost of the stock options granted, the fair value of each option grant has been estimated on the
date of grant using the Black-Scholes option pricing model. The assumptions used in these calculations are summarized as follows:
|
|
|
September
30, 2019
|
|
|
Expected term of options granted
|
|
|
1.0-5.0
years
|
|
|
Expected volatility
|
|
|
103-
122
|
%
|
|
Risk-free interest rate
|
|
|
2.00
– 2.67
|
%
|
|
Expected dividend yield
|
|
|
0
|
%
|
The
following table discloses information regarding outstanding and exercisable options and warrants at September 30, 2018:
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Exercise
Prices
|
|
|
Number
of Option Shares
|
|
|
Weighted
Average Exercise Price
|
|
|
Weighted
Average Remaining Life (Years)
|
|
|
Number
of Option Shares
|
|
|
Weighted
Average Exercise Price
|
|
|
$
|
0.400
|
|
|
|
110,000
|
|
|
$
|
0.400
|
|
|
|
2.88
|
|
|
|
110,000
|
|
|
$
|
0.400
|
|
|
$
|
0.500
|
|
|
|
165,000
|
|
|
$
|
0.500
|
|
|
|
2.95
|
|
|
|
162,500
|
|
|
$
|
0.500
|
|
|
$
|
0.600
|
|
|
|
597,300
|
|
|
$
|
0.600
|
|
|
|
1.33
|
|
|
|
597,300
|
|
|
$
|
0.600
|
|
|
$
|
0.650
|
|
|
|
145,000
|
|
|
$
|
0.650
|
|
|
|
4.07
|
|
|
|
36,250
|
|
|
$
|
0.650
|
|
|
$
|
0.800
|
|
|
|
3,195,750
|
|
|
$
|
0.800
|
|
|
|
2.74
|
|
|
|
2,808,250
|
|
|
$
|
0.800
|
|
|
$
|
0.850
|
|
|
|
100,000
|
|
|
$
|
0.850
|
|
|
|
4.55
|
|
|
|
-
|
|
|
$
|
0.850
|
|
|
$
|
1.050
|
|
|
|
25,000
|
|
|
$
|
1.050
|
|
|
|
5.04
|
|
|
|
-
|
|
|
$
|
1.050
|
|
|
$
|
1.260
|
|
|
|
220,000
|
|
|
$
|
1.260
|
|
|
|
3.75
|
|
|
|
110,000
|
|
|
$
|
1.260
|
|
|
$
|
1.300
|
|
|
|
10,000
|
|
|
$
|
1.300
|
|
|
|
3.05
|
|
|
|
7,500
|
|
|
$
|
1.300
|
|
|
$
|
1.386
|
|
|
|
60,000
|
|
|
$
|
1.386
|
|
|
|
3.75
|
|
|
|
30,000
|
|
|
$
|
1.386
|
|
|
$
|
1.666
|
|
|
|
10,000
|
|
|
$
|
1.666
|
|
|
|
3.84
|
|
|
|
5,000
|
|
|
$
|
1.666
|
|
|
|
Total
|
|
|
|
4,638,050
|
|
|
$
|
0.784
|
|
|
|
3.322
|
|
|
|
3,866,800
|
|
|
$
|
0.763
|
|
In
determining the compensation cost of the stock options granted, the fair value of each option grant has been estimated on the
date of grant using the Black-Scholes option pricing model. The assumptions used in these calculations are summarized as follows:
|
|
|
September
30, 2018
|
|
|
Expected
term of options granted
|
|
5
years
|
|
|
Expected
volatility
|
|
|
14.63
|
%
|
|
Risk-free
interest rate
|
|
|
2.94
|
%
|
|
Expected
dividend yield
|
|
|
0
|
%
|
EVIO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
17 – SUBSEQUENT EVENTS
Common
Stock Issuances
The
Company made the following issuances of common stock subsequent to September 30, 2019:
|
●
|
35,170,123
common shares for the conversion of $1,518,022 of principal on convertible debentures.
|
|
●
|
4,452,443
common shares for the conversion of $203,820 of interest on convertible debentures
|
|
●
|
681,183
common shares issued for the conversion of debt conversion fees of $23,000
|
|
●
|
7,353,538
common shares issued for deferral of executive compensation
|
|
●
|
385,000
common shares issued for vesting of restricted stock grants for officers and directors
|
|
●
|
3,930,000
common shares issued for services
|
|
●
|
144,928
common shares issued for settlement of lawsuit
|
|
●
|
26,666
common shares issued for settlement of accounts payable.
|
Convertible
Notes Payable
On
November 4, 2019, the Company entered into a convertible note payable with an unrelated party for $33,516 which included $2,000
third party fees resulting in net cash proceeds to the Company of $31,516. The convertible note payable carries interest at a
rate of 8% per annum, is due on November 4, 2020 and is convertible into common stock of the Company at the option of the noteholder
six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock
in the preceding 15 trading days.
On
December 23, 2019, the Company entered into a convertible note payable with an unrelated party for $137,375 which included $16,3785
third party fees resulting in net cash proceeds to the Company of $121,000. The convertible note payable carries interest at a
rate of 8% per annum, is due on December 23, 2020 and is convertible into common stock of the Company at the option of the noteholder
six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock
in the preceding 15 trading days.
On
January 13, 2020, the Company entered into a convertible note payable with an unrelated party for $52,500 which included $2,500
third party fees resulting in net cash proceeds to the Company of $50,000. The convertible note payable carries interest at a
rate of 8% per annum, is due on January 13, 2021 and is convertible into common stock of the Company at the option of the noteholder
six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock
in the preceding 15 trading days.
On
November 4, 2019, the Company entered into a convertible note payable with an unrelated party for $33,516 which included $2,000
third party fees resulting in net cash proceeds to the Company of $31,516. The convertible note payable carries interest at a
rate of 8% per annum, is due on November 4, 2020 and is convertible into common stock of the Company at the option of the noteholder
six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock
in the preceding 15 trading days.
On
December 23, 2019, the Company entered into a convertible note payable with an unrelated party for $137,375 which included $16,3785
third party fees resulting in net cash proceeds to the Company of $121,000. The convertible note payable carries interest at a
rate of 8% per annum, is due on December 23, 2020 and is convertible into common stock of the Company at the option of the noteholder
six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock
in the preceding 15 trading days.
On
January 13, 2020, the Company entered into a convertible note payable with an unrelated party for $52,500 which included $2,500
third party fees resulting in net cash proceeds to the Company of $50,000. The convertible note payable carries interest at a
rate of 8% per annum, is due on January 13, 2021 and is convertible into common stock of the Company at the option of the noteholder
six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock
in the preceding 15 trading days.
EVIO,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
17 SUBSEQUENT EVENTS (CONTINUED)
Convertible
Notes Payable – Exchanged Note
On
December 23, 2019, the Company entered into a debt purchase agreement with an unrelated party for $274,345, of which the loan
payable to Palliatech, Dated September 1, 2017, outstanding and principal would be assumed by the new note holder. The new convertible
note payable carries an interest rate of 10% per annum, with one year interest guaranteed, is due on February 8, 2020 and is convertible
into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 30% discount from
the lowest trading price of the Company’s common stock in the preceding 15 trading days.
On
December 23, 2019, the Company entered into a debt purchase agreement with an unrelated party for $274,345, of which the loan
payable to Palliatech, Dated September 1, 2017, outstanding and principal would be assumed by the new note holder. The new convertible
note payable carries an interest rate of 10% per annum, with one year interest guaranteed, is due on February 8, 2020 and is convertible
into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 30% discount from
the lowest trading price of the Company’s common stock in the preceding 15 trading days.
Legal
Proceedings
As
disclosed in Item 3:
On
May 9, 2019, Stephanie Head, a former part-time lab administrator for EVIO Labs Eugene, LLC, filed a wrongful termination lawsuit
with the US District Court - District of Oregon, Eugene Division, Case No. 6:19-CV-00681, against EVIO Labs Eugene, LLC, EVIO,
Inc. and Lori Glauser. In December, 2018, EVIO Labs Eugene, LLC terminated Stephanie Head because she was not available to work
full-time. In February 2019, Ms. Head filed complaint to Oregon Bureau of Labor & Industries (“BOLI”) with allegations
that she was discriminated against and unlawfully terminated. In October, 2019 BOLI found substantial evidence of unlawful employment
on the basis of protected whistle-blowing, but found no substantial evidence of Ms. Head’s seven other allegations of unlawful
employment practice. In April, 2019, BOLI notified EVIO Labs Eugene, LLC that BOLI elected not to pursue the charges further and
closed the file. On January 28, 2020, the case was settled for $35,000, $25,000 payable in cash and $10,000 in EVIO Common Stock.
On
February 6, 2020, MC CRE Investments, LLC landlord for the Palm Desert location, filed a Breach of Lease Agreement with the Superior
Court of the State of California, County of Riverside. EVIO Labs Palm Desert has vacated the space and turned it back over to
the landlord. The Company has expensed past due rents and late fees and these items are included in the liabilities in the balance
sheet.
On
or about March 5, 2020, Paul Tomaso and Jonah Barber beneficiaries for MRX Labs, LLC, filed a Breach of Promissory Note in the
original principal amount of $750,000, plus late fees and penalties, with the Circuit Court of the State in Oregon, in Multnomah
County against Greenhaus Analytical Labs, LLC. The Company has expensed penalties and late fees and these items are included in
the liabilities in the balance sheet.
On
or about April 30, 2020, Michele Malaret and Gordon Griswold filed, filed a Breach of Contract in the original principal amount
of $500,000, with the Superior Court of California, County of Humboldt. The Company currently recognizes the fully liability on
its balance sheet. There is no interest due associated with the note.
